Why did infant industry protection fail to develop a competitive computer industry in Brazil?

Politica Nacional de Informatica was abandoned too early, as 15 years are not enough for an infant industry to develop.
0% (0 votes)
Protection was insufficient, as Brazilians only had to pay 20% higher prices on average for their computers.
4% (1 vote)
The additional advantages offered to domestic computer manufacturers, such as priviledged access credit, were not enough.
0% (0 votes)
The domestic market reserve was insufficient. The government should have actively promoted the export of Brazilian computers.
15% (4 votes)
The United States retaliated.
0% (0 votes)
The policy was supervised by incompetent or corrupt politicians.
0% (0 votes)
The industry chosen for protection was not the right one.
62% (16 votes)
Infant industry protection rarely promotes the development of a competitive industry.
19% (5 votes)
Total votes: 26

Comments

In my opinion, not only the fact that the computer industry was the wrong one to receive protection but also it was protected for too little. As the videos clearly explain, Brazil is not the top country to have computers as its main industry. I believe a better industry to protect in brazil would be the agriculture industry and this is based solely on the fact that the country is not technologically advanced enough alone. Protection of infant industries is really good for the country but bad for competition and a threat to the free market. As the industry progresses on its own it doesn't have any motivation to move faster or be better and it becomes stagnant or falls behind other industries.
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Free trade vs protectionism seems to be a modern dilemma. However, the debate started a long time ago, with a theory called mercantilism. Mercantilists argue that in order to grow richer a country had to try and produce as many goods internally as possible and reduce foreign imports to the maximum. The government would impose high tariffs on imported goods and discourage foreign manufacturers from competing with local producers. Adam Smith, in his book The wealth of Nations he tried to dynamite the intellectual basis of mercantilism. Smith’s argument is it is close to impossible for a country to become good in all aspects of the economy. Therefore, he supported the idea of specialisation – whereby each country should specialise in their strengths. Within this framework, the Government would recognise sectors with a national advantage, educate workforce and reduce tariffs as much as possible for imports. For about 30 years after the World War II, trade policies in many developing countries were strongly influenced by the belief that they key to economic development was the creation of a strong manufacturing system. One of the best ways to achieve that was to protect domestic manufacturers from international competition. According to the industry infant argument, developing countries have a potential comparative advantage in manufacturing, but new manufacturing industries in developing countries cannot initially compete with well established manufacturing in developed countries. In accordance with this argument, it makes sense to use tariffs or import quotas as measures to get industrialisation started. However, economists have pointed out many pitfalls of the infant industry argument. Some of them are: - It is not always good to move today into industries that will have a comparative advantage in the future - Protecting manufacturing does no good unless the protection itself helps make industry competitive - Also, the fact that it is costly and time-consuming to build up an industry is not an argument for Government intervention; unless there is some domestic market failure. The argument for protecting an industry in its early growth must be related to some particular set of market failures that prevent private markets from developing the industry as rapidly as they should. Specific to Brazil, in 1977 the Brazilian Government initiated policies to protect domestic informatic firms. The scope of the protection initially extended to micro and minicomputers, but gradually expanded to a wide variety of data processing devices and their inputs. Domestic firms did not produce for export, they produced almost exclusively for large domestic firms and public sector buyers. Domestic content laws forced Brazilian computer manufacturers to use domestic suppliers for inputs. Prices were around 2 to 5 times the international level. The results of the research supports the idea that the Brazilian microcomputer industry continued to advance over a 8 year period. As an industry under the import protection, it can help us understand the costs of protecting an industry. However, we are shown that the price of Brazilian PCs started higher and stayed higher than their international competitors. Technical frontiers perpetually lagged price/performance practices in international markets by 3 years or even as much as 5. The opportunity cost of following this protective policy rather than opening up to international markets was on the order of 716.4 million US; or roughly a third of the total expenditure on domestically produced microcomputers. The findings in my view challenge the efficacy of import protection of high-tech. At the same time, as a personal opinion, I believe it would be interesting to know whether they made the right industry choice in accordance with Adam Smith's specialisation theory.
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Brazil, the third-best advanced industrial sector in the Americas with diversified industries ranging from automobiles to computers and many more. The protection Act was legalised to protect and grow as well as encouraging the patronising of locally made computers. The infant industry protection was not successful to develop a competitive computer industry due to many factors explained below. Firstly, I think the computer industry was not the right sector for the country to protect because the cost involved in producing computers in Brazil was higher as compared to their neighbouring countries like the United State of America. Though Brazilians are capable of making computers, one should also consider the time, energy and resources(labours) involve in its production. Over here the issue of comparative advantage(David Ricardo,1817) comes in: A country can produce a good or service at a lower opportunity cost than another country. Brazil will be better off to focus in the sector where they have much strength like the sugar plantation where they are well-vex in that(introduced to them by their colonial master, Portuguese in the 16th century). They can have an exchange or trade deal with other countries who cannot produce sugar at a low cost like the U.S.A. With this regard, both countries can enjoy an absolute advantage benefiting the two countries involved. Another factor has to do with preferences. Nowadays, most people all over the world like to purchase top brand name computers like dell, Microsoft Surface, Lenovo, Apple MacBook.HP, etc. Since they have low prices on high quality, speed and good visual performance which all help consumers to get value for their money. Brazil is also not left out of buying computers outside their country if the product (computer) does not meet their performance or requirement as well as purpose then they will eventually also follow suit. Due to the qualities possessed by foreign computers the demand for them will be higher, thereby collapsing the locally made ones. Technology plays an important role in the making of computers. The tech behind computers is developed over the century, not just a few years. For instance, U.S.A (invented its first computer in 1860) has the technical know-how as well as china which is not the same as Brazil. The infant computer industry of Brazil will be a relative disadvantage to highly technological advancement countries over time because they cannot compete with the external market and also lack the requisite skills, knowledge and experience in computer technology. Moreover, I also believe that the materials for making computers, in general, became very difficult to procure. Besides the material cost were also hiked making it difficult for the industry to continue to operate. Such materials included, crystalline semiconductors, plastics, lead, alloys, copper wire and cabling, different metals etc. In the nutshell, it would be ineffective for Brazil to continue to shield the computer industry because it will be imprudent also do the economy more harm than good.
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Generally, the effects of protectionism are the diminishing the efficiency with which the protected economy operates; high costs are borne by consumers; the increase of the prices of some products, especially those with a reduced elasticity of demand; the diminishing of income from the economy due to high prices; high risk of a true protectionist spiral; the reducing of the pace of economic growth by increasing prices on the domestic market and by determining industries to use less efficient techniques; and the decrease of the absorption capacity of some markets, reducing export opportunities for companies. On the other hand, protectionism has been part of the arsenal of economic development, ensuring economic security, changing the balance of power, reducing social tensions. A state needs to choose properly the domains that want to protect. If the labor force is not guaranteed, if people are not qualified for the industry, if the market is not insured, then protection policies may fail. Global competition in the technology industry is huge. Some countries have focused exclusively on the development of this field. In these conditions, it is hard to believe that Brazil, which has tried to develop many industries, can offer performance in such a competitive field. Brazil has other areas that can be the first places in the world and should focus on development. In my opinion, the development of computing technology is possible, but not starting with protectionist policies; to invest in education in the targeted fields, in research and development of competitiveness could be a better idea.
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Free trade is the economic doctrine, opposed to protectionism, which advocates the non-intervention of the state in international trade, allowing the flows of goods to be governed by the advantages of each country and the competitiveness of companies. The discussion about free trade and protectionism has existed for centuries. On one side are those who say that releasing trade barriers will improve the quality of life of all countries, and on the other, those who say that protectionist policies are essential to advance towards economic development. History shows a paradox. The developed countries that today defend free trade achieved their development based on policies that today would be accused of being protectionist by themselves. As early as the 19th century, the German economist Friedrich List observed this behavior and called it “kicking the ladder”. This expression, which was later popularized by Ha-Joong Chang, refers to the fact that developed countries used a set of instruments to achieve their development and once they were successful, they prohibited other countries from using it. In this way they ensured their supremacy. However, this is not just a debate from the past. Contradictorily, developed countries, despite their free trade rhetoric, have continued to use protectionist policies while promoting free trade for the rest of the world. If we look at the trade policies of Europeans in the 17th and 18th centuries, we are talking about mercantilism that aims to minimize imports and maximize exports. The goal of mercantilism is to concentrate as many precious metals as possible in one country. At the end of the 18th century, ideas began to change, especially with the publication of Adam Smith in 1776 «Recherches sur la nature et les causes de la richesse des nations » attaquant le mercantilisme. The change of ideas does not necessarily begin in Scotland, but also in France with the Physiocrats. There is an ideological trend that leads to an opening to freer commercial relations between nations. A first effort appeared in 1786 when England signed a treaty of commerce and navigation with France based on free trade. We will soon see that this free trade agreement is displeasing French industrialists because French industry is in very bad shape. The information technology (IT) software and services industry in each country is the result of the conjunction of historical and institutional factors particular to the environment where it was born. Its development trajectory is expressed in a specific model that is difficult to emulate by other countries. Each model is made up of a set of heterogeneous elements, such as government institutions, academia and the market, and the interactions between them. The review of the conditioning factors and characteristics of industrial policy, S&T and software and IT services in Brazil in three different periods: the birth of the information technology industry and the institutionalization of the market reserve (1964 to 1992), in the second part; the period of policy liberalization (1992 to 2002), in part three; During the validity of the market reserve policy, two government bodies were responsible for its formulation and implementation: the Electronic Processing Activities Commission (Capre), linked to the Ministry of Planning, made up of bureaucrats and representatives of the research community; The case study of Brazil revealed that the argument does not stand valid as the micro-computer industry failed to develop up to its potential i.e., it was not at par with the international market. Even though the industry had developed since 1971, the legal prices of peripherals and computers were still higher than international standards making the industry less competitive. By studying the positives and negatives of the infant industry argument and analysing the case of the Brazilian computer industry, it can be concluded that employing protectionist trade policies creates market distortions which ultimately do not bring about an increase in national welfare.
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Adopting a free trade market or a policy of protectionism is not a new question. We may observe that with Adam Smith and others. However, the effects of each policy are being studied for a long time. In Brazil, the protectionism of the computer industry was not enough because it still was an infant industry. Being an infant industry means that it is not enough for itself, so it would need foreign resources. As the foreign commerce was not allowed, the production inside the country became more expensive. From this point of view, we had two problems in Brazil: the price and quality. As it was an infant industry, the resources and the techniques were not so good, so we lost quality, and as it should be produced here and people could only buy here, the price got more expensive. So, the protectionism failed in Brazil because, from my point of view, what improves the market is the number of competitors. In this case, the free trade is more attractive, because they must compete on prices and qualiity. Who can offer more quality for the lowest prices? In the protectionism it is lost, and maybe, people have to get used to something that doesn't have a good quality paying higher prices. That's what happened in Brazil. It was not good enough in prices, quality and economy management.
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Probably, I need to agree with Ha-Joon Chang's view. Developing countries should apply policies of protectionism to selected industries. Nevertheless, such a policy should be long-term, focused on the balance of value and quality of products of enterprises in such industries. The situation with the development of a competitive computer industry in Brazil is very similar to the situation with the development of the automotive industry in Ukraine. For 30 years, the Ukrainian government has made and continues to make attempts to resume its successful development. For this purpose, various protectionist measures were applied (soft loans, reduced duties on the import of components, etc.). However, so far there is no desired result. The Ukrainian car market is considered one of the most promising in Europe. However, Ukrainians do not want to buy Ukrainian cars. Exports of Ukrainian cars also have small volumes. In the current context of world trade liberalization (WTO should be mentioned), the actions of various international economic obligations of governments of developing countries, it is very difficult for such governments to implement a successful policy of protectionism. Such a policy can be effective in those areas where the country has resource advantages. For example, today in Ukraine it is agriculture (potential of natural resources), IT-industry (human capital), etc.
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When a country wants to start something, a new project that can put them on world tops, a new resolution, a new vision maybe, or ideea, the government should help the most. How? Well, they can analyze the situation, to see the plan of the project, they must be interested for any details, to see if it is good, and to correct the bad things, and in the end they must to sustain every step for realising. I think it is hard for a country like Brazil to stay in tops in computers industry, they have a lot of other resources for another industry, but in my opinion, computer industry it is not made for everyone.
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As I generally know, Brazil is well known for its agricultural field. I think that this industry shall have received more attention. The computer industry was wrongly chosen. Even though the power of digitalization is very popular, the industry of its devices is not a lottery ticket for any country. Not any country can gain a considerable economic development if they risk betting on a not so calculated option. America for example can bet on the computer industry because the area is well-developed from its digital point of view. But Brazil's lottery ticket is more based on agricultural harvests, on varied mineral resources than on a computer industry.
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Іnfant industry protection fail to develop a competitive computer industry in Brazil for many reasons. In my opinion, the main ones are: the domestic market reserve was insufficient, the government should have actively promoted the export of Brazilian computers (this factor negatively affected somewhere around 30-35%); the policy was supervised by incompetent or corrupt politicians (this factor negatively affected somewhere around 10-15%); the industry chosen for protection was not the right one (this factor negatively affected somewhere around 30-35%); infant industry protection rarely promotes the development of a competitive industry (this factor negatively affected somewhere around 20-25%). Any financial protectionism of the chosen sector of the economy is not free, because to finance the cost of investing in the development of the chosen industry requires higher taxes on companies in other industries (which will immediately make them less competitive and profitable), and this protectionism is financed by buyers who have to pay much higher prices for lower quality goods (in Brazil as much as 20% higher prices for microcomputers). The opportunity cost of following this protective policie in Brazil was on the order of 716 million US dollars, therefore, this amount was withdrawn due to taxation from other sectors of the economy. It is very important to choose the right industry for protection, it is more appropriate to choose an industry that is naturally, historically characteristic of this region. That is, there are their own natural resources, scientific experience for the development of the selected sector of the economy. Preference should also be given to those industries that produce essential goods and have fewer substitutes, as well as those that are less price elastic (ie, rising prices for this product will not reduce its sales by the same proportion). Important in determining the priority to protect the economy is a detailed analysis of other countries in similar industries, ie finding their own niche and opportunities for production of goods where there is less competition from developed countries that can afford to dump and destroy competitors. If countries (such as Brazil with microcomputers before 1990) focus on selling goods mainly on the domestic market, it will mean a significant reduction in potential sales (due to too high a price for their citizens), and in foreign markets the product will be uncompetitive in quality and price, so exports will be small. There are also possible risks of smuggling and bureaucracy in such a policy of protectionism. In general, the protectionism of any industry can quickly make it "lazy" and reduce opportunities for self-development and incentives. Free trade and protectionist policies have their advantages and disadvantages, and they depend not only on the situation within the country, but also on the foreign economic policy of other countries.
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