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mercantilism

Page history last edited by Brian D Butler 15 years, 1 month ago

Mercantilism

 

related to colonialism

 

* when Feudalism died, Mercantilism picked up

 

 

 

 

 

Mercantilism

From Wikipedia, the free encyclopedia

 

A painting of a French seaport from 1638, at the height of mercantilism.

 

A painting of a French seaport from 1638, at the height of mercantilism.
 

Mercantilism is an economic theory that holds the prosperity of a nation depends upon its supply of capital, and that the global volume of trade is "unchangeable." Economic assets, or capital, are represented by bullion (gold, silver, and trade value) held by the state, which is best increased through a positive balance of trade with other nations (exports minus imports). Mercantilism suggests that the ruling government should advance these goals by playing a protectionist role in the economy, by encouraging exports and discouraging imports, especially through the use of tariffs. The economic policy based upon these ideas is often called the mercantile system.

 

Mercantilism was established during the early modern period (starting in the 16th to the 18th century, which roughly corresponded to the emergence of the nation-state). This led to some of the first instances of significant government intervention and control over market economies, and it was during this period that much of the modern capitalist system was established.

 

Internationally, mercantilism encouraged the many European wars of the period, and fueled European imperialism, as the European powers fought over "available" markets. Belief in mercantilism began to fade in the late 18th century, as the arguments of Adam Smith and the other classical economists won favour in the British Empire and to a lesser degree in the rest of Europe (with the notable exception of Germany where the Historical school of economics was favored throughout the 19th and early 20th century).

 

http://en.wikipedia.org/wiki/Mercantilism

 

 

International perspectives

 

In general, there are three main perspectives, or ways of viewing the world in political- economic terms.

 

 

One of the key differences between the liberal and the mercantilist view of competition is that liberals believe in a “positive-sum game” meaning that society as a whole can benefit, while mercantilists typically see competition as a “zero-sum game” in which there is a definite winner and loser (and a mercantilist will do everything in their power to make sure they are the winner, and the other guy is the loser).

 

Mercantilists typically believe that one nations gain (in resources, power, markets, etc) necessarily means other nations lose. They see the world as a fierce competition, and the role of the state is to insure that the national interests prevail. For this reason, you will typically see mercantilists behind polices of trade protection, import tariffs, export subsidies, and so on.

 

Liberal economists, on the other hand, like to see the world as a place where everyone benefits from trading patterns across the globe. Similar to the principles on which Thunderbird school of international management was built, they like to say that boarders frequented by trade seldom need armies of soldiers. The rationale is that nations that trade together seldom fight one another.

 

On a personal level, the Liberals believe that by empowering individuals to make decisions based on their own best interests, that the society as a whole will be better off (Adam Smiths invisible hand in action).

 

 

The perspectives of liberalism and mercantilism are two unique ways of seeing the world. They form different shades of lenses, through which all of the world can be seen.

 

For example, the economic liberal is more likely to focus on the role of the individual and on ensuring the liberties and freedoms of individual choice. While the mercantilists will focus more on the role of the state in ensuring the safety and security of the national interests and the protection of its citizens.

 

The economic liberal is often accused of being overly trusting of human nature (by the mercantilist). The liberal tends to believe that human nature is basically good, and that the individual can be trusted to make selfish decisions which will eventually benefit all of society. You can think of the Liberal as the open-source, wikipedia loving IPE practitioner. They believe 100% in trusing a community of people to create good out of nothing, and to do what is right to benefit all of mankind.

 

The mercantilists, on the other hand, are more inclined to believe that the individual is not as trustworthy as the naïve Liberal has led us all to believe. The mercantilist waits to find the slightest hint of trouble in the Liberal system, and would love to say “ha, see…I told you that society couldn’t be trusted”…. And then get to work building up walls to protect us all from the evils of open societies.

 

Mercantilists love to build up walls to “protect” the society / culture / economy / nation from outsiders.

 

With respect to power, the Mercantilists are all about it. They can’t get enough of it. They believe that all functions of society are (or should be) geared toward creating more of it. If they sense that another nation has more of it, they get nervous and look for ways to transfer some of it back to our side.

 

Mercantilists believe that international trade has the potential to damage a nations ability to defend itself According to the mercantilists, a nation is really not safe if it is reliant on another nation for one of its basic needs (food, energy, and so on).

 

The economic liberals, on the other hand, see no problem with outsourcing of food or energy production to the country or location in the world that can grow or produce it the most efficiently. Economic liberals are all about efficiency (the best way to produce the most amounts of goods with the least effort and the least amount of waste). Liberals believe strongly in the division of labor and the inherent value of international trade (with out barriers).

 

While Mercantilists believes that government should set up rules to protect the national interests, the liberalists believe that governments should enact laws and fight to promote free and open trade among nations.

 

These conflicting views are what make IPE so interesting.

 

 

 

 

 

 

Why is structuralism important?

 

While the collapse of the Soviet Union clearly signaled the end of Russian style communism, it did not end the ongoing class struggle seen through out the world. The structuralist perspective is not just about the particular political organization that was found in the USSR before its collapse (or the fall of the Berlin wall), but it is more about the struggle of different classes in an increasingly globalized economy.

 

Inexpensive air travel and telecommunications systems have led to an ever more integrated international society of trade and tourism – leading to more awareness of global inequality.

 

While the mercantilist is focused on power and security, the liberalist is focued on efficiency and individual liberty, the structuralist is more concerned about the worker, and about the struggle between the classes in a society.

 

A structuralist is concerned about worker exploitation and about outsourcing of jobs to cheap overseas markets. A structuralist is worried about child labor and about the widening gap between the world’s rich and poor communities.

 

In today’s world, if you were to just focus on the views of the liberals (or the mercantilists) you would only hear the voices of the upper classes as they battle for ways to share (or capture) power and resources. But what about the voices of the exploited? What about the voices of the underclass? Of the workers?

 

With governments all across Latin America turning to the left (Venezuela, Bolivia, Nicaragua, Ecuador), it makes more sense than ever for an MBA class to take a second look at the class-issues and to read the viewpoints of the structuralists.

 

Case study - coffee crisis

 

Liberal position:

The liberal would think that the coffee market during the cold war was unsustainable and was interfered by an economic-support program which controlled exports. Export quotas were interference in the ordinary mechanisms of the market, and they were not sustainable. The result of those market interferences is that growers were not facing true international competition, and were not forced to develop new and more efficient growing techniques. Also, because the distribution was all controlled by export government buying programs, the distribution was not facing competition, again adding levels of complacency and false security. Once the global political IPE environment changed, however, those market interferences were removed, and the coffee market was introduced to competition for the very first time.

 

This is similar to what happed when the cold war ended, and Russia made the abrupt transition to a capitalist system. It was rough and difficult, and the individuals that had been shielded from competition for so long found themselves unable to compete in the new world order.

 

In the coffee industry, when the barriers to trade came down, the inefficient producers and distributors found themselves in a similar position.

 

Over time, the liberals believe that the market will correct for itself, and supply and demand will eventually correct themselves. Some producers will have to stop producing for this to happen, and the liberals would object to any interference from governments around the world propping up their local producers. If the buyers want to buy coffee made in Vietnam, and if Vietnam has a comparative advantage, then that’s where it should be produced. International regulations should be put in place to facilitate that trade (no subsidies, no trade barriers). If, on the other hand, buyers prefer the taste of Columbian coffee, then that market will take off, and coffee should be produced there.

 

The liberal believes that over time, the market will self correct, and eventually the farmers will make a living at an acceptable profit. If not, they will close their business, and do something else. As some companies go out of business, that will cut supply and eventually prices will rise until equilibrium is reached. But, on a human side, upon reflection many liberals would agree that the transition could have been managed better, offering better support, and training for those involved.

 

The liberals would believe that in the end, the system of free and open trade will benefit everyone. There will be some companies in certain industries that will struggle, but that if the system is allowed to operate without interference, the there will be a net gain to society as a whole (including coffee producers). If the industry was protected for so long by tariff and other barriers, then liberals would believe that over time, there will be larger industrial efforts made to make the industry more efficient, and that those more efficient producers will survive this period of change. This is what we see in places like Sao Paulo, Brazil for example, where there are massive industrial sized coffee producers today. They have a clear efficiency advantage and will likely make the transition.

 

The liberals would see no problem with TNC’s making profits. If the profits were excessive, then over time there would be other competitors that would enter the distribution market, and that would drive profits back to a normal level.

 

The liberals would be against subsidies in the US (even if the liberals were from the US.). The liberals would also be against the subsidizing of coffee production in Vietnam. Anything that interfered with the market they would be against.

 

 

Structuralist:

The structuralist would focus on the hardships endured by the growers of the coffee beans. With falling prices for their beans, but record profits by the international coffee distributes (TNC’s), the structuralists would claim that the workers were being unfairly exploited by powerful international companies. They would see the moves by the US government in working to undermine the collective subsidized programs as evidence that the powerful nations were looking to subjugate the weaker ones, and to keep them from receiving their share of the profits from their work.

 

They would claim that the interests of the US were with the international companies and that the rich nations were more interested in padding the profits of their companies than in improving the living conditions of the worlds poor. They would claim that the international system of trade is unfairly set up to extract profits from the poor and to repatriate those profits back to the developed nations. This would include the use of both natural resources (land, coffee,etc), the labor (sweatshop labor conditions, under pad) and the profits (which are extracted from the country).

 

The structuralist would see the US subsidies of their own industries as further evidence that the powerful nations were not interested in helping the poor.

 

They would be in favor of groups such as Oxfam and their initiatives to promote “Fair trade” coffee which attempts to ensure that farmers receive a decent wage to compensate them and make sure that they can support their families. But they would be critical of the international system that made groups like this necessary. The structuralist would be skeptical of companies such as Starbucks that carry “fair trade” coffee, however, and would think that these are just superficial attempts to cover up an underlying exploitation of worlds workers. They would see this as a marketing and advertising campaign that just gives cover their true activities.

 

Structuralists would be in favor of export subsidies to help the farmers, as well as any protection that can be offered to protect the sustainable development of the rural communities.

 

 

 

Economic Nationalist (developing nation) :

The economic nationalists would object to the elimination of the export programs that were in place during the cold war. They would object to the removal of programs that assisted developing nations to compete on the world markets. They believe that trade should be managed and that local growers should be protected by their governments from the potential dangers of the international market (the two faces of development).

 

These mercantilists would want the benefits of foreign trade, but they would claim that the idea of “free trade” is just a tool of the powerful to remain powerful, and to keep the less developed nations from closing the income gap. These economic nationals would read this coffee article with suspicion of the US actions after the cold war. By making moves to open up trade, and to expose the local producers to international competition, they would argue that the powerful nations were just trying to exploit their advantage.

 

Trade is a zero sum game to mercantilists, and they would argue that the benefits that the buyers receive in the US will automatically translate to a loss for the developing nations.

 

The developing nation mercantilists would see the US subsidies of their own farmers as further evidence that the playing field is not level, and that the powerful nations were using their power to their advantage to create trading rules hat favored their industries over those of the developing nations. They would appreciate the efforts of groups to help diversify crops into other products (any FDI would be accepted), but they would be critical that these small efforts do not compensate them adequately for the loss of power that resulted when the powerful nations changed the rules of trade.

 

The economic nationalist in Vietnam would appreciate the efforts of the World Bank to help them develop their coffee industry.

 

 

 

Economic Nationalist (from the US) :

In many respects, these people are similar to the economic nationalists described above, with the following differences:

 

These economic nationalists will also believe that trade that is free is only going to benefit the powerful country at the expense of the less powerful. But in this case, since they were the mercantilists on the side of the buying nation (US), they would see the situation as positive, in that it is adding power to their side. In general, they would be in favor of any free trade accords if their industries are the ones that are more powerful. IN this case, there are US company interests such as Proctor & Gamble, Kraft and so on that will clearly benefit from more competition in the coffee bean market. If the additional profits of the market can be brought back to their own country, then the mercantilists will be in favor of the arrangement. They will also see international trade as a win-lose, or a “zero sum” game, but as long as they are on the positive side, they will be ok. The economic nationals from the US would think it increases their power in the world.

 

 

Links from KookyPlan

 

  • Doha trade round [edit] Delivering on Doha: Farm Trade and the Poor by Kimberly Ann Elliott
  • TRIPS [edit] From Wikipedia: The Agreement on Trade Related Aspects of Intellect
  • WTO [edit] ! WTO an international organization designed to supervise and liberalize inte

 

 

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