Political, Economic and Cultural Motives Behind Government Intervention in Trade - Example

Student name: Professor: Course: Semester: Date: Political, economic and cultural motives behind government intervention in trade Introduction After the end of the world war, the world economic power houses led by the US came together in Bretton New Hampshire to establish new monetary system to replace the Gold standard system which had collapsed during the great depression of the 1930s. The driving idea behind the revising the monetary system was the need to enable expansion in money supply through international trade and to revive the world economies that had been devastated by the war (Triffin, 1957, p.124, Bordo, 1993, 98). Bretton woods agreement lead to the creation of the International Bank for Reconstruction and Development (IBRD) now known as the World Bank. The bank was to provide the struggling and underdeveloped world nations with capital for reconstruction and development (Bordo, 1993, 99, Eichengreen, 2008, 213). International monetary fund was set up to among other things help nations correct imbalances in trade deficits and surpluses. Despite all these efforts to promote world trade and remove structural barriers to world trade, the objectives of achieving balanced trade and economic development in the world have failed partly due to vested interests in governments all over the world (Subedi, 2003, p.154, Bagwell & Staiger, 2004, p 120-123). Government motives in world trade range from political, economic and cultural, all of which have considerable implications to their citizens. Kerr & Gaisford, (2012, p 56) contend that in as much as governments want to commit to promoting international trade among nations, they are driven by self interests of the domestic environment in which they are directly accountable for the actions they take unlike in the international arena where governments actions are just to foster relations and show goodwill. This paper seeks to exhaustively analyze factors behind governments interventions in world trade under the sub topics; economic, political, and socio-cultural. Political motives Governments all over the world are entrusted by their citizenry to provide employment and favorable environment for businesses to thrive. According to Kerr & Gaisford (2008, p 187) this can only be achieved if the economy is able to utilize the available factors of production to produce goods and services of value to be traded and in turn provide the much needed employment to the masses. Rising levels of unemployment are a concern to every government that wants to survive through its time in office. Having a huge section of the population that is not employed is a recipe for political instability and unrests that may overthrow the government. Governments will majorly seek to increase the volumes of what is produced or manufactured in their country and reduce what is being imported. While it is not realistic to have a nation exporting to only be exporting to its trading partners and importing nothing, it is the idealistic target. If a country exports more and invests less, then the local businesses will thrive and employment will be achieved as well as full utilization of economic potential. The result will be a government that is having a smooth stay in office with little unrests from the citizenry and therefore increasing its chances of staying in office (Schnabel, 2010, p.237). In an effort to achieve national stability and independence, governments will most often discourage a trade agreement that is possibly going undermine its grip of power in the country or stability of the nation in regards to external threats. It certainly not possible for powerful nations faced with threats of war from perceived enemies to sell their best military technology and tools to other nations. This will be exposing the government to a danger that they helped create. The political motive will then carry the day. Governments will also not allow the private sectors to sell war weaponry to areas where these actions may trigger diplomatic problems and international condemnations that may affect the rest of its trade with world nations (Scott, 2010, p.100). Powerful Governments like the United Sates always want to shape the international agenda regarding every phenomenon including conflict and trade agreements. To be in such a position means that the country must be having a strong economy that is export led. It is therefore an open secret that in as much as such a nation wants the rest of underdeveloped and developing nations to increase their exports it will not be at the expense of their position in world trade. The powerful nation will always put a cap into how much of imports it can take and how much exports it should reduce (Yilmaz, 2003, p.78). In the recent past china has pursued an export led growth that is positioning china as a global power to shape the international agenda in all spheres from politics, trade, environment and other important matters. This was not the case for china five decades ago when its economy had not achieved such phenomenal growth. This proves that international politics is directly related to economic strength and as such it is a big reason for governments to intervene in trade between itself and the rest of the world (Kerr & Gaisford, 2012, p 170). Some products and services have been known to be used by foreign nations to politically destabilize economies in countries where they have interests. It is widely believed that the facebook and other social networking sites were largely utilized by citizens in Libya, Egypt and Tunisia to mobilize protests in the countries during the Arab spring. The result was political instability and countries suffered economically when the governments resisted giving power to the protesting groups (Kerr & Gaisford, 2012, p 139). For this reasons the media is closely monitored by countries such as china and blocked all together if there is any indication it is being used for ulterior motives to spread propaganda against the government. This is still debatable but in countries with a policy that don’t guarantee freedoms to large extents it is not debatable at all, it is either for the government or its not free to offer services at all. Economic motives Governments have the responsibility of protecting and nurturing their infant industries and economies until they mature and become competitive internationally. This is usually the case with developing and newly developed countries (Ndwiga, 2013, p.23). Multinationals from developed economies usually enjoy a good financial base and technological advantage that they use to their advantage when it comes to competing smaller companies that don’t enjoy economies of scale and access to adequate funding. According to Ndwiga (2013, p.25) if the domestic market is liberalized to allow multinationals to compete with the local infant companies in the local industry it mean that the prices of their commodities or service will be cheaper and therefore edge the small domestic companies out of the market. The products might as well be highly priced but of superior quality as compared to what is being manufactured locally therefore putting the local players at a disadvantaged position. The domestic market may for economic reasons protect the local industry by restricting international players in the industry or putting trade barriers like high taxation to favor the local industry. It is an accepted contention in some quarters that government interventions make companies in an industry achieve efficiency through economies of scale and enjoy first mover advantage. This can only be achieved if a company is able to serve a large market where enough revenue can be made to facilitate organic growth of its production capacity. If a government then wants a company to achieve this it has to help the companies enjoy a form of monopoly in the economy by having restrictions to outside players gaining access of the industry. This is referred to as artificial barriers to entry. This shows that the governments’ economic motives largely influence who has an access to an industry and who will not. It is impossible for governments to issue permissions of trade to any new entrant in specific industries as it will mean the companies don’t realize significant profits to fund their operations and give consumers affordable prices for their products or services (Gaisford, 2001, p.205). Some sectors which are tightly regulated by governments include telecommunications industries and electricity distribution industries. The efficiency in these industries can only be achieved if there are a small number of players in the industry although the monopoly nature may also result in inefficiencies if the companies are not closely watched by the government to ensure maximum utilization of capacity (Gaisford, 2001, p.214). The global trade is also to a large extent influenced by currency fluctuations. It is common for speculators to hold onto hard currencies in anticipation that their value would rise as compared to their domestic currencies and vice-versa when they anticipate the value of the currencies to dip (New, 1992, p.73). Governments usually guard against their currencies loosing value as it will result in increased importation which will destroy the domestic industry since exporting will be expensive and may also result in influx of cheap products to compete with the locally produced goods. Export-led economies like china usually devalue their currencies and maintain them at a value lower than that of the strong currencies in the world to favor their exporters and discourage importation (Martin & Larsen, 1999, p.41). It is therefore common for governments to directly intervene in preventing drastic fall in value in their currency and also gain in value of the currencies in comparison with hard currencies like the dollar. Cultural motives Sometimes governments are driven by cultural motives to protect their populations. Cultural impact from foreign cultures may have far reaching implications on the population which may unleash their full effects in future in economic terms as a demand for foreign products may grow due to the perception people have on the foreign culture (McKee, 1996, p.59). In some countries, it is generally believed that local products are not quality or classy due to the effects of foreign media on the population. Powerful economies use movies, music and other effective mediums to send a message to other nations of their sophistication and class in the products they make. The Americans have been accused much of destroying cultures in other nations by Americanizing the population. In effect demand for American clothes, movies, gadgets and other merchandise grow and destroy the locals markets. Governments in countries especially in the Islamic nations limit the influence of American culture through closely monitoring their media (Schnabel, 2010, p.237). National pride is a social factor that may influence governments to intervene in trade agreements to prevent the pride of the nation being eroded. It is normal for people to feel dominated when their currency is losing value in the international market. After the world nations adopted the Bretton woods monetary system. Powerful nations with hard currencies suffered deficits in balance of trade due to their strong currencies. To some nations devaluing the currencies meant that the population will loose pride attached to the value of the currency which may work to discredit the government of the day (McKinnon, 1993, p 43). Conclusion After the World War 2 nations led by the powerful economies then embarked on a task to revive the economies and industries that had been devastated by war to provide employment for the masses through accelerated trade between the world economies. The powerful nations were then expected to encourage importation from the less developed countries to strengthen their economies. The less developed countries took advantage of the financing from the International Bank for Reconstruction and Development to grow economy and export their goods. Overtime rich nations started to experience unemployment back at home and due to increasing pressure had to rethink their trading policies. It is a fact therefore that a nation will at the end of the day want to develop global trade but at the same time domestic political, economical and cultural interests will come into play when trading policies are being formulated and implemented. It is all a matter of domestic interests and not the global interest. References Bagwell , K., & Staiger, R. (2004). The economics of the world trading system, MIT Press Bordo, M.(1993). The Bretton Woods International monetary system: A historical overview, University of Chicago Press, available online at http://www.nber.org/books/bord93-1 Eichengreen, B. (2008). Globalising capital: A history of the international monetary system, 2nd edition, Princeton University Press Gaisford, J. (2001). Economic analysis for the international trade negotiations: the WTO and Agricultural Trade, Edward Elgar publishing Kerr, W., & Gaisford, J. (2012). Handbook on international trade policy, Edward Elgar Publishing Martin, B., & Larsen. (1999). Taming the tiger: Key success factors for trade with china, Marketing intelligence & planning journal, Vol 17 #4, pp 20-25 McKee, D. (1996). Some reflections on the international waste trade and emerging nations, International journal of social economics, Vol 23 #4/6, p 65 McKinnon, R. (1993). The Rules of the Game: International Money in Historical Perspective. Journal of Economic Literature, Vol.22, pp. 1-44 Ndwiga.c., (2013). Foreign market entry strategies used by British multinational corporations in Kenya. Nairobi: University of Nairobi New, C. (1992). World-class manufacturing versus strategic trade-offs, International journal of operations & production management, Vol 12 #4, pp 45 Scott, J. (2010). Developing countries in the ITO and GATT negotiations, Journal of international trade law and policy, Vol 9 #1, pp 34-36 Schnabel, J. (2010). Productivity, exchange rates, and competitive advantage, International journal of commerce and management, Vol 20 #1, pp 43 Subedi, S. (2003). The world trade organization, the European Union and the liberalization of trade in agriculture, Library review, Vol 45, #5/6, pp. 12-66 Triffin, R. (1957). Europe and the money muddle. New Haven, Yale University Press Yilmaz, A. Ed. (2003). Developing countries and world trade: performance and prospects, Zed Books Read More