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A Magazine of Ideas

How Economic Nationalism Bites Back

Thursday, January 17, 2013

History suggests protectionism has many more failures than successes.

Does protectionism work? In the late 19th century, British writers were as concerned about loss of markets and jobs to Germany as many Americans are today about competition from China. The campaign against rising Germany shows that economic nationalism can have unintended consequences.

One of that campaign’s most striking failures, now largely forgotten, was recently recalled by the German weekly Die Zeit on the 125th anniversary of the notorious “Made in Germany” campaign.

Ever since Bismarck’s German coalition defeated France and established a newly unified nation, Germany had a reputation for cheap mass manufacturing and aggressive pricing. At the time, Britain was not only Germany’s biggest trading partner but, in German eyes, the superpower with which the new Reich had to achieve parity.

For all the prestige of French civilization, Britannia still ruled for many continental Europeans. The new Reich’s unofficial national anthem, “Heil dir im Siegerkranz” was set to the melody of “God Save the Queen.”

Even animal fanciers deferred. The collie, for example, was the most expensive breed of show dog in the world. The German Shepherd as we know it was deliberately created in the 1890s from many Central European herding breeds as the Reich’s answer: an animal bred not for looks, the breed’s founders asserted, but for intelligence, character, loyalty, and courage. Germans were determined not to remain the underdog.

What was intended as a stigma for knockoff products like synthetic perfumes became a badge of quality.

Britain took seriously the threat to their supremacy by a rising Germany. In 1887, Parliament tried to use mandatory labeling to stigmatize German products. The Merchandise Marks Act made misrepresenting a product’s country of origin a serious offense punishable by a fine, forfeiture of goods, and up to two years of prison at hard labor. In principle, the law applied to all misstatements regardless of nationality — manufacturers in Britain and elsewhere used deceptive marks — but it was aimed mainly at Germany, considered the most skilled and aggressive of the imitators, as China is today. It was especially aimed at misrepresenting cities or regions associated with high-quality products. A common example would be stamping inferior German-made agricultural implements as “Sheffield,” threatening the genuine British product’s reputation overseas.

But there were ways around labels, some of which are familiar today, such as importing foreign parts and assembling them domestically, or placing the labels in inaccessible spots like the bottom of the treadles of heavy sewing machines.

In 1896, Ernest Edwin Williams documented such problems in a 175-page tract, Made in Germany, that became the mother of declinist literature in the English-speaking world. The threats change but the message remains: “The industrial glory of England is departing, and England does not know it.”

Peaceful trade did little to reassure British nationalists like Williams. They pointed to a flood of cheap German-made goods competing with the renowned products of industrial centers like Birmingham and drawing on Germany’s world-leading (and rigorously cartelized) chemical industry. Britain’s role as “workshop of the world,” nationalists warned, was in danger.

Williams favored labeling but recognized that without reform of British manufacturing and marketing, it was becoming worse than useless. When British international wholesalers sold goods marked “Made in Germany,” overseas buyers would realize they could probably get a better price by purchasing directly from German sources and dividing business that had previously gone through London.

As the quality of German products improved — new German optical glass eliminated the color distortion that had plagued early compound microscopes, for example, accelerating medical research internationally — what was intended as a stigma for knockoff products like synthetic perfumes became a badge of quality.

A decade or so later, anti-German protectionism also backfired in the United States in the media revolution of the postcard. Picture postcards were the Instagram of the early 20th century, made possible by more favorable postal rates and extension of the postal service through the Rural Free Delivery program. People collected them in albums that were passed around at gatherings of family members and friends.

Postcards also became the text messages of pre-World War I America, especially after U.S. Post Office regulations allowed travelers to write short messages on half the address side of the card. Some cultural critics even feared the postcard’s abbreviated style would destroy the personal letter.

Germans were leaders in printing and graphic arts and the leading global supplier of illustrated postcards. Bismarck himself owned a paper factory that exported to England — in fact, the immigrant founder of today’s ubiquitous U. S. Hammermill brand had run a big plant popularly called the Hammermühle for the Iron Chancellor!

Picture postcards were the Instagram of the early 20th century.

German lithographers enjoyed the best of both worlds: advanced technology and relatively inexpensive labor. They were also enterprising marketers, employing salesmen to solicit orders from local druggists and other retailers who could send them photographs or negatives for reproduction.

In the middle of the postcard boom, the Payne-Aldrich Tariff of 1909, supported by U.S. publishing and printing interests, severely limited postcard imports. The approaching cutoff of European suppliers had one desired result, as many domestic printers began to enter the field.

Indeed, some excellent American manufacturers emerged; the archives of the Detroit Publishing Company in the Library of Congress are now a public-domain treasure.

But it’s worth remembering how the splendid glass plates got there: the company was in receivership by 1924 and out of business by 1932. The market after 1909 was glutted not only by the postcards offered by the new American vendors such as the Detroit Publishing Company, but by countless German cards imported in anticipation of the tariff. The glut also helped to turn fashion against the postcard, and the boom virtually collapsed.

It wasn’t wrong for the British to be concerned about the technological state and quality of their industries. But attracting key, skilled immigrants is a much more effective way of remaining competitive. Asian-born entrepreneurs are their counterparts today. Tariff-protected industries lose their incentive to compete.

If the panic of the 1880s and 1890s seems quaint today, it’s because German, British, and American history alike show how futile it was.

Edward Tenner is the author of Why Things Bite Back: Technology and the Revenge of Unintended Consequences and Our Own Devices: How Technology Remakes Humanity. He is a visiting scholar in the Rutgers School of Communication and Information and an affiliate of the Princeton Center for Arts and Cultural Policy Studies.

FURTHER READING: Tenner also writes “An Unnatural History of the Electronic Mouse,” “Apple, Disney, and Dreams of Corporate Utopias,” and “The Fine Art of Resilience: Lessons from Stanley Meltzoff.” Mark J. Perry blogs that “Sen. Marco Rubio Explains the Twisted Political Logic of Trade Protection on CNBC” and says “Will the Senate Vote to End 200+ Years of Protectionism for the U.S. Sugar Cartel? Not Today.” Daniel Hanson discusses “The Flaws of the WTO.”

Image by Dianna Ingram / Bergman Group