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financial institutions that play a key role in supplying finance by having to
compulsorily buy government debt at a predetermined
rate.
(ii) Infant Indusla: Hamilton (1791), in his report on manufactures3l in the
U. S. A, suggested high tariff walls to encourage the production of textiles, ferrous
metals and other industries that were less competitive than Britain. In line with the
prevailing import substitution strategy it was widely accepted that some production
activities could not initially face foreign competition but could subsequently develop
a competitive advantage, if only they could get started and be given the necessary
breathing space. The U. S. A actually adopted extensive import barriers in its first 100
years to shelter its manufacturing sector from world competition. The infant industry
argument was adopted equally by Germany against British competition in the 19 th
century and by Japan in the automobile industry just after World War 1132. Various
writers, Prebish (1950), Myrdal (1960), contributed to the flourishing of the infant
industry argument amongst the developing countries' political leaders in the
aftermath of independence after World War 11. These authors claimed that
developing countries face two problems, (1) as exporters of primary commodities
they are exposed to world swings in commodity prices (2) the primary sector cannot
absorb the abundant supply of Idbour available in developing countries and rather
than waiting passively for comparative advantage to direct resources to labour
intensive manufacturing, industrialization should be forced by import substitution
industrialization. Apart from tariff protection the infant industry argument also
31
Just after the civil war in USA.
32 Before Japan became a tough competitor.
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