Alexander Hamilton's Infant Industry Argument For Government Intervention

While it is fairly obvious that government intervention usually places the interests of the producers above those of the consumers, it is depends on the market they are intervening in and it is usually for the benefit of the economy as a whole especially in certain industries such as national security. Economists make the argument that the government should intervene in this industries such as aerospace, advanced electronics, etc. This is primarily due to the fact that it would be detrimental to rely on foreign producers for them (Hill, 2013). Moreover a government’s willingness to intervene is also determinant on the extent to which they wish to protect the interests of their producers and consumers. For example; the United States of America

Used to justify the protection of manufacturers and producers in developing countries as they have the potential to be comparatively advantage and possibly an absolute advantage. Smith (1776) stated that a country had an absolute advantage in the production of a good when it is more efficient than any other country producing it. Ricardo (1817) argued that countries should “specialise in the production of those goods they produce most efficiently and buy goods that they produce less efficiently from other countries. Even if this means buying goods from other countries that they could produce more efficiently at home.” Governments should assist the new industries with policies such as tariffs, import quotas, subsidies, etc. However first the government will assess the industry and only act if they are certain that the protection is only temporary and that said protection would result in higher cumulative benefits than costs (Melitz, 2005; Sundaram, 2005). Basically, protecting “upstart industries today in the hopes that the industries will grow to become vigorous producers who no longer need tariff protection in the future” (Boudreaux, 2008, p.83). This doesn’t only apply to developing industries, governments will frequently intervene to protect their nationals’ positions in the workforce. Case in point is the “Omanisation” Policy that the

Governments intervene in markets to promote general economic fairness. Sometimes a policy implemented can be mutually beneficial for both producer and consumer. For example; governments will often use taxation and welfare programs to reallocate financial resources from the wealthy to those in need. Subsidies for example; they’re payments by the government to producers to encourage the production of a good or service with positive externalities in production and/or consumption. Conversely, the money used to subsidise creates an opportunity cost as the revenue could be used for other means such as improving infrastructure, or health services which will benefit everyone (Poynter, 1982; Poynter, 2013). The Australian government does provide subsidies to the agriculture sector, lower than many European countries, America and far lower that Japan. It’s still an example of the government attempt to protect their sector from having to rely on imports which didn’t work out so well as seen with the Bananas Embargo (discussed later in the essay). This does benefit the consumer as well since it is increasing the yield and