… is from page 49 of Milton & Rose Friedman’s great 1980 book, Free To Choose:
There is, it is said, a potential industry which, if once established and assisted during its growing pains, could compete on equal terms in the world market. A temporary tariff is said to be justified in order to shelter the potential industry in its infancy and enable it to grow to maturity, when it can stand on its own feet. Even if the industry could compete successfully once established, that does not of itself justify an initial tariff. It is worthwhile for consumers to subsidize the industry initially – which is what they in effect do by levying a tariff – only if they will subsequently get back at least that subsidy in some other way, through prices later lower than the world price, or through some other advantages of having the industry. But in that case, is a subsidy needed? Will it then not pay the original entrants into the industry to suffer initial losses in the expectation of being able to recoup them later? After all, most firms experience losses in their early years, when they are getting established. That is true if they enter a new industry or if they enter an existing one.
DBx: Nothing is easier than to assert that the country “needs” this firm or that industry – and then to presume that the costs necessarily incurred for government to artificially support this firm or that industry will be outweighed by the resulting benefits. Such is the sophistication of the analyses done by proponents of industrial policy: assertion and presumption.
Industrial-policy proponents (like all protectionists) typically write as if their schemes are costless. Yet even when they acknowledge that their schemes come with costs, they simply presume that by pointing out the promised benefits of their schemes they thereby present sufficient evidence both that the benefits are certain to materialize and that the costs are worth bearing. Never do industrial-policy proponents offer an explanation of how government officials will be informed and incited in ways that prompt them to deliver to society the promised net benefits – or, at least, no explanation that is remotely comparable in rigor and fullness to the explanation offered by sound economics about how market signals tend over time to move resources from where they supply less social value to where they supply more social value.
