10 Arguments against Protection of Industries from Foreign Competition

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Protection is not an unmixed blessing. It has some positive disadvantages or dangers too.

Some of these dangers are given below:

(i) When foreign competition is removed, the home manufacturers become lethargic. Protection acts like an opiate. It sends the home producer to sleep. All improvements are neglected. There is no incentive to cut down the costs or to improve the quality. Technical progress thus comes to a standstill.

(ii) Another disadvantage is that there is a loss in public revenues. If high protective ditties are imposed, imports will shrink and revenue from customs will fall.

(iii) Burden on consumers. The most important objection to protection comes from the consumers. The burden of protective duties does not fall on the foreign manufacturers as it is sometimes supposed. The burden is on the home consumer because he has to pay a higher price than before on account of the imposition of import duties. It is said that it does not look fair that a poor consumer should be penalised to enrich the already rich manufacturer. Thus inequalities of wealth distribution are further aggravated.

(iv) Tariff is sad to be the mother of trusts. As soon as protection has removed foreign competition, the home manufacturers are induced to form combinations of their own in order to remove the internal competition also. In India, the sugar factory owners formed the Indian Sugar Syndicate to eliminate competition among themselves and to charge a monopoly price from the consumers.

(v) There is also the danger of corruption. It is very well known that in America the legislators used to be offered bribes by industrialists. The object was that no legislative measure may be adopted which might adversely affect them, and legislation which suits them may be passed.

(vi) Inefficient concerns perpetuated. The removal of foreign competition perpetuates weak and inefficient concerns. If competition were free, only sound and healthy concerns will remain in the field. Although it may inflict some injury on some individual manufacturers, yet weeding out of unhealthy concerns is considered to be good for the society as a whole.

(vii) Misdirection of resources. Protection diverts labour and capital and other factors of production into set channels. They are prevented from seeking their most remunerative employment. This is bound to decrease the national dividend. Misallocation of the available resources into unsuitable channels cannot be economically justified.

(viii) Vested interests are created which refuse to give up protection. The ‘infants’ refuse to admit that they are grown up. They start kicking at the slightest indication of withdrawal of protection.

(ix) There is a danger of retaliation from abroad. As a result, some home industries might suffer.

(x) Choice limited. Protection limits the choice of consumer goods. Through tariffs, quotas and exchange control, the availability of foreign goods is severely limited. The various protective policies drastically cut down the availability of foreign movies, books, magazines, pictures, clothing, food, etc. Goods imported from other countries also bring with them ideas and styles and other ways of living. Indeed, they enrich life.