Free Trade in Globalized World - Coursework Example

Introduction The current world is characterized by a rapid rate of globalization. Within this context, the economic climate tends to be strongly in favour of free trade. Communism collapsed and the socialist ideal is very weak within the globalized world. The majority of policy makers consider trade as the main way through which economies can achieve growth. The idea of free trade is therefore supported by institutions such as the International Monetary Fund, World Bank and World Trade Organisation (Stern 2007). While free trade has enabled productive exchanges in the global economy, changing the system towards more fair trade would be the only way of ensuring equity and justice in the development of trade. This paper discusses free trade and fair trade within the globalized world. The Free Trade/ Fair Trade Argument The term free trade relates to the adoption of policies that create a universal openness to the exchange of information and goods across national boundaries without any barriers. In trade, there is the direct suggestion of minimizing or eliminating barriers-to-trade. Fair trade on the other hand requires that there should be terms of business that uphold both commercial gain and a sense of justice (Dunkley 2004). Bhagwati (2006) explains that according to free trade proponents, having a free system with voluntary exchange necessarily ensures that justice and its preconditions are all met. While they also aim at alleviating poverty and improving living standards and conditions throughout the world, there is the preference for measures which are less intrusive that those of fair trade. Fair trade advocates consider having an unfettered market as being entirely limiting to the achievement of the goals. The free trade movement believes that when able to achieve equilibrium, markets will in the long run solve the challenge. Both the poor and rich nations of the world will then benefit. Free trade amounts to fair trade in this manner. According to Bhagwati (2006), there are considerable similarities in the arguments for and against free trade. This is because they are each concerned with poverty alleviation, global justice and prosperity. In arguing for free trade, proponents claim that voluntary exchange is a component of justice. . This is because both parties in the exchange come out of the transaction while richer than they were before. The world's prosperity is increased through the exchanging of valuables with each other. Whenever an individual goes out shopping, it is possible to subconsciously realize this. For instance, when a person pays one dollar in order to get a bottle of milk, it is because he or she would prefer to have the milk than the dollar at that moment. The shopowner will sell the milk at a dollar because he would rather possess the dollar than keep his milk. As such, the two people will be satisfied with the exchange. If otherwise, then it would not have happened in the first place. Both parties come out feeling that they have done a positive thing and their needs have been satisfied. In free trade, parties to any transaction engage themselves freely because it ends up improving them in various ways. The idea also applies to the trade that takes place between countries in the global economy. If both the consumers and producers in the world market take up the production and consumption behaviours which they show as individuals, then there is justice in the exchange among countries and there is a corresponding increase in wealth. A number of economic scholars also focus on the link between societal freedoms and open trading exchange. For instance, there is the argument that the connection is real, especially with regard to political freedoms (Bell 2006). Miller (2004) notes that the overall argument for free trade is that its critics have wrongly linked residual discrimination to the state of the market. The reality is that the market’s presence has helped in protecting poorer individuals and by extension nations from possible exploitative attitudes of stronger players in the market. In a free market environment, it will therefore be an expensive choice for producers that choose workers basing on other attributes apart from performance. The same would apply for consumers as it will be costly for them to find out the usually anonymous source of services and goods. The voluntary aspect enables the development of incentive structures which ensure fairness. According to the fair trade side, exchanges that occur between developing countries and their developed counterparts are characterized by highly uneven terms. The situation has to be changed so that it acquires a more equitable characteristic. The fair trade viewpoint currently comprises of a global grouping of traders, producers, consumers, advocates and marketers who seek to build trading relationships that are equitable between the most economically disadvantaged groups of farmers and artisans and consumers of their products (Ransom 2006). According to MacDonald (2002), advocates of fair trade adopt the dependency theory in approaching the perceived injustices in the international trading system. According to this, trade among and between countries takes place in a manner that is uneven and coercive. Even if there is a free process of exchange, smaller nations end up developing an increased reliance upon the richer ones. The interaction between rich and small states causes the depletion of natural resources in the latter and subsequently slows down their development progress. The powerful and richer countries constitute a collective unit referred to as the core. Developing and other impoverished countries on their part constitute a collective unit known as the periphery. Periphery nations depend on the core in almost every aspect of their well-being. The core is a producer of large amounts of luxury goods. The periphery on the other hand specializes in industrial and basic goods. The dependent relationship is a reality and that it destroys the well-being of the developing nations. There is the suggestion that governments engage in the mismanagement of money in the developing world. Private investors on their part consider the poor nations as being a risky investment. Because of this, poor nations find themselves perpetually disadvantaged. With greater interconnection of economic activities in the world, there is a worsening of unevenness in development across countries. There is an increased dependency of the peripheral states with those that are closer to the centre. Although globalization of the economy has the effect of weakening or overturning some economic relationships between countries for instance those between China and the West, it also enhances some of the existent economic stratification and even creates more with time (Dinopoulos 2008). According to Nicholls & Opal (2005), the dependency theory indicates that the terms of trade existing between periphery and core countries are unbalanced hence unfair. Generally, countries which have limited opportunities to export tend to become poorer. Within them, hardworking people and their families end up struggling to meet just the basic needs of life. The globalized trading system creates an exploitative setting in which people from the poor nations of the third world end up impoverished. In business, the interests of the strongest nations end up being the only ones to be pursued. In Africa, Latin America and Africa, both female and male farmers and craftsmen are aware of this. They therefore have to set themselves from the many buyers and middlemen who use their power in the market to influence low prices. Failure to do this will mean that they remain poor for their whole lives. In the view of fair trade, the present terms of trade are unjust. This is because market prices for commodities produced in the poor nations are rather low. The labourers are therefore unable to acquire wages that would reflect their dignity. Many among the low income earners also suffer from the inability to use their incomes in pursuing useful outcomes for themselves. There is therefore an inequality in the conversion of incomes into capabilities. The income inequalities within the markets are worsened by the mixture of low incomes and inability to convert them into capabilities. Poor nations therefore end up shouldering a perpetual punishment as they are unable to use their accumulated incomes efficiently. If real fair trade is to be achieved, products from the poor nations of the world should be bought at supra-competitive prices, meaning that they should be above the equilibrium price. This is the only way to ensure real poverty alleviation (Trebilcock & Howse 2005). Failure of the World Bank and IMF The state of the poorest nations has been declining over the years. This has led to questioning of the world’s financial managers, most notably the Bretton Woods Institutions (Kalderimis 2003). According to Brown (2009), the World Bank and IMF mainly limit development through the conditionalities that they set upon borrower countries. The two usually give loans on condition of matters relating to trade liberalization, privatization of national industries and deregulation of markets. Usually, these are attached without the consideration of the borrower nations’ individual circumstances. Their prescriptive recommendations have usually failed to address local economic problems. Rudra & Jensen (2011) add that in several instances also, projects that are funded by them for instance Hydro-Electric power stations have led to disruption of environmental well-being. The imposition of policies and lack of prioritization has led to a lack of credibility for the institutions hence making them quite irrelevant. The ability of the institutions to facilitate trade can only be achieved if they formulate policies basing on the individual needs of countries rather than an ideal that they seek to implement worldwide. There should also be thorough assessment of the possible implication of development and policy recommendations for countries. Most importantly, the role of poor nations in influencing its work should be enhanced. This is because poor nations bear the negative effects of globalization. They can therefore be able to diagnose the best ways of alleviating them (Miller 2004). Assessment of the Two Viewpoints Free trade appears to be good. However, it has very negative implications on some parts of the world. According to Beji-Becheur & Ozcaglar-Toulouse (2008), it locks nations which have a lot of materials or natural resources into a trap of forever being suppliers to other countries. This happens at the cost of being unable to ever experience industrial development. Free trade is never fully impartial. In spite of inadequate regulations, there is the tendency for the system to favour developed countries, especially in terms of intangible products. The rich nations for instance tend to benefit more from intellectual property, patents and rights. Free trade also encourages what is referred to as ‘the race to the bottom’. Free trade encourages outsourcing. Companies are enabled to choose the best place for them to produce commodities by cost. In the quest to compete, countries tend to lower their wage levels. Protections such as safety standards and environmental policies are also retracted, hence a decline in the overall well-being of poor nations. Fair trade can be said to be unacceptable because as a concept, it is incoherent. Fridell (2006) suggests that for instance, it can be possible to come up with an initial fair price for employees’ efforts through wages. However, the question arises in whether the wage will be fairer if it was lower or higher. In case it is made higher, then the lives of the workers to be paid become better. If a lower wage is paid, then it becomes possible to pay more workers hence more lives are positively affected. The idea of a fair price therefore becomes difficult to understand. According to Stern (2007), sellers and buyers in the international trading system act voluntarily. Whenever there is no excess supply or demand, then no resources will be stored or desired at the prevailing prices. Such an outcome can be said to be efficient. To free market proponents, this kind of optimal resource use is fair. In this case, free trade is necessarily fair trade. Most significantly, if nations go about their trade freely and do not raise objections about it, then there is no need to consider it unfair. This is because the opinion will hardly be representative of the nations that are involved. Free trade can not be said to be objectionable just because of disagreement with it by another party, yet the party is not really affected by the trade. When examining the points in support of and against of free trade, it appears that although it is instrumental in wealth creation and promotion of efficiency, the international trade system is guilty of causing large wealth discrepancies which leave a sizeable proportion of the world’s nations in great poverty. Gupta (2007) notes that some countries have tried to deal with the problems internally for instance through creating safety nets for the provision and maintenance of access to basic needs. There are also social security policies that have been developed and implemented. However, there is no provision of such measures for the world system in general. This is probably among the greatest causes of problems which have started affecting not just people in poor countries, but the world population as a whole. For instance, there is extremism in some of the world’s regions, a growth in anti-globalization movements and global warming. Such are challenges that even the rich and dominant countries cannot possibly evade. Conclusion The theoretical arguments for and against free trade are essentially similar. They both dwell on poverty alleviation, global prosperity and justice. However, free trade considers the voluntary nature of markets as being the main determinant of justice. Fair trade on the other hand regards human dignity and its expression as the main aspects of justice. Free trade suggests that the best way of alleviating poverty would be non-restriction of trade. Fair trade on the other rejects such as it would have hurt poor nations and entrench the current trend in which rich nations grow richer while poor ones get poorer. To fair trade proponents, global prosperity has to include the poor nations’ needs. Free trade on its part considers this kind of targeting as being dangerous to international development. The World Bank and IMF have failed in managing the disparities that exist between the developing and the developed countries. Rich nations have a head-start in development and therefore putting them at the same level as the poor ones can not ensure justice. Fair trade is therefore the most plausible viewpoint. Bibliography Beji-Becheur, A, and Ozcaglar-Toulouse, N, (2008), Fair Trade: Just How "Fair" Are the Exchanges? 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