The concepts of “industry protection” or “industry subsidization” have become taboo in Jordan. This is due to over a decade of training under the aegis of the World Bank and the IMF, combined with aid from the U.S. Treasury. Together these three entities make-up the Washington Consensus group. Now, for those who don’t know, the Washington Consensus is a term coined to describe ten classical, monetary, and supply-side economic principles put forward as recommendations/prescriptions for developing countries. Yet, no industrial country in the world has made it into the industrial nations club without having gone through a phase of subsidizing its own industry and protecting it. The examples provided herein can be a list of who’s who among the industrial nations.
In the mid 18th century, the UK went into wool production even though the Netherlands had a comparative advantage in clothes production and was dominating world markets back then. According to classical economics, the UK should have gone into farming since it had cheap labor. But Britain opted to turn wool into clothes through subsidies and protection of the industry. In time, its wool exports enabled it to import the materials necessary for supporting its industrial revolution. A hundred years later (around 1860), when its local wool industry was strong enough, the UK opened the market for competition.
Another example comes from the U.S., which protected its local industries and subsidized them for more than one hundred years (1830–1940) before advocating free trade. During the stated period, the U.S. imposed customs duties that ranged between 40 and 50 percent in order to protect local industries.
Not only did these two industrial giants protect and subsidize their own industries but, in the beginning, no copy rights or patent protections were respected or granted for foreign intellectual property rights (IPRs) producers. Both countries only recognized domestic IPRs.
In South Korea, another “industrial miracle,” the government established a steel production company in the 1960s. This went against the advice of the World Bank, which had wanted it to go into labor intensive production. Korea relied heavily on Japanese aid for this venture, as Japan was compensating for the occupation of Korea during 1910–1945. Japan also supplied Korea with some machinery and know-how. In 1973 the company went into production then was privatized in 2001, and today it is the fourth largest producer of steel in the world.
Subsidies in industrial countries continue today. But instead of closing borders or imposing high customs duties, industrial countries utilize technical barriers to trade (highly restrictive product entry standards and procedures). Between 1990 and 2009, OECD countries subsidized their agriculture with $263 billion. In 2008 alone, the U.S. provided $220 billion in subsidies to industry in the form of energy subsidies and land grants, among other incentives. In the early 1980s, President Reagan—the great advocate (with Margaret Thatcher) of deregulation—guaranteed over a $1 billion loan to Chrysler. Also in the 1980s, President George H.W. Bush forced the Japanese to voluntarily curtail their car exports to the U.S. in order to protect the fledgling U.S. car industry then. Presidents George W. Bush and Obama provided Chrysler with $12.5 billion in aid between 2008 and 2011. The EU, which subsidizes hydrocarbon fuels for industry by $10 billion a year, has more restrictions on agriculture and manufactured agriculture imports than any other country besides Japan. The ratio of subsidies to actual income generated by a farm in France is 140 percent. China subsidized its car spare parts manufacturing industry by almost $28 billion over the last ten years and promised another $11 billion for the upcoming ten years. Consequently, its car spare parts industry grew 900 percent. Turkey, which spent hundreds of billions in subsidizing its manufacturing industry over the past decade, allocated $23 billion in 2011 to its nascent film industry.
All these countries are now active members of the World Trade Organization (WTO), and they are all offenders of the great many rules of the WTO. In fact, the U.S. is the country with the most trade offenses and cases being investigated within the WTO. Jordan is the one country in this organization with a clear record – it does nothing to subsidize and protect its industries. Woe to industry. Venture Magazine June 2012