Fault Lines: How Hidden Fractures Still Threaten the World Economy

by Raghuram G. Rajan

Daniel Defoe, the businessman, journalist, pamphleteer, and author of Robinson Crusoe, among other books, describes in detail in A Plan of the English Commerce one of the earliest documented instances of government-aided development: the way the Tudor monarchs transformed England from a country reliant on raw-wool exports to one that exported manufactured woolens.10 Prior to his coronation following the War of the Roses, Henry VII spent time as a refugee in the Low Countries. Impressed by the prosperity in those lands, derived from wool manufacturing, he decided to encourage manufacturing in England. The measures he took included identifying locations suitable for manufacturing, poaching skilled workers from the Low Countries, increasing duties on or even banning the export of raw wool, and banning the export of unfinished cloth. The monarchy also started promoting the export of finished woolen garments, with Elizabeth I dispatching trade envoys to the Russian, Mogul, and Persian empires. The calibrated and measured support afforded to industry is best reflected in the fact that raw-wool exports were permanently banned only when the monarchy was confident that domestic manufacturers could use all the raw wool available and were competitive enough internationally to export the additional production. Such managed competition

earliest examples of govt led industrial development . england under henry vii. fostered local wool manufacturing industry through policies that favored local private enterprises. might have picked winners, but imported knowhow, used tariffs and trade blockages (of outgoing raw material) to build competitive local ventures.