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Garbe, Otfried

Article — Digitized Version Friedrich list and his relevance for development policy

Intereconomics

Suggested Citation: Garbe, Otfried (1977) : Friedrich list and his relevance for development policy, Intereconomics, ISSN 0020-5346, Verlag Weltarchiv, , Vol. 12, Iss. 9/10, pp. 251-256, http://dx.doi.org/10.1007/BF02928808

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Friedrich List and His Relevance for Development Policy

by Otfried Garbe, Bonn *

Economic Independence and a New Economic Order were international poliUcal Issues long before the North-South controversy was heard of. They were set out as objectives in the USA as early as the beginning of the 19th century. There are striking parallels, even in phraseology and argumentation, between the political-economic conflict between the USA, a weak ex-colonlal state, and , the world power of that time, and the North-South controversy going on at present.

riedrich List was one of the men who played a bore their power-political implications in mind, an F prominent part in the heated discussion about analytical approach which is in the present North- "Full Independence" and a "Declaration of Eco- South controversy often treated as secondary to nomic Independence" 1 in the young American the economic and humanitarian aspects of the state. List had come to the USA as a political conflict. refugee from his Swabian home-town of Reutlin- gen. Lafayette introduced him into leading Ameri- Like the states of the Third World today, the USA can circles. In Germany he had been denounced long after the achievement of independent state- as "ultra-liberal" and "virtually a revolutionary". hood still considered its political independence During his five years' stay in America he gained and the pursuit of an autonomous foreign policy to renown by various activities. Two townships, a be at risk. In the early 19th century the USA was a colliery and one of the first American railroads (it weak and vulnerable state, not only in comparison was officially opened on November 11, 1831) owed with France or Russia. Its merchant shippinq was their origin to his initiative. Later he was to become frequently brought to a standstill by British and the Consul of the USA in Saxony and Baden. Much French privateers, and the young state was so more influential he was however as the author of weak that it had difficulty in holding its own even a political-economic pamphlet, the "Outlines of against pirates in the Mediterranean. The second American ", which he published British-American war in 1812/14 almost ended with in the USA exactly 150 years ago 2. an American defeat 4.

It was in this pamphlet that List, drawing to some The Monroe Doctrine of 1823 was the most salient extent on German and American sources, evolved demonstration of the striving for political autonomy ideas of development and trade policy which are in this early phase of American policy. In view of being taken forward today, at times in a compli- the relative weakness of the USA it was an act of cated technical idiom although of course also with political defensive by a young state in a peripheral some theoretical refinements. In his American situation in relation to "world events" rather than writings he formulated already ideas of the "de- the manifestation of a desire for hegemony. The pendency theory", the concept of "balanced and principal purpose of this Doctrine - which Bis- unbalanced growth" and "the external effects"3 marck still described as an "international imper- In developing these economic ideas, List always tinence" - was to ward off, partly with an eye to

" Foreign Office. The author is expressing here his personal views. 3 Topical references in List's work have been pointed out especially by Werner S t r ~ s s I i n, Friedrich Lists Lehre von Friedrich List, Outlines of American Political Economy (The der wirtschaftlichen Entwicklung (Friedrich List's teaching on eco- American System), in: Friedrich List, Schriften/Reden/Briefe, VoI. nomic development), Basle 1968, and Dieter S e n g h a a s, first II, Berlin 1931, p. 107, and also Philadelphia Speech (1827), ibid, in: Leviathan, No. 2, 1975, cf the article: Friedrich List und die neue Vol. II, p. 167. internationale 6konomische Ordnung (Friedrich List and the new 2 List's stay was described by William Notz in particular. In addi- international economic order). tion to the introduction to Volume II of the full edition cf the same Cf. Udo S a u t t e r, Geschichte der Vereinigten Staaten (History author in: Weltwirtschaftliches Archly, 21st Volume (1925 I), p. 199- of the United States), 1976, and Hans R. Guggis- 265, and 22nd Volume (1925 II), p. 154-182. b e r g, Geschichte der USA (History of the USA), Stuttgart 1975.

INTERECONOMICS, No. 9/10, 1977 251 DEVELOPMENT RESEARCH the USA's own security, an intervention by the Holy of finished manufactures whereas the foreign trade Alliance in South America and a possible recoloni- of the USA had on the whole retained its colonial zation of the republics there which had only just structure and still resembled the foreign trade gained their independence. The USA, besides, patterns exemplified by some of today's more wanted to draw a dividing line, morally and politi- advanced developing countries: s cally, between the old states of and the new system of American states who of course Exports Imports regarded themselves as "superior". (in p. c.) The parallels between this US policy and the steps Crude materials 62.7 7.9 of Third World states which had originally foreign- Crude foodstuffs 5.1 11.9 political motives are obvious. The preservation of Semi-manufactures 6.8 7.9 political independence which had just been achiev- Manufactured foodstuffs 17.0 15.9 ed in hard struggles was the cardinal issue in the Finished manufactures 8.5 57.1 foreign-political debates at the Bandung confer- ence in 1955. East and West were at that time The principal trading partner of the USA was of equally intent on, at least, consolidating their course England, the former colonial power. The spheres of influence. The colonial question and USA supplied England chiefly with tobacco and economic problems were in comparison still of cotton and bought finished manufactures. Eng- secondary importance (although the "formulation land, the "workshop of the world", enjoyed a clear of common policies" on oil was already demanded monopoly in the US market for the most important at Bandung in 1955). manufactures: over 90 p.c. of the cotton manu- factures and over 97 p.c. of US imports of wool The New and woollen manufactures came from England 6. Soon after the proclamation of the Monroe Doctrine Dependence of the USA the controversy about a New Economic System became one of the dominant issues of US domestic In his analysis of the economic and political de- policy. The political aim was an "American System" pendence of the USA List anticipated many ideas which implied a disavowal, both in concept and and in part even the terminology of the "depen- content, of the "British System", of the postulate dency theory". England was at that time the "pre- of and the principle of "laissez-faire". dominant political power", and its "national econ- omy is predominant" said List. America's depen- Essential ingredients of the "American System" were state-promoted industrialization and active dence on raw material exports was a "source of encouragement of internal trade combined with calamity and of weakness". US agriculture was temporary attenuation of foreign commerce through depending upon "foreign markets, foreign fluc- tuation of prices, foreign regulations and restric- a policy of protective import duties. tions" and was ultimately the "appurtenance of In part the "American System" was directly linked another entity" 7 to ideas voiced in the early years of the USA. The These few quotations illustrate how List was always first US Secretary of the Treasury, Alexander linking economic to political analysis. It was his Hamilton, had developed similar ideas in his "Report view that the American population was affected on Manufactures". List referred in his writinas also more by decisions of the dominant power, England, to the Congress debates on the very first US law than by the US Congress. This economic depen- which was a customs law with in part protec- dence coupled with political independence was in tionist aims, intended to encourage "infant manu- List's view the worst possible combination for the factures" and shelter small manufactures started USA, for "in consequence of becoming politically up during the War of Independence. independent" the USA had fallen "into a more List held a resumption and continuation of this severe economic vassalage". If it failed to achieve policy to be necessary. Fifty years after the achieve- economic independence it had better "return under ment of independent statehood American foreign the entire command of the mother country ''8. trade was still dominated by the world power Eng- While List formulated essential components of the land which even controlled one-quarter of all inter- dependency theory with unique logical con- national commerce at that time. In 1830 three- sistency, his other political conclusions were rather quarters of the British exports consisted already different from those of some advocates of the

5 Cf. Werner S c h I o t e, British Overseas Trade, Oxford 1952, Cf William W o o d r u f f, America's Impact .... ibid, p. 270. p. 131ff.; Sartorius von Waltershausen, Die Entstehung 7 Friedrich L i s t, Outlines .... ibid, p. 108, 150, 146 and 148, and der Weltwirtschaft (The origin of the world economy), Jena 1931, in: Harrisburg Address (1828), in: full edition, VoI. II, ibid, p. 203. p. 214; and William Woodruff, America's Impact on the World, Basingstoke 1975, p. 265 f. Friedrich L i s t, Harrisburg Address, ibid, p. 203.

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dependency theory. List and his American fellow- as might endanger its power in a state of "infancy figthers, men like Carey and Clay, did not seek a and vassalage". class struggle against the "bridgeheads of the As evidence for this ideological criticism which metropolis" but tried to convince the ship-owners, does not imply moral censure List referred to the the East Shore merchants, western farmers and fact that no state had yet succeeded in developing southern planters of the advantages of a new its industrial sector under free trade. Even England "American System". The majority of the population had developed its manufacturing trades under state was to be persuaded of the wisdom of sacrificing a protection, and if the former British Prime Minister "momentary gain for a future and permanent ad- Pitt had always carried 's works in his vantage" 9. pocket, it had been "for no other purpose than to act quite contrary to the advice of the author" 12 Critique of Free Trade List paid particular attention to an analysis of the An at least temporary departure from the free trade repercussions of free trade in the USA and Ger- principle was a crucial requirement of the "Ameri- many after the end of the war-related protectionist can System". List's polemics against free trade - periods. When the frontiers were reopened, both a "sort of political dogma" and "matter of fashion markets had been swamped by cheap British amongst literary men" lO _ could hardly have been which wrought havoc with important sections more vehement. He pursued his argument on of the industries starting to be developed. Accord- several levels which still offer points of ing to List's calculations the impact of the British today. production was such that in Germany for instance List firstly criticized the classical economic ap- the output of important sections of industry and proach of men like Adam Smith and Jean Baptiste agriculture had declined by as much as two- Say. Their "political economy" which as it is still thirds (!); the existing economic ramifications were commonly conceded endeavoured, unlike the neo- the cause 13 classical school, to link political and economic List concluded that in a phase of industrialization issues with moral and philosophical questions it was wrong to pursue a free trade policy, for "a was not entitled to the adjective "political". system of political economy must be wrong if it In regard to foreign trade and development theory effects just the contrary of that which every man of in particular, he argued, its approach was quite common sense must be supposed to expect from apolitical. Implicit in the classical political econ- it ''1'. In the language of critical rationalism the omy was the normative image of a world republic evaluation criteria of which List anticipated in this for which world-wide free trade was postulated. It respect one would say that the "British System" disregarded however the - still crucial - action was falsified for the phase of industrialization. and organization level interposed between the individual on the one hand and the ideal world Critique of the Theory of Absolute and Relative republic on the other, which was the state. The Cost Advantages only explanation for this theoretical approach was List's criticism of the Methuen Treaty of 1703, the the tradition of the which background for the absolute and relative cost had always aspired at formulating universally valid advantages theory of Smith and Ricardo, is today values. Seen thus the free trade theory was in its again of special interest. List did not know claim to universal validity the economic equivalent Ricardo's theory but he was very well acquainted of the ideas of and eternal peace. with the consequences of the treaty by which In List's view the free trade theory has a definitely Portugal had opened its market to English woollens ideological character; in the final analysis it served in return for concessions in the wine trade. Its merely to camouflage British economic and politi- economic effect was to ruin Portugal's woollen cal . Advocacy of world-wide free trade industry, the nucleus for the autochthonous by a predominant power was - List operates here industrialization of the country. (This is a fact which with two superlatives - "one of the most extra- can be looked up in any compendium but is always ordinary of first-rate political manoeuvres that discretely ignored in textbooks on the theory of have ever been played upon the credulity of the foreign trade.) world" 11. England was trying to maintain its indus- By this treaty and the consequent lop-sided and trial and commercial monopoly with the help of disadvantageous specialization, List thought, Por- free trade and at the same time to hold such states tugal had of its own volition turned into a "vineyard

' Friedrich L i s t, Outlines .... ibid, p. 146. ~2 Friedrich L i s t, Outlines .... ibid, p. 141. ~o Friedrich L I s t, Philadelphia Speech, ibid, p. 162. ,3 Friedrich L i s t, Outlines .... ibid, p. 110. " Friedrich L i s t, Outlines .... ibid, p. 112. " Friedrich L i s t, Outlines .... ibid, p. 110.

INTERECONOMICS. No. 9~10, 1977 253 DEVELOPMENT RESEARCH and province of England" and surrendered its such a world international relations are determined "independence and power for the benefit of selling by partly diverging interests, inter-state power wine" t5 rivalries and overt and covert power conflicts. No Although List and Ricardo based their reasoning state could keep out of these power conflicts by on the same trade treaty, they thus arrived at autonomous action without putting itself in jeop- opposite results in the appraisal of free trade be- ardy. For its "self-preservation" if for no other cause their assumptions and observations were reason a state intent on protecting the different. Ricardo assumed the economy to be and prosperity of its citizens must make the pre- essentially stationary; the terms of trade for pri- servation and extension of its economic and poli- mary products would - Singer draws attention to tical power its fundamental objective. Prosperity this 16 - improve with growing . Until a and economic power are in List's view however not stationary situation is reached the marginal capital identical with the size of the national product. Decisive are the productive powers, i.e. the nation's productivity is higher in the developing country than in an advanced country. capability to rely on its own strength for the gene- ration of the national product 20. List took an entirely different view; he was inter- Although all nations have in principle identical ested in the requisites of . He had power-political objectives, the attainable power- already observed that in the USA the terms of trade political status of a nation varies according to its had continually worsened for cotton, the most state of development and equipment with intellec- important export commodity, and that the pro- tual and natural resources between ductivity in manufacturing industry was higher than in agriculture. [] the status of a dominant power, [] full, i. e. political as well as economic, indepen- According to List the advantages of free trade be- tween states at widely differing levels of develop- dence, ment are clearly on the side of the industrialized [] modifiable dependence, and country. Free trade left young states which had not [] permanent dependence. yet built up industries no chance to achieve eco- nomic independence, for "the old country.., will The attainable objective is not necessarily the same in a free intercourse ever keep down a rising for all time. For many nations the attainable and manufacturing power" 17. List quotes Alexander actually attained power status can vary in the Hamilton elsewhere for the view that in foreign course of history in either direction. trade between states at unequal levels of develop- The simultaneous and successive existence of ment "the manufacturing nation always drains the different secondary power-political objectives is producers of the raw material of their wealth" 18 the decisive reason for List's plea for a "nation This does not according to List, rule out the approach". Since every state had his own "parLic- possibility of the total world product being in- ular Political Economy", it followed as a matter of creased by free trade. But it was scant consolation course that there could be no uniform foreign and for a state labouring under a foreign trade handi- development policy for all 21. What was the best cap if a "production which is beneficial to mankind" strategy for a nation varied according to its state proves "destructive for a particular country" 19. of development and attainable power-political status. The following strategy recommendations World Order or Nation Approach can be educed from List's "Outlines" for the foreign List believed that a world economy obeying one trade policy 22: single order principle, and world-wide adoption of [] For dominant powers free trade is the best free trade in particular, presupposed the existence strategy to secure and extend their monopoly over of either a world republic or world-wide rule by commercial and industrial goods. Their economic one state and a uniform social order. He con- and political power position is strengthened there- sidered both these conditions utopian. by. Instead List set out from the belief in the contin- [] For powers on the threshold of industrialization uance of a world made up of multiform states. In ("enabled countries") capable of achieving full independence the best strategy is one of at least 15 Friedrich L i s t, Outlines .... ibid, p. 112 and 115 f. ~6 H. W. S i n g e r, The Distribution of Gains Revisited, in: H. W. partial withdrawal from the international division Singer, The Strategy of International Development, London, of labour through a policy of protective duties. Basingstoke 1975, p. 64 f. 17 Friedrich L i s t, Outlines..., ibid, p. 134. Structural features like possession of the basic is Friedrich List, Observations on the report of the Committee 20 Friedrich L i s t, Outlines .... ibid, p. 105 and 115. of ways and means (1828), in: full edition, Vol. II, ibid, p. 227 and 221. 2~ Friedrich L i s t, Outlines .... ibid, p. 124. ~9 Friedrich L i s t , Outlines .... ibid, p. 150. =2 Friedrich L i s t, Outlines .... ibid, p. 106, 108 and 125.

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fixed assets and a sufficiency of natural and a long-term view than a higher social product in intellectual resources are indispensable to make a the short term. policy of protective duties meaningful. The human capital - List spoke of the "capital of mind" as the List had no knowledge as yet of the concept of crucial development factor - includes the edu- external effects, but he was aware of the possibility cational level of the population, entrepreneurial of "individual and national interests" diverging in initiative, working mentality and the art of govern- the difficult phase of industrialization 24. A policy ment and administration. List regarded the USA, of protective duties entailed temporary "sacrifices France and Germany as threshold powers. of the majority of the individuals ''2s. Industrial- ization has on the other side favourable reper- [] For developing countries only capable as yet cussions on agricultural production and transpor- of modifying the degree of their dependence tation and manifold inter-industrial effects 26. List ("tolerable dependence and economical vassal- hoped for instance that the building and timber age") List considered extensive integration with trades and the steel and machinery industries the world economy through free trade a sensible would benefit from the establishment of a cotton strategy for a certain time. The "capital of mind" industry through forward and backward linkages 27. was in this case still insufficiently developed for a successful policy of protective duties and back- The importance of manufacturing industries ex- ward. States in this situation would on balance tends beyond specific economic effects. Industrial profit from the exchange of raw materials against enterprises were "the nurses of arts, sciences and finished manufactures because the decisive "capi- skill, the sources of power and wealth" 28. Or as tal of mind" would develop faster if the country was Singer said in our time, the industries "provide the opened to the outside. In the "Outlines" List growing points for increased technical knowledge, counted Mexico, the states of South America, urban education and the dynamism and resilience Spain and Russia among the developing countries. that goes with urban civilization as well as the direct Marshallian external economies" 29. [] The category of nations which are incapable of modifying the degree of their dependence by them- For the development policy of the developing coun- selves is introduced by List only in his later work. tries List made no detailed proposals. There were It was to the advantage of these nations in "hot specific prerequisites in each country, and similar climatic zones" which could not be industrialized measures could therefore have most dissimilar to be colonized by Europe. effects. As an example List mentioned that in den- sely populated states like China and "Hindostan" Industrialization and External Effects further population growth and use of "machinery" would be harmful (!) whereas in the USA they were When List outlined development strategies in his decisive requisites of further economic growth 30. studies, he put the threshold powers on the way to full independence to the fore. The promotion of "Balanced" or "Unbalanced" Growth? economic growth through industrialization was to be the central element of the development strategy List's "Outlines" also contained already basic for these states. This was certainly not taken ideas of the theory of "balanced and unbalanced for granted in the days of Ricardo and Malthus to growth". His ideas cannot however be definitely both of whom stagnation of the economy and pop- correlated with such contemporary theories. ulation seemed a logical premise. His economic objective of full independence for List knew of no limits to growth and emphasized threshold powers comes near to the concept of the importance of industrialization like nobody "balanced growth" for the whole economy. For else. For threshold powers industries were the security and economic reasons, List argued, the real motive force of their national economies and primary, secondary and tertiary sector should be thus also the prerequisite of economic and political in a harmonious relation to each other and closely power even though they needed the support of the integrated 31 state in the development phase if there existed a =' Friedrich L i s t, Outlines.., ibid, p. 128. dominant power of superior competitive strength 2s Friedrich L i s t, Outlines .... ibid, p. 132. ~6 Friedrich L i s t, Outlines .... ibid, p. 155; Harrisburg Address, because they would otherwise be unable to stand ibid, p. 203 f.; and Remarks on Mr. Cambreleng's report on the up to the "united force of the capital and skill" of Tariff (1830), in full edition, Vol. II, p. 235 and 237. ~7 Friedrich L i s t, Outlines .... ibid, p. 120. the already industrialized state 23. At the same 2~ Fiedrich L i s t, Outlines .... ibid, p. 105. time tariff protection would develop the "productive 2~ H. W. S i n g e r, The Distribution of Gains between Investing and Borrowing Countries, in: H. W. Singer, The Strategy .... ibid, powers" of a nation which was more important on p. 47. 30 Friedrich L i s t, Outlines .... ibid, p. 124 and 126. 23 Friedrich L i s t, Outlines..., ibid, p. 119. 3~ Friedrich L i s t , Outlines .... ibid, p. 107.

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An economy with these attributes alone was rela- nation, of the ideal of a harmoniously organized tively resistant to fluctuations in the external eco- national economy with closely integrated economic nomic sphere due to political and economic circuits, of the demand for priority development of factors and would therefore give greater stability the internal trade and of the stressing of a nation's and power to the state. It was desirable for instance "own exertions" 37 and the "capital of mind" for that important economic sectors should pass the economic development. profitability threshold on the strength of their pro- duction for the home market alone3~. Some passages in List's writings sound as if intended to uphold a programme based on this Such close integration of the economic sectors will concept. List said for instance in regard to Ger- also raise productivity. Close integration of the many, one of the threshold powers of his time: primary and secondary sector for instance ("a "Since the Greeks made the Trojans a gift of a home manufacturing industry which goes hand in wooden horse nations have had misgivings about hand with agriculture") is extremely advantageous accepting presents from other nations. The English because of its many linkage and effects 33. have bestowed gifts of immense on the It also promotes internal trade which is as a rule Continent in the form of subsidies but the Con- more beneficial for threshold powers than foreign tinental nations have paid dearly for them through trade: in foreign trade "each enjoys (only) the pro- loss of strength. These subsidies have acted as an fits of its own (national) industry" while in internal export premium to the advantage of the British and trade the "nation enjoys the profit of both (part- disadvantage of the German factories. If England ners) ''34. were to undertake to supply the Germans for years with all the manufactures they require, we could Successful industrialization is decisive for the not advise acceptance of such an offer" 38. achievement of a harmoniously working national economy. "Balanced" development of complemen- It would not be right, on the other hand, to ignore tary industries, creation of the indispensable con- the passages in which List expressed himself con- struction sector and, above all, a well trained trary to the autocentric development strategy. Pro- skilled work-force are needed in addition to pro- tective duties were not only intended to promote tection against disruption by industrialized foreign the development of a national industry but were countries. (In threshold countries wage costs are to attract foreign capital and technology as well. higher than in industrialized states!) 35 Foreign and immigration into the USA were in his view even essential as requisites On the other hand, List admits, even a state as well of rapid economic growth and important for the endowed as the USA, with the potential capacity of avoidance of extensive forms of production 39. developing all industries, could not advance all During the industrialization phase the country industries at the same time. He therefore pleaded would still need foreign trade as it could not for careful selection of priority industries, i. e. for develop more than a few industries at any time. "unbalanced" industrialization. The criteria which he recommended for the selection have the ear- A quite far-reaching though partial integration of marks of a "resources-based industrialization the threshold states with the world economy strategy". First to be promoted were industries would thus still be assured. Once the industrial- with a large domestic market which are based on ization had been completed the foreign trade native raw materials (e.g. the woollen, cotton, would again be greatly intensified as the volume of chemical, iron and earthenware industries) - in foreign trade among industrialized states was other words: "those manufactures which employ a much greater '~ The "Outlines" contain no une- number of labourers and consume great quantities quivocal statement of List's views on the question of agricultural produce and raw materials "36. whether transition to free trade is desirable when full independence has been attained. List vacillated Autocentric Development? here between advocacy of the "beau ideal" for a remote future and an understanding of the growth List's concept of a trade and development policy effects of inter-state . for threshold powers has undoubtedly many paral- lels with the concept known as autocentric devel- =7 Friedrich L i s t, Outlines .... ibid, p. 115. Frledrich L is t, Des Nationale System der Politischen Elkono- opment strategy. Mention may be made of the role (The national system of politmal economy), in: Schriften/ central concept of the "productive powers" of a Reden/Briefe, Berlin 1930, Vol. VI, p. 184. List formulated this idea in the Harrisburg Address already, cf. ibid, p. 196:"1 venture to say, the worst of all things would be if they (the American farmers) 32 Friedrich L i s t, Outlines .... ibid, p. 135 f. could get their (manufactured) goods for nothing because the 33 Friedrich L i s t, Harrisburg Address, ibid, p. 201. English would in that case indemnify the Americans only for the interest of the interest of that sum which they would gain if they Friedrich L i s t, Observations .... ibid, p. 218 and 211. would make them themselves." 3s Friedrich L i s t, Outlines .... ibid, p. 133. 3, Frledrich L i s t, Outlines .... ibid, p. 123. Friedrich L i s t, Outlines .... ibid, p. 125. '~ Friedrich L i s t, Outlines .... ibid, p. 155.

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