An Unlearned Lesson: how bicycles have been “import-substituted” during 120 years

The import substitution policy pursued by the Russian authorities, as it turned out, has a long history - it is at least a hundred years old, and its uselessness was proved even then. At the same time, at the beginning of the twentieth century, it became clear that the authorities themselves, of course, do not believe in any import substitution, but use it in their own selfish interests, says economist Dmitry Prokofiyev. Firstly, in order to "master the budgets", and secondly, to justify the increase in consumption taxes. An interesting story on this topic from the pre-revolutionary past of our country is given by the telegram channel Proeconomics:

More than a hundred years ago, even conservative economists-statists understood the perniciousness of protectionism with underdeveloped economic and political institutions - banks, special education, entrepreneurial initiative not shackled by administrative fetters, with developed consumer demand. In 1900, economist Sergey Sharapov in his article “What is true protectionism? Has he ever been with us?" wrote:

“A lot of bicycles have been imported into Russia in recent years. For this truly stupid and useless object, contributing only to social savagery, Russia has overpaid abroad in recent years, without exaggeration, tens of millions of rubles. Why shouldn't this rubbish, since the public already demands it, not do it at home? Okay. We will impose a heavy duty and give the Russian manufacturer all the advantages over the foreign manufacturer. He is content with 10%, let ours make a ruble for a ruble, i.e. 100%.

But a protection duty has been imposed, and there are no Russian bicycles, just like not. The price for them in Russia is almost twice as high as in America, but meanwhile Russian factories are not opened, and the consumer only bears the tax without any benefit to the "domestic industry".

What's the matter? Why hasn't the goal been achieved? Yes, precisely because the duty is not yet protectionism. For bicycles to be manufactured in Russia, and not just any, but good ones, capable of completely replacing foreign ones, many conditions are needed, among which the duty is far from the main thing.

To make bicycles well and cheaply, you need to make all of their parts not by hand, but by machines. These machines are special and terribly expensive. This means that a very large fixed capital is needed. Then you need expensive special material, which you have to subscribe from abroad and pay a high fee for it. Then the production must be mass, the goods must be available so much that there is not the slightest delay in the requirements. This means that a huge circulating capital, cheap and very broad credit is needed, otherwise the manufactured goods will eat themselves up with interest. Further, you need pedantic accuracy when accepting and rejecting goods. A small batch of a poorly executed order can undermine irrevocably the credibility of a firm, which must be prepared to incur large losses and costs in order to build and maintain its reputation. And what about advertising? We do not even have a clue about those fabulous sums that are spent in Western Europe and especially America on advertising.

When you realize all this, when you ponder over this sum of conditions unfavorable for our industry, you can easily explain to yourself why, despite the possibility of earning more than a ruble for a ruble, we do not and cannot be willing to start bicycle factories. And no matter how much you raise the duty, this will not help the cause. This duty will only be a tax and will not cause anything but an exorbitant rise in price for this product".

As you can see, nothing has changed since then, the technological gap has not decreased, which is very clearly seen in the Russian space industry and in digital technologies. Suffice it to mention the first Russian laptop just presented by its creators called "Graviton": from the Russian in this gadget only the motherboard and assembly. It is unnecessary to explain why and who needs this miracle of domestic technology, the economist Sharapov already told everything a hundred and twenty years ago.