Infant industry argument

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The infant industry argument is an economic reason for protectionism.

[edit] Reasons for protectionism

Fledgling industries typically require protection from the government in the form of tariffs, quotas, or subsidies in order to survive the lower prices and higher quality of the good or service produced by the industry on the international market. Proponents of the infant industry argument theorize that protectionism will allow the infant industry to grow and develop to the point at which it can compete on the international market without protectionist measures. Nurturing infant industries and import substitution policies often occur in developing nations which are aspiring to greater economic diversity.

Though this view is often criticized, it is true that such policies were pursued by many now-developed countries during their formative stages. The history is mixed. Though some countries that pursued infant industry promotion such as the United States, Korea, and Taiwan were very successful, others were less so, especially in Africa and Latin America. The degree to which the economic "miracle" in Asia is due to protectionism generally and infant industries in particular is a matter of heated debate in academic circles.

Among theoretical academic economists, the infant industry argument is often derided, whereas applied economists and economic historians are generally more sympathetic to this viewpoint. {fact}

[edit] Reasons against protectionism

Infant industries are by definition those that are not strong enough to survive open competition — they are dependent on government largesse and protectionism in order to survive. At a given point in time, protectionist policy, along with inefficient industries leads to higher prices and lower quality goods for the consumer than if the good or service produced by the industry was produced on the international market.

For these reasons the infant industry argument is often criticized. Firstly it is hard for governments to know which industries will ultimately turn out to have growth potential. A lack of domestic capacity or unforeseen emergence of (even more superior) foreign rivals may, in fact, prohibit industries from becoming competitive in the long run. It is often the case that rather than developing or innovating, the protected industry becomes complacent, due to a lack of competition from the international market.