Protection

The German Zollverein.

The most remarkable instance in modern times of the constructive use of a protective tariff in the building up of a great empire is to be found in the history of Germany. At the beginning of the 19th century Germany con sisted of a number of small states each enjoying fiscal autonomy, separated from one another by customs frontiers, and after the era of the Napoleonic wars, German statesmen and economists saw that if national industries were to be established on a modern scale, these numerous areas would have to be unified. Standing alone and more or less isolated economically from their neigh bours, they could not get the full advantages they could obtain in production by the development of their materials from their numerous population and from their mutual commercial rela tions. Germany had to choose between a large-state and a small state policy, and Prussia began the work of organisation by the adoption of the tariff of 1818. Internal tariffs in the provinces of Prussia were swept away. Prussia as a whole was given protec tion against all external competitors, and other German States were invited to enter into union with her. The result of this move ment was the formation of the Prusso-Hessian Zollverein. This was followed by the Zollverein between Wurtemberg and Bavaria and other combinations. These combinations were then brought into union and the first treaty of the Zollverein was adopted in 1834. The larger part of Germany thus became more or less a homogeneous economic area, except for a survival of a number of internal duties which it took many years to get rid of. The treaties were in the first instance for 12 years. By the end of the first period other states had acceded and so the process went on until the German Zollverein was completed. The Zollverein was not coterminous with the German Empire, but it was the condition and the means by which the German Empire was created.

This movement was not understood in England, where it was regarded as protectionist in the narrow sense in which the word was used in English controversy. There were gloomy prophecies as to what would happen to Germany and what would happen to the trade of England with Germany. In fact the German move ment was not dissimilar from that extending over a long period of time during which the economic union of England, Scotland and Ireland was effected, and many internal barriers were swept away.

The formation of the Zollverein brought about freedom of trade over a vast area, and its trade was protected against foreign competition by a carefully devised tariff round its external fron tier. It is obvious that the internal union could not have been secured without the external protection. The German tariff and the internal organisation were necessary parts of the same move ment, and the tariff organisation was supplemented by great schemes of reconstruction affecting every aspect of German life. The progress which followed the movement is without parallel, and the German empire became the most powerful competitor in the world with other countries. This feat of statesmanship was all the more remarkable as it was carried out in the teeth of British competition. When Great Britain entered upon her era of rapid

commercial progress, she was first in the field with the inventions which revolutionised industrial processes, and she had the manu facturing monopoly of the world. Germany at the beginning was technically behind Great Britain, but she had one great help to her progress. Just when she was applying on a vast scale the principles of policy which had made Great Britain mistress of the world, that country turned her back on her own traditions and made a free present of her market to any country which could exploit it. The rapid industrial progress of Germany was un doubtedly partly due to the fact that German exporters had free entry into the English market for their goods. Before the World War, it was quite common for great German factories to be planned, erected and organised on the basis that they could always dispose of their surplus productions in the English markets to an advantage at any price they could fetch.

This illustration from Germany is given in order to show how misleading was and is the practice of abstract English free traders of grouping the commercial policies of the world under two cate gories, of free trade and protection. Actual policies as they have been carried out can never be described in that simple manner. It is not enough to say that the actual policies are a combination of both theories. They are not. The actual policies of countries are the expression of the living activities of great societies as they have been determined by their long history and the powers and functions which they have developed, and they never follow the lines of an abstract theory divorced from the facts of that develop ment. All countries have followed or are following much the same general course of development as Great Britain up to the modern era, but no country in any part of the world has ever deliberately adopted the practice of free importation in modern times. Many German students for years before the war studied very carefully the course of events in England in order to avoid the mistakes which had been made.

We can see how the growth of the Zollverein brings into clear relief the mutual relations of the measures adopted in carrying out a great poliCy of economic nationalism, and the conditions under which such a policy can be achieved. Internal fiscal differences have to be swept away as far as possible, and that requires the pro vision of some alternative means for furnishing the revenue which in the first instance has to be sacrificed. So we get the organisa tion of a tariff against external countries and the development of means of direct taxation. The process further involved a policy for application to the means of communication, especially the rail way system and transport by sea. In all these processes there was necessary some political reorganisation. The small States had to sacrifice their autonomous fiscal powers when they entered into the new union. The Zollverein on the German model could not be achieved without such sacrifice, a condition which could not be realised in the British empire where the dominions would cer tainly not give up their fiscal autonomy.