Infant Industry

Published Apr 29, 2024

Definition of Infant Industry

An infant industry refers to a new or emerging sector or type of business within an economy that is in its early stages of development. These industries often lack the competitive strength to stand against well-established international competitors because they are still developing their technologies, production processes, and market presence. Typically, these industries are characterized by high costs and low productivity relative to their more mature counterparts. Governments often provide support to infant industries through tariffs, subsidies, or other protectionist measures to allow them to grow and become competitive on an international scale.

Example

Consider a country that has recently started developing its solar panel manufacturing sector. This sector could be regarded as an infant industry if solar technology is relatively new to the country and the sector is not yet competitive with established solar panel manufacturers from other countries. The government might decide to support this infant industry by offering subsidies to domestic manufacturers or imposing tariffs on imported solar panels. This provides a temporary shield against international competition, allowing the local industry to develop its technology, reduce production costs, and build a customer base.

Why Infant Industry Matters

The concept of the infant industry is crucial for economic development and strategic independence. By nurturing young industries, governments can diversify their economies, reduce dependence on imports, create jobs, and build up sectors that have the potential to be competitive on a global scale. The challenge, however, is determining when an industry is mature enough to compete without support, as prolonged protection can lead to inefficiency and dependency on government aid. An adequately supported infant industry can transition into a competitive player in the global market, contributing to the country’s economic growth and technological advancement.

Frequently Asked Questions (FAQ)

How do governments decide which infant industries to support?

Governments typically choose to support industries that align with their strategic objectives, such as those that promise significant employment opportunities, technological advancements, or the potential for export growth. The selection process may involve economic feasibility studies, assessments of long-term viability, and considerations of how the industry fits into the broader economic development plan of a country.

What are the risks of protecting infant industries?

While protecting infant industries can foster economic development, it also carries risks. These include the misallocation of resources to unviable industries, the potential for creating monopolies or oligopolies with market power to raise prices, and the risk of retaliation from international trading partners. There’s also the possibility that protected industries may become permanently dependent on government support, lacking incentives to improve efficiency and reduce costs.

Can an infant industry policy be considered a violation of free trade principles?

Yes, infant industry protection can be seen as contradictory to the principles of free trade, which advocate for minimal governmental intervention in markets. Protectionist measures like tariffs and subsidies can distort market forces, leading to inefficiencies. However, proponents of infant industry policies argue that temporary protection is necessary to achieve a level playing field in the long run and can ultimately contribute to a more diversified and resilient economy.

Are there successful examples of infant industries that have grown to be globally competitive?

Several countries have successfully nurtured infant industries that have grown to be competitive on a global scale. For example, the South Korean automobile and electronics industries were once considered infant industries and received substantial government support. Today, companies like Hyundai, Samsung, and LG are internationally known and competitive. Similarly, the aerospace industry in Brazil, centered around Embraer, benefited from government policies aimed at developing the industry, helping it become a leading exporter of regional jets. These examples illustrate the potential benefits of carefully designed and implemented infant industry policies.