Infant Industry Argument

Many economists including Alexandra Hamilton (U.S.A.), F. List (Germany) and J.S. Mill (England) held that infant industries during the early stage 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 industrialization. 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 industrialized 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 emphasized 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. 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.

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