Free Market System and Increasing International Trade - Essay Example

Exam Questions Why do supporters of the free market system think that it is the best form of economic organisation? The ideology behind the liberalisation of commerce originated in the UK, where the principles of the free market system was opposed to protectionist measures. Supporters of a free market system subscribe to its ideology regarding market forces, private ownership and competitiveness. Protectionism describes the control of varying economic factors by the state. A range of businessmen, economists and even politicians have voiced disagreement with the practice of governmental involvement in trade since the early 19th century. Free market proponents argue that protectionism is not economically feasible as it is inefficient and serves to restrain international trade which causes a rise in unemployment. The free market system has been widely accepted both in national and global economies because countries and peoples the world over desire a better standard of living which is only gained through developing their local, regional and national economy. This can occur only by opening up trade markets to wider or global markets. The success of the free market system is evident when one examines the distinction between Europe and North America and Africa, for example. Developing countries are looking to free market societies as a guide to their economic future. Asia is a recent case in point as a group of economies which could not have grown without benefit of liberlised trade practices.  The policies of a free market system is envied, emulated and remains the ‘gold standard’ of national economic policy accepted by economists, businessmen, politicians and academics worldwide (Brace, 2001). Increasing international trade is the best way to develop the economies of poor countries Overwhelming evidence has demonstrated that free trade economic policies open markets to foreign investment and trade which is necessary to initiate and/or sustain economic development. No national economy has realized increased economic growth in the last half century without having an open market strategy or has any country gained considerable growth in the standard of living among its population. The reduction of trade restrictions along with the opening of monetary incentives to foreign investments over the last two decades has combined to stimulate economic development in eastern Asian countries. The average import levied in these countries of East Asia has dropped to 10 percent from 30 percent in this time period which proves a direct connection between open economies and prosperity. This growth of wealth is due to an increased competitive advantage in the production and distribution of products to new and prosperous nations worldwide. The World Bank defines these countries that have experienced this recent upsurge in wealth as the ‘new globalizers’ and reports one of the positive affects is the reduction in number of people suffering from poverty. In just five years (1993 to 1998) the world contained 120 million fewer people described as in absolute poverty, a reduction of an astounding 14 percent (World Bank, n.d.). The evidence continues to mount showing countries that implement free market practices tend to grow their economies at a consistently faster rate than those that have protectionist policies. Countries such as Uganda, Vietnam and India have all experienced faster economic growth in recent years along with a marked reduction in poverty following the movement to free market system economies. “On average, those developing countries that lowered tariffs sharply in the 1980s grew more quickly in the 1990s than those that did not” (Dollar, 2001). The opening of trade markets carries economic benefits especially to those who are living in poverty. Economically deprived countries, not surprisingly, have larger proportions of poor than industrialised nations. These countries, Cuba for example, cannot afford protectionist practices such as building barriers to free trade if they wish to bring their respective populations out of impoverished conditions. The amount of growth a nation attains resulting from the acceptance of a free market policy generally acts to foster higher incomes within poor communities by approximately an equivalent proportion to the rest of the population. Free trade creates new employment opportunities for lower class workers raising their income to middle class levels. “Overall, inequality among countries has been on the decline since 1990, reflecting more rapid economic growth in developing countries, in part the result of trade liberalization” (Dollar, Lindert & Williamson, 2001). The prospective expansion of individual wealth is considerable in developing nations that currently restrict trade. In fact, those countries would actually profit to a greater degree from the liberalisation of trade than do industrialized nations (proportionate to their Gross Domestic Product) because this is a new avenue of revenue their economies had not previously experienced. Therefore, by percentage, under-developed nations would see greater profits by percentage as would the incomes of their people. Both developing and industrialized nations would benefit from opening up their agricultural markets, but impoverished economies would reap the greatest reward because of this commodity’s ability to directly feed the poor. These factors identify the added importance of the free trade market to the economies of under-developed nations and the continued well-being of their population. Can environmental problems be solved under the existing free market system or does it need a more radical approach? The opinion offered by some, including various environmental organisations, is that the global free trade or ‘globalization’ is simply a capitalist method used by industrialised countries to exploit the lower paid workers of developing countries and to take advantage of these nation’s lenient pollution laws simply for their own monetary gain. However, it is widely acknowledged that wealthier, industrialised nations have much more highly advanced means of production that emit less pollution, by percentage of industry, than do under developed nations. Nations with a higher per capita income base and more strongly established individual and industrial rights of property have both the incentive and monetary means to control pollution. The free market system not only lends support to the advancement of environmental issues, without free trade policies, actions by nations of the world to curb pollution would be futile. While enhanced global wealth certainly assists in the effort, the reality of a global community and the interdependency it fosters creates the necessity for all nations to combine its efforts for the good of the whole in economical and environmental terms (Burns, 2006). The current pollution issues are not bound by economical constraints; the reasons are more political in nature. Many have argued that the generation of wealth provides the resources to resolve environmental issues. This must be the case as the lack of revenue and an impoverished economy certainly cannot be the answer. Unsanitary conditions are far worse in Africa, for example, than in the UK, US or Japan. One needs only view the charity programs emanating from that continent to witness the massive fly infestation, a product of unsanitary conditions. Indeed, a more radical approach to environmental issues is needed but not a new economic method. The expansion of free market policies is the economic tool, one already in place and expanding, which is affecting technological advancements and wealth which inherently acts to decrease pollution. What is needed is a new political awareness and accountability to be able to effectively address this global problem. The economic vehicle is in place for environmental actions, we simply need a driver to invest the wealth more productively. References Brace, Amanda. (24 January 2001). “Free Trade History, Theory and Ideology.” Friends of the Earth International. Retrieved 8 August 2006 from Burns, Alice. (8 August, 2006). “Free Market Environmentalism.” Digital Freedom Network. Retrieved 8 August 2006 from Dollar, David. (2001). “Globalization, Inequality and Poverty since 1980.” World Bank mimeo. Dollar, David; Lindert, Peter & Williamson, Jeffrey. (2001). Does Globalization Make the World More Unequal?” NBER Working Paper N. 8228. World Bank. (n.d.). “Globalization, Growth and Poverty: Facts, Fears and an Agenda for Action. Read More