Counter Claim
Keynes denies ‘there is an invisible hand channelling the self-centred action of an individual’ (Samuelson, p151)
Evidence to support Claim
First, ‘too much competition and too little cooperation’ can cause further inequality amongst individuals (Soros in Reisman, 2004) and thus; secondly the pursuit of self interest would lead to anarchy and crisis (Marx).
A societies values, it’s culture, it’s social conventions – all these develop in the same way, through voluntary exchange and spontaneous cooperation
Economic freedom is an essential requisite for political freedom.
If an exchange between two parties is voluntary, it will not take place unless both believe they will benefit from it
Self interest is not myopic selfishness.
3 (a) The Role and Responsibility of Government
Claim made in the Literature
When people are able to live free of government regulation they prosper- ‘ goods become cheaper, standards of living go up, and individual liberty is expanded.’ (Frazier 2004). A belief in free markets has nothing to contribute to distributive justice (Bishop p14)
Evidence to support claim
First, coercion and intrusion is exemplified most profoundly through government intervention; second, the responsibility and moral obligation to the rest of society ‘lies outside of the market’ (Friedman p14) and; thirdly governments must take a stance less coercive, yet ‘sponsoring systems of welfare, social security, and subsidised education, health care and housing.’ (bishop p11)
Counter Claim
In support of domestic industries, government intervention through the methodical implementation of tariffs, regulations and subsidies, aim to regulate and protect those it otherwise may affect
Claim Made in the Literature
The purpose of government is to ‘make the world safe for human cooperation by protecting society against attacks on the part of foreign aggressors or domestic gangsters.’
Evidence to support claim
Government policy could best aid it’s populace through two functions. Firstly the role of the government should be that of a protectionist -government should protect individuals and their property from acts of aggression - force, fraud, and coercion. Establish the rule of law, enforce private property and contracts. Protect citizens from foreign invasion (national defence) and protect citizens from each other. Secondly government could provide a productive function. In some cases the market has trouble supplying a good or service when it is hard to establish a link between individual consumption and individual payment or it is costly to monitor individual use of a good or service and collect payment. (Gwartney 1998)
many argue that
Free markets assume
The responsibility must lie outside the market
Since the needs of people with nothing to offer the market cannot be met by capitalism,
3. c)
The general public
From a broader prospective; people around the globe are more connected to each other than ever before; information and money flows more quickly; goods and services produced in one part of the world are increasingly available in all parts of the world. International travel is more frequent. International communication is commonplace.
I will argue that such intervention is driven by the notion that governments wish to live in
explaining that.
To maintain nation’s sovereignty in ‘a world shrinking and becoming a single place’ the protection of the industries and the populace it governs is vitally important.
Many contemporary authors in the field of economics have resounded differing assumptions that support and contradict this newly formed convergence and regulation of markets. One of the most sacred assumptions has been the hypothesis that an ‘invisible hand’ determines the market and its prices, in essence ridding the world of inequality
. Such intervention is driven by the notion that governments wish to live in ‘a world less driven by economic exchange and more concerned with values, norms and rights.’(Clinton in Sullivan p. 1)
I challenge this disposition. Current trends in government mindset and further regulation of trade impose new and improved powers to governments, while also negating the best use of resources procured through specialization.
Through an approach that is sustainable yet equitable, international cooperation could also generate boundless positive impacts. The aim of this essay endeavors to shed light on the benefits of free trade in relevance to the current ‘protectionist’ policies imposed through government regulations. In reference to current literature procured through inconceivable means, furthermore I will challenge current political thinking and asses the detrimental effect that regulations, namely subsidies, have toward developing countries’ economic growth.
The Benefits of Trade
Through increased integration between nations, economies experience increased trade, capital and labor movements. Hill defines trade as: - ‘A transaction involving the sale and purchase of a security; in general, the buying and selling of goods and services.’ (p.166) People have traded with each other for centuries in order to overcome the local scarcity of resources. Scarcity, increased through consumption and an ever- growing populace, abets nations to seek globally as a means to feed their hunger. As this hunger grows, consumers awaken to the reality that goods can be produced more efficiently and cheaply elsewhere, and fosters choice and freedom. Recent developments have emphasized further positive gains from increased trade. These include; increased power and national influence; aid in promoting foreign policy and goals; cultural/social reasons and; economic development. Although numerous advantages arise as a result of more open trade between countries, governments see a need to protect industries in order to safeguard their reign of dominative power. As the trend leans more toward a more regulated and governed trade arena the envisaged future looks bleak for consumers as they are denied their sovereignty to choose.
The world’s trading environment is changing rapidly; individual nations are becoming more integrated opening up new avenues for trade and foreign investment. Currently, the General Agreement on Tariffs and Trade (GATT), along with its descendant, The World Trade Organization (WTO), act as the foundation in harboring increased trade between nations. These organizations base their view on the fact that all countries will benefit from the unrestricted flow of cross-border trade. The GATT, established in 1947, is central to trade negotiations and is based on two major principles. The first is non- discrimination between member states. Meaning, that an agreement should extend to its members first and only. The second principle is the prohibition of barriers other than tariffs. The GATT views tariffs as being rather transparent and therefore easier to negotiate. Through concentrating efforts primarily on the deregulation of tariffs, the recourse of non-tariff barriers has actually increased since the GATT’s inception. (Regional Trade Agreements p. 8).
Subsidies – Detrimental to Growth
Margaret Kelly of The World Monetary Fund states that ‘The increase in non tariff measures may have largely offset the liberalizing effects of tariff reductions in the postwar period.’(IMF p.7) Non tariff measures can take the form of either border or non-border measures and both are detrimental to nations’ economic growth and prosperity. These actions are enforced in order to protect industries most vital to a nation’s economy. The most common and important form of non-border measures currently used by governments are subsidies. A subsidy is a government payment to a domestic producer and may take the form of cash grants, low-interest loans and tax breaks to name a few. (Hill p.167) Subsidies aim to provide support for domestic producers through enabling them to compete against both foreign imports and exports. The majority of benefit is seen by the domestic producer, helping emerging firms establish a first-mover advantage (Hill p. 183). Although the objective may be to combat forces impeding on success in the global market, subsidies actually do more harm than good.
Liberal philosopher, John Mill, observed last century that ‘trade barriers are chiefly injurious to the countries imposing them.’ (Miller & Elwood, p.2) This assumption is still quite valid today and is evident through the costs individuals within nations incur, through the implementation of such policy. Governments argue that intervention is in the best interest of its citizens, allowing goods to be sold more cheaply than their foreign competitors. Though this may ring true, competition from abroad aids in spurring and promoting reform to domestic industries, making them stronger rather than weaker. ‘The slothful and incompetent protectionist has endlessly sought to erect barriers in order to prohibit competition’ (Miller & Elwood p.3). Hill (2006, p.201) states that subsidies not only incur taxes but also ‘protect the inefficient and promote excess production.’ For example farmers who receive subsidies are often less efficient than those in other parts of the world. Farmers are aware that goods can be produced elsewhere more competently and received and consumed more readily and cheaply than their own produce.
The implementation of subsidies seems impractical aiding producers to continually produce ineffectively, yet stands to neglect the economic burden placed on the consumer. Government intervention not only ignores the cost of protection but also overlooks the benefits of trade liberalization.
Free trade – Blessing in Disguise
Antagonists of government intervention envisage a liberalized or ‘free’ trading arena. While international trade has been present throughout much of history , its economic, social, and political importance has only recently become apparent. Walter Block sees free trade as ‘the only philosophy compatible with international peace and prosperity. Free trade involves the eradication of current trade barriers so as to encourage countries to specialize in production. ‘Society thrives on trade simply because trade makes specialization possible.’ (Blinder p. 1).
The basis of the free trade argument is an economic theory known as comparative advantage and was devised by David Ricardo in the late 19th Century. The Ricardian model is perhaps the most important concept in international trade theory. In a Ricardian model, countries specialise in producing what they produce best. Unlike other models, the Ricardian framework predicts that countries will specialise solely instead of producing a broad array of goods. Ricardo argues that trade will not affect . Take for example the situation of the Lawyer and the secretary. Some lawyers are better typists than their secretaries. Should such a lawyer therefore fire his secretary on these grounds, and do his own typing? Not likely. Though the lawyer may be better at both typing and presenting cases, he will fare better if concentrating his energies on arguing cases and leaving the typing for his secretary. Specialization not only aids in making the economy more efficient, it also leaves the lawyer and secretary with productive work to do.
Nations act in much the same way. Countries are said to hone their skills on a particular good or service and trade with others that have done the same. Through people’s desire to acquire new skills and knowledge, coupled with the yearning for a greater range of products growing, the call for countries to abandon protectionist policies is imminent.
Conclusion
In conclusion protectionist policies should be abandoned in order to make way for the freer flow of goods. As discussed protectionist policies are detrimental to the overall economic success of a nation. Through such policies as subsidies, producers are less likely to better their products due to the absence of international competition. The implementation of freer trade promotes specialization of production and aids in consumers receiving better quality goods at a reduced price. In order for greater consumer choice and freedom protectionist policies should be re-evaluated.
Reference List
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