Question

1. What are the strengths and weaknesses of mercantilism and liberalism? Which would be more efficient in addressing global economic issues?

2. What are the reasons states impose protectionists policies on other countries?

3. What are the advantages and disadvantages of state ownership of the economy and private ownership?

4. How important is a stable international monetary system to cooperation among countries trade relations? Why would this be considered a collective good?

5. What are the factors that multinational corporations consider when making foreign direct investments?

Answer 1

1.Mercantilism is an economic policy that is designed to maximize the exports and minimize the imports for an economy. It promotes imperialism, tariffs and subsidies on traded goods to achieve that goal. These policies aim to reduce a possible current account deficit or reach a current account surplus. historically it led to colonialism by European countries.It promotes government regulation of a nation's economy for the purpose of augmenting state power at the expense of rival national powers. High tariffs, especially on manufactured goods, were an almost universal feature of mercantilist policy

merits of mercentilism

1. increase trade surplus - by promoting exports, countries became self sufficicent to meet the demand within the country and produced more to sell in other markets. it led to industrial growth and profits.

2.This Mercantilism helped the countries to increase foreign relation. When trade increased with foreign countries, commercial and cultural relation also developed.

3.Mercantilism also helped in the increase of colony. To export surplus, a country needed market. So, the European countries tried to conquer new countries to establish their colony in those places and wanted to gather more and more wealth.

4.These policies aim to reduce a possible current account deficit or reach a current account surplus. Mercantilism includes measures aimed at accumulating monetary reserves through a positive balance of trade, especially of finished goods.

De merits

Mercantilism gave birth to Colonialism. The European countries needed markets for sailing of their surplus. England, France, Germany, Italy, Spain, Portugal etc. were in this race. This created enmity among different countries.

it only focused on trade surplus and being self suffient and ignored other aspects ofgrowth of the country like education.

Liberalism is a political and moral philosophy based on liberty, consent of the governed and equality before the law.but modern liberalism has come a long way, it basically  focus on the constructive role of the state in protecting the environment, promoting economic opportunities for people, and preserving human rights. While most liberals accept that free enterprise and capitalism are to be promoted, they believe that there are some things that are best managed by the state, often because they are unprofitable for private business.

1. traditional liberal view support limited role of government and believes in free trade , individual rights and free markets but modern views acknowledge the role of government and promotes public as well as private ownership which keep the markets under check

2. Liberals also tend to promote government involvement to promote equal opportunity for minorities in ways that conservatives find inappropriate, therefore promoting equality  

demerits

1.it reflects too much optimism about what government is able to accomplish. They say the government programs are too expensive and often yield unintended consequences that actually worsen the social problems they were supposed to address

2. traditional liberals over emphasize on individual rights and why the governmets should not interfare in free market and trade and there should be no trade barriers which van lead to exploitation of domestic markets

i believe, mercantilism is far extremist in nature and past showed us that it led to wars and motivated colonial expanision. many european countries have been destroyed because of self sufficient rule as it creates monopoly and exploits consumers.

2. protectionists policies by the government

Protectionism is the economic policy of restricting imports from other countries through methods such as tariffs on imported goods, import quotas, and a variety of other government regulations. many countries impose tariffs and regulatiion on various products or specific segment to protect domestic business and balance trade surplus.

1.for example for any developing country like india, cheap imports from US and Chine can destroy domestic business and can create unemployment in the country.

2. helps in improving trade balance of the country and overall reserves to reinvest in the country.

3. protects from dumping from developed countries- mostly developed countired dump their inferior products at cheaper price to developoing nations and make profits  

3. state and private owenership

public Ownership – this is where the government own businesses

There are arguments for public ownership which include if goods are seen as public goods then the most efficient way for resources to be allocated may be through the market

If externalities exist in the market the government may choose to provide the goods for consumers e.g. education, healthcare

Advantages

• Provides jobs which are usually protected so reduces unemployment
• Finite resources such as water and energy can be guaranteed and controlled
• Able to provide essential services to the whole country

Disadvantages

• Higher costs for the government which means higher taxes
• Inefficiency – public organisations are often inefficient due to diseconomies of scale
• Government and political interference may reduce efficiency of operations

Public Goods

These are services that are provided by the government

Pure public goods have the following characteristics:

• Non excludability – everyone can consume the goods whether they pay or not
• Non rivalry in consumption – consumption by one person doesn’t reduce consumption for others
• Examples – street lighting, national defence

Privatisation of Markets

Privatisation occurs when organizations that are owned by the public are transferred to private individuals

During the 1980s there was intense privatisation of companies in the UK including: British Airways, British Gas and British Petroleum

When businesses are privatised it allows for increased competition therefore monopoly power can be removed

Advantages

• Provides revenue for the government
• Reduces trade union power
• Can increase investment as businesses can use capital from sale of shares
• More incentives to increase efficiency therefore economic welfare is increased
• More competition brings more choice for the subject

Disadvantages

• Unemployment may result as businesses try and reduce costs
• Monopoly power may still exist
• Private sector may fail to allocate resources according to social costs and benefits

3.

during the 1930s, the Great Depression resulted in failing economies. The fall of the gold standard led countries to raise trade barriers, devalue their currencies to compete against one another for export markets and curtail usage of foreign exchange by their citizens. All these factors led to declining world trade, high unemployment, and plummeting living standards in many countries. In 1944, the Bretton Woods Agreement established a new international monetary system. The creation of the International Monetary Fund (IMF) and the World Bank were two of its most enduring legacies.

The World Bank and the IMF, often called the Bretton Woods Institutions, are twin intergovernmental pillars supporting the structure of the world’s economic and financial order. Both have taken on expanding roles, and there have been renewed calls for additional expansion of their responsibilities, particularly in the continuing absence of a single global monetary agreement. they roles iclude providing funds to the nation, establishing a cordial trade relations among countries, govern ill doings and protect interest of each country.

is it a collective good ?

It is essentially the same system for everyone. If it works well, all countries have the opportunity to benefit; if it works badly, all are likely to suffer. Hence, all have an interest in reforms that will improve the system for the global public benefit. And, as is so frequently true for public goods, not many people care for, and even fewer are prepared to pay for, its improvement even if many comment about it. and it will work when conuntries collectively agree to abide by its guidlines

5.foreign direct investment

There are two concepts of foreign direct investment (FDI) and two matching ways of measuring it. One is that FDI is a particular form of the flow of capital across international boundaries. It gives rise to a particular form of international assets for the home countries, specifically, the value of holdings in entities, typically corporations, controlled by a home-country resident or in which a home-country resident holds a certain share of the voting rights. The other concept of direct investment is that it is a set of economic activities or operations carried out in a host country by firms controlled or partly controlled by firms in some other (home) country. These activities are, for example, production, employment, sales, the purchase and use of intermediate goods and fixed capital, and the carrying out of research.

factors affecting FDI in a country

a. political stability of the country - which directly affects the policies made by the gobvernment towards FDI investments and

b. ease of doing business- any investment in a country is only dine if it has quick resolurion process and fast incorporation policies , and not so rigid labour laws or environmental  regualations

c. low tax rate structure - which affects the profitabilty

d. availabilty of labor and other factors of production

e. stable currency