What are the Advantages of Protection?

The main arguments in favour of protection are:

1. ‘Infant Industry’ Argument :

Many economists including Alexander Hamilton (U.S.A.), F. List (Germany) and J.S. Mill (England) held that infant industries during the early stages of their development require protection from keen competition from long-established foreign industries. Such an industry, in the initial stages of its growth, needs full protection from the state without which it cannot survive. For an infant industry operating costs during the transition period are high.

As such, it cannot compete with established foreign exporters. This is particularly true of a country that is attempting to initiate industrialisation. By imposing a tariff on import, the domestic price is, therefore, raised sufficiently to allow the high costs of domestic producers to maintain themselves.

In fact, almost every industrialised country has had to protect its industries against foreign competition for a temporary period so as to enable it to consolidate its position. And now it is considered entirely legitimate for economically backward countries to protect their industries in the early stages to enable them to grow to their full stature without any mishap.

However, the exponents of the infant industry argument emphasised that protection should be temporary and should be removed immediately after it has performed its function of ‘nursing.’ In this regard, ‘nurse the baby, protect the child, and leave the adult’ is a well-known saying.

It is also held that protection should not be given indiscriminately but only to those infant industries, which have potentialities to develop fast and become self-financing and efficient in the long run.

An infant industry which does not have such natural and other facilities and advantages to grow deserves no protection, as it will be an unnecessary curb on general welfare to impose a burden on the economic waste. For if an uneconomic unit came into existence due to protection, when it is removed it will not be able to face foreign competition and thus it would be a waste. If protection is given further, it would mean permanent protection which would again be a waste. In India, the sugar industry is a case of such protection.

List, therefore, advocated a policy of discriminating protection. For protection does not provide any incentive to the industry to economise. Because it puts a premium on inefficiency it should not be granted to every industry but should be given only to those industries which are capable potentially of becoming viable units.

Further, the infant industry argument is not against free trade. It advocates protection temporarily only in the initial stages, so that, all countries should develop themselves fully and the volume of trade is maximised. Once the industry becomes mature enough, protection should be withdrawn.

Criticisms :

Though, its theoretical validity cannot be disputed, the infant industry argument is opposed by economists on an a priori basis or empirical evidence.

(i) It is difficult to decide correctly if an infant industry deserves protection.

(ii) Once protection is given, even if it is found unsound, vested interests are created and it becomes almost impossible to withdraw it.

(iii) All sorts of industries begin to claim protection once this basis of infant industry is admitted. The result may be political corruption.

(iv) An infant is always an infant. Thus, it is rare that protection will be given up once it is offered. Protected industries tend to become negligent and depend more and more upon state assistance. “Even when the infant becomes a powerful giant, he is unwilling to relinquish his teething ring.”

(v) Ellsworth holds that if a nation really possesses natural advantages, then it would automatically develop industries whether, there is protection or no protection. Hence, protection is not really necessary.

(vi) Prof. Robbins holds that investment in the protected industries is only justified if ‘the industry yields a compound rate of interest at the prevailing rate.’

Haberler, however, feels that this test of protection for an infant industry is not justified since it measures the burden and the gain of two generations which cannot be based on the market rate of interest.

Despite these criticisms, however, we may conclude that under certain assumptions the infant industry argument does hold water. It cannot be denied that protection can speed up industrialisation through encouragement to newly started industries.

In fact, the infant industry argument has wide scope of applicability in underdeveloped countries. As such, the infant industry argument gradually becomes the infant country argument, when the Government of an underdeveloped country is inclined to extend the list of infant industries in order to augment the quantity and quality of scarce resources, of creating the infrastructure, and of increasing the basic economic and social overhead requirements.

However, the industries, which are to be protected, and the quantum and duration of protection are difficult to work out in practice. For detailed working out, one has to know and forecast not only the domestic demand and supply conditions but also those of the rest of the world.

Once a protected industry comes into existence, even if it does not grow out of its infancy, it cannot be relinquished especially in a poor country, already facing a grave unemployment problem. And to minimise the chances of failure of the protected industries, the Government has to act as a watchdog for ensuring their full efficiency and productivity.