There’s a lot of confusion over this topic, so let’s break down some of the factors.
The principle is that you need someone to buy whatever it is you want to produce. That means it has to be priced reasonably, and that you either have to have foreign or domestic consumers.
It’s often noted that before the British conquest of India, India had more textile factories than Britain. Britain destroyed them. Why? Because they wanted them to buy textiles made in Britain. Before that, the most important government action to create industry in Britain is that they forbid the export of wool to the Low Countries. Why? Because Flemish weavers were way better than British ones. But it doesn’t matter how good your weavers are if they don’t have wool. So the Brits kept the wool at home and pretty soon they had a textile industry. When cotton and mechanized looms came along they wound up selling the world. After all, there wasn’t any competition from India!
Imperialism, trade policy and technological advances for the Industrial Revolution win.
So if you’re a country which wants domestic production you need customers. Demand. It can be domestic or international. Now in traditional industrialization you need foreign customers usually, because your country is poor before industrializing. Almost everyone did it this way except Russia. America was a partial exception, having strong domestic markets and legacy tech inherited from British North America, but only a partial one: they sold a lot to Britain and Europe in the early years.
You also need the technology, and you get a lot of that from overseas unless you were Britain. This is true of pretty much everyone, including the US (which got huge investments from Britain), Japan (Britain first time, US for reindustrialization after WWII), South Korea (US), Taiwan (US), and China (US). Germany might be considered a partial exception in the 19th century, their industrialization story is startling and impressive (See “Cities and Civilization” by Peter Hall.)
But let’s say you’ve already industrialized once, and then partially re-industrialized. You have the remnants of a skilled workforce and you have good universities and technical institutes and a literate workforce. (Pushing it here, half of Americans are essentially illiterate.)
You’ve also got a fairly rich population and decent domestic demand, in global terms. In other words, there’s domestic demand sufficient to support more production than you’re doing. (How do you know? Well, all those imports indicate demand, don’t they?)
The problem is that foreign production is cheaper and quite likely better. (Remember those Flemish weavers.)
Now the first way to do it takes its cue from the Brits and wool. If you produce a lot of resources suitable for production, why are you selling them in the raw state?
There’s a few stages of this. If you’ve got oil, say, you could refine it in country before sending it overseas. In Canada it used to be illegal to ship raw fish overseas, but after NAFTA it got sent to the US to be stuck in tins or smoked or whatever. You shouldn’t be sending raw logs. You should refine bauxite into aluminum yourself. Copper into wires. Etc…
This only works if the current producers can’t just buy from someone else, but there are certainly still cases where this is true. (We’re about to experience very severe copper shortages, silver is already in shortage, and China has been using its control over rare earths like this.)
Tariffs come in when you want to make domestic production cheaper than overseas. If you’re just starting in an industry, it’s going to be. You can use tariffs (the US strategy during the 19th cnetury), you can force your currency lower than its market value (this is what China did) or you can use subsidies. Tariffs are under international agreement, essentially illegal, but Trump has made that a dead letter, so they’re possible again.
Tariffs are only useful, however, if you’re actually going to be increasing production. They do nothing if you aren’t. (Trump, pay attention.)
Now let’s talk about demand. If you need more demand for goods you need to increase the amount of money people can spend on whatever it is. There’s a number of ways to do that.
First is tax policy: tax poor and middle class people less and rich people more. Give them money, taken from the rich. Poor and middle class people spend most of their money on goods and services. Rich people, given more money, drive up asset prices. Note that this means income taxes. Get rid of general VAT taxes, you don’t want to tax consumption or in anything you want more demand create an exemption. You can also remove taxes on whatever it is you want people to buy.
Change other types of taxes to discourage short term trading, buying in secondary markets and future markets and encourage people with more money than they need to invest in production. High capital gains taxes on short term investments, for example. Tax rich people’s income highly, and send that to poor people or use it directly for investment thru the government. Tax corporation highly so they are encouraged to retain earnings and invest them. Get rid of stock buybacks, just make them illegal, like they were for much of the 20th century.
Second are any policies which drive up wages for the bottom 80% of the population generally.
Third are subsidies. Subsidize the cost of buying or manufacturing whatever it is. Europe, China and the US have all used this with electric vehicles.
Fourth are general market policies: you need competitive markets with few barriers to entry. You must make oligopolies and monopolies illegal and easy to break up or you must tightly regulate prices in monopolies. In general you don’t want any business to have pricing power, because if you give regular people money and business just jack up prices, demand doesn’t increase.
Fifth is breaking supply side bottlenecks. After the oil crises central bankers spent a lot of time deliberately putting downward pressure on wages because wage increases led to using more oil, all marginal oil increases had to come from OPEC and that meant inflation. So instead they pumped up asset prices like houses and stocks. If there’s something needed for production, you need to find a way to get enough for reasonable prices. Copper, coal, oil, silicon, rate earths, uranium… whatever. This may mean domestic production, it may mean trade deals, though domestic is better if feasible.
Sixth is that you have to reduce cost structures. Real estate, rent, interest rates, medical prices, and so on.These are costs: they make production more expensive and they soak up demand from regular people. If landlords can increase prices freely then, again, they’ll just take up any extra money that regular people get which would otherwise go to buying all those new products.
Seventh is making currency levels dependent on trade and not on financial flows. You want your currency low if you’re importing more than exporting, and high if you’re exporting more than importing BUT if you export a lot of resources, you need to find a way to reduce currency rates below what they’d normally be if you want manufacturing to increase. Doing all this means taming financial markets and making the central bank do what is necessary, which it often doesn’t want to, since it’s usually run by ex-bankers and traders.
Eighth is managing trade deals. It’s a lot easier to get a big enough market if you make a deal with another county or countries. “You produce X and we won’t. We’ll produce Y and you won’t, thus X and Y both have much larger markets. And we freeze other countries out of our market for these goods.” General free trade is usually stupid, managed free trade like this is smart.
Ninth is making your banks lend to producers at reasonable rates rather than lending to people whose actions will drive up asset prices instead.
This is a high level overview. Each point could support it’s own article, heck, it’s own book and I haven’t even hit all the high points.
But the point is that there’s a lot involved. Real policy is when a government tries to do something from all angles, not just one. You don’t just put on subsidies and hope for the best. You don’t just slap on tariffs and think “surely someone will start producing”. You have to actually use as many levers as possible to make it possible to produce: demand, supply, credit, market structure, smashing barriers to entry, avoiding pricing power and so on.
That doesn’t mean it can’t be done, that’s means you have to make it your main priority, the way it was for China for decades or for Japan for decades or for South Korea for decades. It doesn’t happen by accident, or if you only half-ass it. In fact half-assing it is likely to produce no noticeable results at all.
If Western countries want to reindustrialize, they can. But only if they decide they’ll do whatever it takes. Decline is baked in, resurgence takes effort.
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Feral Finster
1. “It’s often noted that before the British conquest of India, India had more textile factories than Britain. Britain destroyed them. Why? Because they wanted them to buy textiles made in India.”
I think you mean that the British Raj wanted to force Indian consumers to buy cloth made in Britain, not made in India.
Gandhi had a “make your own homemade cloth for fun and no profit!” campaign to address precisely this. Also, the Salt March.
2. A lot of Trump’s clownishness concerning tariffs is that they are not only not in support of any discernable policy, they also are not predictable. Hard to plan when the tariff rates may change multiple times in the course of a day.
Ian Welsh
Thanks for the catch Mr Feral.
Indeed the upredictability is a HUGE problem. I wrote about it last year, iirc.
spud
trying to post, get this,
https://www.ianwelsh.net/wp-comments-post.php
A potentially unsafe operation has been detected in your request to this site
Your access to this service has been limited. (HTTP response code 403)
If you think you have been blocked in error, contact the owner of this site for assistance.
Block Technical Data
i do not see what is triggering this. its all economic data and analysis.
Jan Wiklund
It isn’t quite correct that there was no competition from India in the textile business in the 17th and 18th century. In fact, India was the China of the time – the worlds biggest producer of textiles, with customers everywhere.
Prasannan Parthasarati describes how the English managed to take over the market.
First they pushed the British textile industry to modernize. As Jack Goldstone describes in Why Europe, there was a whole popular culture of empirical science at the time, started by the Puritans. Every artisan was eager to perfect his trade, using the latest scientific methods to do it, taking part in scientific seminars, reading scientific magazines etc. Royal Society was not only a society of scientists, they also communicated with the broader public.
But in the textile case, if he managed to do better textiles than the Indian, to a lower price, he would also have heavy state subsidies, according to Parthasarati: Why Europe grew rich, and Asia didn’t. It was important – Indian textiles overwhelmed the market and threated to sweep the European weavers from the ground. All Europeans tried to shut them out with customs duties, with scant success. But with the technical breakthroughs in the mid 18th century the English could do better than the Indians and make customs superfluous.
Of course this is how one should do: government harassments and inducements to goad the industry to do its best. Not not trust any fucking market rule! The East Asians still do it this way: every kind of service to those who conform, plenty of red tape to those who don’t.
Then, of course, the British destroyed the Indian textile industries violently too. This is also described by Parthasarati: The transition to a colonial economy. They simply meted out punishments to all textile artisan who had any relations to other purchasers than the East India Company. And since they paid pittance, it became impossible for Indian artisans to survive on it. So they quit.
Ian Welsh
Spud,
weird, haven’t seen that before. Did it include links or copied text which might have formatting? That might be the issue. Try it with “paste without formatting” and/or clear your cache.
If that doesn’t work, and you really want to comment it, email it to me. If other people find it an issue, I’ll look into it further, but that will cost me a bit of money, so…
spud
ian,
even taking out the links to the empirical evidence, its still triggered. i will try later today.
elkern
Re: Spud’s problem – I got a similar ‘busy signal’ at some point yesterday, just trying to view this Site. It’s actually a semi-regular problem for me, but I’ve always been able to solve it with patience (try again later).
I figure it’s either (1) a glitch in the site which hosts Ian’s Blog, (2) an attack by some organization which wants to suppress Ian’s point of view, or (3) Sunspots.
Probably not Sunspots, because it seems to happen more often here than other Blogs I follow.
spud
the vat tax is a backdoor tariff, that forces everyone into supporting free trade. regardless of what they buy, and where it comes from.
free traders are very clever, cunning and manipulative. they got everyone but the rich paying for free trade, which is evil in my opinion. almost all benefits accrue to a few.
so yea Ian, what needs to be done is nicely covered by you, except, all capitalists i ever worked with or for, i say who is going to buy your stuff, 100% answer back, they got money, we just need to shake them hard enough.
i point out 1929, the dim wits always reply, it was the smoot hawley tariffs and the federal reserve.
smoot-hawley came well after america fell into recession, then depression. and at no time did the federal reserve take money out of the system.
this falls on deaf ears every single time.
i show the timeline, its great. they avert their eyes.
spud
the whole idea of free trade is silly at best, evil at its core. it destroys whole countries, that in turn destroys the social fabric of a nation, turns people against people, than nations against nations, and only the 1% gain.
in a nutshell, this is what free trade does, and why it fails every time its tried,
“If nations can learn to provide themselves with full employment by their domestic policy, … there would no longer be a pressing motive why one country need force its wares on another or repulse the offerings of its neighbour. . . . International trade would cease to be what it is, namely, a desperate expedient to maintain employment at home by forcing sales on foreign markets and restricting purchases, which, if successful, will merely shift the problem of unemployment to the neighbour which is worsted in the struggle, but a willing and unimpeded exchange of goods and services in conditions of mutual advantage.”
http://www.go2cio.com/articles/index.php?id=3668
—————-
china is doing everything possible to protect and expand their trade surplus, instead of reforming the economy into become cradle to grave.
its unsustainable.
the reason why so many germans hate Gerhard Schroder is that he engineered the same type of trade surplus in europe, to the detriment of the german worker, and all countries in the E.U..
simply unsustainable as we see today.
smoott-hawley on its own, the new deal on its own, would have never worked. combine the two as ben franklin laid out, and it works.
rebuilding mean demonizing and reversing all of what bill clinton, tony blair types did.
chinas answer, make the borders secure, keep exporting. russias answer is, make the borders secure, and become accepted by the davos crowd, americas response, invade, bomb everyone.
spud
its the timeline of the economic situation from 1921-1945 that is causing the rejection. i have posted in two posts the rest, which was accepted. so your site is being censored.
http://www.huppi.com/kangaroo/Timeline.htm
Ian Welsh
Hrrrm. I haven’t had any issues getting to the site since the site changeover. If you’re having it regularly, next time you get it please let me know, including the error message.
Spud, I suspect it’s triggering one of the security add-ons, something it doesn’t like about the link or where it goes.
Jan Wiklund
Spud: It’s strange how the term “free trade” has changed its meaning during centuries.
In the 18th century, it meant the right for all to trade, not only a right for royal corporations.
In the 19th century, it meant paying no tariffs.
In the late 20th century it meant that businesses should have a veto in legislation, and that the state must pay damages to business owners who had lost money because of new laws.
It seems to be a rubber concept that can be used for any pro-business measure, with no fixed content at all.
spud
Ian:
its the text in the timeline itself. read the timeline, then ask yourself, whats the problem. and the problem most likely is that the powers that be, do not like pointing out reality.
the powers that be allowed all other parts of my post, to be posted, but not the actual text of the timeline itself.
Mark Level
A strong piece as usual, I expect if this is aimed at any of TPTB, it is clearly the Canadians.
The claim by Trump before his first term that he would “reindustrialize” had to be the Biggest of his Big Lies. He might’ve made perfunctory attempts to invest in entities in which he held lots of stock, I seem to recall there was a Carrier factory in the Southwest, maybe Arizona, where he claimed to save or boost 2,400 jobs. Not even a drop in the bucket.
Obvious reasons nobody in the US Reich will listen to the preceding are: 2nd paragraph, items “priced reasonably,” not even considered. 5th P– “you need foreign customers.” Well, okay even under Reagan and Clinton and the rest, Europe ate up the US slop, movies, Apple, Google, the Tech Bro monopolies and didn’t bother to create their own. But pissing on everyone in Europe and demanding their lands, forced investment (which maybe the Japanese have agreed to? Just heard Yanis Varoufakis point out that Reagan demanded the self-destruction of Japan’s economy in the 80s, and the leadership immediately pulled out Mishima’s blade and killed it.)
7th P– I think the estimate that half ‘Muricans are literate is high, maybe it’s as low as 1/3, which some claim. I know as a retired teacher over the time I taught (1989–2021) I saw basic literacy collapse, esp. once pagers, cell phones etc. took over young minds.
9th– Foreign production cheaper and better. Bingo!
11th– As to tariffs, the best data I have seen says 86% thereof are paid by ‘Muricans, an unconstitutional tax levied without Congress’ approval. SCOtUS too supine to the God-King to rein that in. And as you note, Smoot-Hawley only hurt the domestic economy. And no, Trump won’t pay attention, he is now focused entirely on hating Somalis, Minnesotans, and selective contempt for the Right’s sacred 2nd Amendment.
As to the 2 paragraphs stating that using taxation to spread wealth downward, that is like suggesting to a pious Catholic that they participate in a public, gay orgy. It violates Neolib Orthodoxy of over half a century +, spits in the face of the donors, will never happen even under the Dimmie “opposition”.
Suppose they deport (or jail or kill) every non-white person in USA, the real Potentates over PotUS, Bessent and Lutnik, brag that everything will be done by robots and machines. No jobs (nor welfare) for the stupid CHUDs, maybe they can raid the homes of Elite Libs and “Steal their Shit!” (The deranged sex-abuser Andrew Tate called for this in conquering Greenland, his post couldn’t even be shown on YouTube ‘coz in one section he was holding a giant bazooka while screaming this.
Otherwise, what spud said (apart from the link problems. None here.)
Maybe someone in Canada will listen, no prospect US Elites will do any of this. Nor that ‘Muricans would now have the skills if such reindustrialization occurred, without massive, years-long retraining programs. (Which certainly would be engineered to put them deep into generational debt.) Bernie feinted toward ideas like this, but wasn’t that sincere, and anyway the duopoly united twice to crush him like a bug.
spud
Jan Wiklund;
the only problem is, that free trade which is capital, destroys sovereignty, civil society and labor rights.
its a enormous incentive for capital to exploit people of colors labor and resources. and as we see today, its spreading into the white western world.
it create enormous debts that simply cannot be paid back. its not a budget deficit that is causing the debts of our government to explode, its the balance of payments.
that is the trade deficit, and the military posts all over the world, to protect free trade.
when woodrew wilson shoved free trade down our throats again, after free trade had collapsed before WWI, and was one of the main reasons why the war happened. he knew that without tariffs, our debts would explode.
so he instituted the federal income tax on everyone. when before it mainly applied to the rich.
so check your pay stub, every week a good portion of you income tax, goes for the balance of payments.
so financially, regardless if its corporate to corporate, or individual to individual, its financial suicide.
spud
Mark Level:
the only way to re-industrialize is the reverse just about everything that was done from 1993-2001. no easy feat. otherwise the ferocious financial leeches and parasites unleashed on the world from those disastrous polices, will simply bleed any attempts dry.
we can compete if we go back to the american system. under the american system, finance was tiny, profits slim, investment heavy into infrastructure, civil society and labor.
best way to tax the rich that will work, is a massive capital gains tax and real estate tax.
the rich in most cases do not earn much as far as a weekly income goes.
they have almost all wealth tied up in paper assets and real estate.
that is why you hear the siren calls to end real estate taxes. anyone who is not rich that says YEA, is a fool, and is unknowingly working for black rock.
Dan Kelly
Ian, please don’t post that last one. The formatting is obviously all messed up. Dammit.
StewartM
But the point is that there’s a lot involved. Real policy is when a government tries to do something from all angles, not just one.
Exactly correct. And one of the faults of populist “solutions” which say “Just do this”, sound bites that sound good by their own but often will do harm if not done in tandem with many other things. Take “raise the minimum wage”–a good idea, for sure, but raising wages in our current noncompetitive markets means that prices will go up further. You also have to re-introduce competition and crush price gouging, and do more than that (say, free health care and schooling, great public transit, promote open source software solutions, etc.) to also make sure that extra money is truly additional income.
You have not only attack the problem from various angles, anticipating “end runs” might be tried against your objectives, but also consider who might be hurt and (assuming that they’re not already filthy rich and can easily afford to lose 50, 70, 80, 90% or more of their wealth and never suffer because of it) what amelioration can be done. The overall objective is to build a kinder and better society, after all.
My own idea of a “good society” would have whole classes of businesses disappear, businesses I pass by every day but which shouldn’t exist in an actual good society, For example:
“Payday Loans”
“Auto Title Loans”
“We Buy Gold”
“Tax Services” (Other countries fill out your income taxes with the paperwork for you, send it to you for your signature, and you can check it and appeal for adjustments if you think anything is amiss. All for free, too).
In a good society the poors shouldn’t have to borrow money to make payments, as they are paid enough for needs plus enough to stash away as savings for a “rainy day”.
Finally, this corporate insider says you have to somehow fire virtually all of American upper management, and much if not most of middle management. We’ve had management like Boeing’s and GE too long, management whose objective was to “make money” by hook or crook (usually by paper shuffling and/or in ways that actually hurt actual productive capacity) and not “deliver value” to customers in the terms of superior products and services. American products won’t be sold overseas because compared to the (mostly Asian) competition, they’re crap and haven’t been good for some time. Like Asian companies, not only pleasing but delighting customers must the #1 objective of the company. *NOT STOCKHOLDERS*.
Jefferson Hamilton
Has any country successfully REindustrialized? Industrialization is quite young, many countries have industrialized and many of those have DEindustrialized, but do we have any examples of what so many are clamoring for?
Jan Wiklund
Spud: Which definition of “free trade” do you use?
The modern definition seems to be something like “complete power for capital”. And that, of course, brings about the ills you are talking about. But also a lot more.
Like & Subscribe
Thanks, Jefferson. I was thinking the same thing. It’s an interesting thought exercise regarding what it would take to reindustrialize but the point is rather moot. Who is considering reindustrializing at this juncture? Certainly not America despite the feigning cover story by the Trump administration as the reasoning for the tariffs versus merely a brazen grift as is the goal of everything the Trump administration does, or so it seems.
Also, using economics from two centuries ago as an example is not appropriate. The context is in no way similar. It’s much more complex, contemporarily. There are so many more variables and factors to consider. It’s not apples to apples. More like okra to ginseng and maybe even that is a stretch.
Feral Finster
“Jefferson Hamilton
Has any country successfully REindustrialized? Industrialization is quite young, many countries have industrialized and many of those have DEindustrialized, but do we have any examples of what so many are clamoring for?”
Yes. Japan after WWII was basically devoid of industry and pretty much everything else.
spud
Jan Wiklund:
free trade is capital over sovereignty, capital over civil society, capital over labor and economic rights.
and that is also my main definition of fascism. its why they are both two pea’s in the same pod.
bill clinton called it the era of big government is over.
here is what the free traders tried to pull off on the world once again right after WWII had ended, after free trade failed once again in the 1920’s, as i did prior to WWI.
Truman would have none of it, and repeatedly vetoed the free trade bill which would have set up a W.T.O., which is corporate control of trade.
instead he pushed till he got GATT.
this is GATT: Compensatory tariffs might be added to products from countries that do not maintain international standards of environmental protection, wages, health and safety standards, and social safety nets, thus encouraging higher standards for all people everywhere.
Truman was a populist: Of course I believe in free enterprise but in my system of free enterprise, the democratic principle is that there never was, never has been, never will be, room for the ruthless exploitation of the many for the benefit of the few.
right after clinton got nafta through, he stated publicly now onto GATT with a sneer, he said its about time. which was a signal to corporate, wall street, banking financial leeches and parasites, that they would now rule. then we got the W.T.O., corporate run trade
Mussolini called it corporatism.
As Mussolini pointed out fascism is defined by an economic system where the policies chosen by government are indistinguishable from those desired by corporations.”