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.
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.
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.
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