Infant Industry Thesis: How Do Small Fish Survive in the Big Sea?
Imagine what would happen if you put a toddler in a race with Olympic runners? He would probably fall down after taking a few steps. This is exactly what the “infant industry thesis” developed by F. List in economics describes! Growing a sector is like supporting a toddler. This is exactly where the “infant (baby) industry” thesis in economics comes from. If newly developing sectors enter the international arena before they are strong enough to compete with global giants, they face the risk of losing before they even start the race. So what is the solution? According to economists, the state needs to temporarily protect these sectors. According to List, countries that want to industrialize should protect their local producers with customs duties, subsidies and state support. However, the real question is this: How long should the protection last and can every “baby” really grow up to be a giant? Or should they enter direct competition and stand on their own two feet? This debate has divided economists for years.
World history is full of interesting examples that continue this debate. Japan’s automotive sector is a true infant industry success story. In the 1950s, Japanese cars were not even taken seriously against the giants of the US and Europe. However, the Japanese government protected domestic manufacturers with import restrictions and R&D incentives. The result? Toyota, Honda and Nissan are now among the world’s largest brands. But not every story has a happy ending… Brazil’s computer industry is one of the most striking examples of this. In the 1980s, the Brazilian government banned the import of foreign brands in order to encourage domestic computer production. However, contrary to expectations, instead of enabling local companies to develop, this protection caused them to be disconnected from global innovation, and the sector lost its competitiveness when it opened up to the outside world.
The examples reveal the biggest impasse of the infant industry theory and show that baby industry protection alone is not a magic formula. In order for sectors to truly develop, they need to be supported at the right time, and they should not be kept under protection forever. Today, sectors such as artificial intelligence, electric vehicles and renewable energy are also included in the same debate. Which ones will become global giants, and which ones will be lost to the dusty shelves of history? We'll wait and see!
