Industry Argument Diversification

Protection is advocated by list and other economists to diversify the industries of a country when there is unbalanced economy as a result of excessive specialization. Excessive specialization leads to overdependence of a country on other countries. This is dangerous, politically as well as economically. Politically, in times of war imports from foreign countries become difficult and people have to suffer hardships. Economically, there is a danger of serious economic dislocation in case adverse circumstances affect these few industries on which the country is dependent. Thus, in order to bring about a harmonious and balanced growth of all industries and self sufficiency, it is necessary to bring about a diversification of industries through protection.

Criticisms

This argument seems to have merits of its won in these days of tension when it advocates retinols self sufficiency. However, it has been criticized on the following counts:

1. All countries even highly industrialized countries like U.S.A. and the former U.S.S.R., do not posses all types of natural resources and in adequate quantities to be self sufficient. Thus, there is practical difficulty for any country to be completely self-sufficient.

2. It cuts at the very root of the principle of comparative cost advantage and relative specialization as a basis of international trade.

3. Complete isolation is not possible in the modern world.

4. Hence the diversification argument in favour of protection is weak. Further, it should be noted that protection in any case should not mean complete abandonment of international economic relations.

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