Introduction
Over
the period, the institution of global governments involved with the planning of
economic performance has initiated the establishment of various economic
systems. The most common economic systems adopted by both developed and
developing economies of the world are the free trade system with limited
government intervention and the socialism economic system where the government
controls all the aspects of the economy. Certainly, the adoption of the
economic system is aimed at enhancing economic growth through the
implementation of developmental policies. In this regard, economic researchers
have always differed on the best economic system that stimulates economic
growth and development. In his writings, Adam smith emphasized on the
enhancement of free trade system stating that this system stimulates the
individuals to operate to function optimally. This policy by Smith is practical
because individuals pursuing their own individual’s interests are guided by an
invisible hand. They always want to maximize their earnings and by so doing
they end up creating a better society.
This
paper will seek to highlight the reasons why free trade policy has been adopted
as the most effective measure of ensuring economic growth and global
prosperity.
The
use of free trade system has been propagated to be the best method of ensuring
economic growth and global prosperity because it encourages the participation
of all the agents of economic growth. The establishment of this economic system
is based on the idea that trade is vital for the development of the economy. The
system takes into account the benefits of innovation and invention that
includes the introduction of better products to the market. it is notable that
the economy has different people with different specialization. Trade is the
unifying factor in the interaction of economic agents and therefore, the
enhancement of free trade system is meant to ensure increased activity of the
economy.
On
the other hand, socialism as an economic system has criticized to reduce the
rate of economic growth in the aspect that it discourages innovation and
invention of new ideas that enhances development of the economy. in this system
of economy, the government imposes control on all the aspects of economy and
the citizens becomes the custodians of in effective polices of the government.
Historical
evidence
Over
the period, the analysis of historical records has proven that market economy
is the best economic system that encourages economic growth and global
prosperity. A typical case is the analysis of the economy of the United States.
The planners of the US economy have confirmed the growth of the economy is
associated with the enactment of free market system and free trade economy that
is characterized by limited government intervention. This adoption of free
trade has initiated the creation of extra jobs for the economy. An economy with
many job opportunities is presented with an equal opportunity for development
because the income per capita is greatly increased. In addition, the creation
of many job opportunities ensures that the country has significant disposable
income to be used for developmental posses
(Brian Richard Copeland, 2005 69). Arguably, there is a connection
between trade and development. In this regard, a society characterized by many
trade opportunities and minimum government intervention is likely to spearhead
developmental projects because poverty is eradicated from the region.
Another typical example is the analysis of the
Asian countries that previously adopted socialism system of economy where the
government has an upper hand in the formulation of policies and enactment of
trade laws. However, these countries realized that a change into the free
market system will significantly enhance their growth. These countries include
Japan and china. The two countries have grown to be among the best economies in
the Asian continent. Therefore, the claim that free trade enhances economic
growth and global prosperity is absolutely true. This is so because these two
nations have grown to be reliable trading partners with the major trading
blocks of the world.
Views
of economic growth
Over
the period, researchers have developed various views with regard to enhancing
economic growth. The views put forward by the propagators may differ but they
both encourage the enactment of development policies. This is where the
difference comes in because one aspect of growth advocates for the enactment of
bad policies that do not encourage growth. Smithian policies of development
have received recognition from across the globe for being the best policies to
stimulate development (Anderton, 2000 93).
Smith
acknowledges that environment plays a vital role towards realization of
economic growth. He also recognizes that inputs are necessary for the
enhancement of out puts but he does not emphasize on the provision of inputs.
Certainly, Adam smith realized that government involvement in trade may
misdirect the inputs into wrong channels of development leading to stagnation
in the economy. However, when the economy is left to operate on its own, the
invisible hand will control and direct the recourses and inputs towards
attaining economic development and prosperity. The best monitors of economic
performance are indicated by the environmental aspects and how they
significantly influence market operations. Adam smith states that the best
indicators and stimulants of growth are realized when the market participants
are guided by the invisible hand to maximize their returns (Detzer, 2010 137). Even though inputs are
vitals for the enhancement of development in industries and job creation, free
trade analysis does not recommend the usage of inputs to determine the amount
of output. There is significant contribution of the market participants when
they are guided by their own desire to maximize their returns. This will make
them to attain the maximum returns they can derive from the market. Similarly,
when this happens a number of jobs will be created for the unemployed citizens
and the economy will experience significant increase in its GDP.
The
secret behind the claim of free trade system being the best stimulator of
economic development is that it advocates for the creation of outputs that have
more value than the inputs. The free trade system focuses on an environment
that is favorable for economic development and this is achieved by paying less
attention to the inputs that creates outputs of the economic ventures. The
policies initiated to govern the enactment of free trade system are aimed at
encouraging the individual participants to work towards realizing their own
goals (Dunkley, 2004 42). Upon
maximization of the personal goals, the community and the global environment are
made better because economic growth will enhance the production of quality
goods.
Free
trade ensures equitable allocation of resources
Equitable
resource allocation is extremely beneficial for the enhancement of economic
development. The formulation of free trade policies were geared towards
ensuring that the recourses are equitably allocated to all the competing
aspects of the economy. In this regard, free trade policies encompass the usage
of market forces to derive the equilibrium price and quantity of the recourses.
The forces of demand and supply better known as market forces are the key to
enhancing equitable resource allocation in the free market economy (Gomes, 2003 184). The forces are responsible
for ensuring that the market remains balanced during the periods when the
prices of goods and services are significantly rising.
Over
the period, the world has been developed into a simple global village where all
the nations can freely conduct business and gain economic prosperity. The
conduction of business is however, hindered by the implication of trade
barriers. The imposition of trade barriers is meant to discourage the flow of
goods and service between territorial borders
(Moore, 2003 148). The governments of the trading nations derives
significant amount of income from the exercise through taxation. In reality,
the use of trade barriers reduces the intensity of development because it does
not encourage the citizens to produce more goods. The case of production is
reduced because the citizens are barred from engaging in trading activities.
For this reason, the omission of trade barriers and the conduction of free
trade is highly beneficial to the economy because the individuals are
stimulated to produce more goods and sell profitably (Ravenhill, 2008 73). The omission of trade barriers is a
government policy that is aimed encouraging the local citizens to produce. The
system of economy states the invisible hand will control the market and ensure
that the produce by the companies are adequate to cater for the needs and wants
of the economy. In the same capacity, the use of supply and demand is critical
because it depicts the prevailing circumstances in the market by reflecting on
the needs of the consumers. Generally, the use trade barrier does not reflect
the actual market demand and supply because the resources are not equitably
allocated. When resources are equitably allocated, the amount of development
projects in the economy is spearheaded.
The
analysis conducted on the performance of market economy with free trade
policies and equitable allocation of resources will attract investment
opportunities. In itself, the economy will provide the initiative for workers
and other stake holders to invest because of the promising income that will be
derived from the investments. This aspect provides the ideal difference between
socialism and capitalism by stating their regard for the inputs. Capitalists
state that the use of the right environment for investment will attract the
right inputs that will maximize both individual and business returns (Suntum, 2005 253). Furthermore, the citizens
will invest in more technological scheme to benefit from the high amount of
profits in the business. This activity will certainly result in the enhancement
of economic growth and economic prosperity in the global scene.
Free
trade creates an environment conducive for growth
Economic
growth is extremely beneficial to the performance of the economy because it
leads to enhancement of living standards and reduction in the rate of
inflation. However, sometimes the environment set by the government is not
conducive to enhance economic growth. In this regard, free trade system under
capitalist economy is known for its contribution in creating an environment
that is friendly for the performance of business activities. The optimal performance
of economic agents requires the usage of critical inputs in the business (Tiplady, 2003 94). This system encourages
economic growth in the following aspects. The use of free trade policies requires
the use of comparative advantage.
It
is a phenomenon that every geographical region is adapted to produce specific
items that it offers to the world market for trading purposes. Through
specialization, the country will enhance its production capacity and earn
income through the sale of these commodities. Typically, the economic system
adopted by the nation largely influences the adoption of comparative advantage
because some economic systems so not encourage the participation of economic
agents due to the enforcement of trade rules. These trade rules adopted by some
economies of the world reduce the productivity of the nations because their
trading environment is largely influenced
(Gomes, 2003 163). Economic environment is responsible for the enhancement
of growth. Therefore, it is critical that the economic system adopted by the
government should enhance the growth of the economy by attracting the right
inputs to stimulate growth. For this reason, free trade has been adopted as the
most effective to ensure economic growth and global prosperity.
Conclusion
Every
nation of the world aspires to attain economic growth and global prosperity.
However, the system of economy adopted by the nation may be a hindrance towards
attaining economic growth. Studies conducted have shown that free trade is the
ideal policy towards realizing economic growth. This is because it creates an
environment for economic growth. The proponents have shown that economic growth
can be achieved by encouraging equitable allocation of resources and
enhancement of development environment. The environment created by free trade
is beneficial because it attracts the best inputs into the economy that finally
leads to the realization of economic development and prosperity. In this regard,
free trade is the ideal method for achieving economic growth and global
prosperity.
References
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Detzer, D. (2010). Is
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Dunkley, G. (2004). Free
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Gomes, L. (2003). The
Economics and Ideology of Free Trade. United Kingdom: Edward Elgar
Publishing.
Moore, M. (2003).
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Walls , 292.
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Political Economy. United Kingdom: Oxford University Press.
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