Critiques On Economic Nationalism, Economic Liberalism (Term Paper Sample)

PARADIGM CRITIGUE PAPER
International political economy is the study of the interaction and tension between politics and economics; concerning issues that are international in nature. Theodore H. Cohn in his book Global Political Economy, asserts that, “International Political Economy is concerned with the interaction between the state, a sovereign territorial unit, and the market, a coordinating mechanism where buyers and sellers exchange goods and services at prices determined by supply and demand” (2012, 3). There exist various paradigms to understand International Political Economy. These paradigms are; Economic Nationalism, Economic Liberalism and Economic Radicalism. These paradigms have different approaches towards analyzing International Political Economy, their assumptions and policy prescriptions vary.
Economic Nationalism is a paradigm that is built around the idea of the state; Economic Nationalists argue that the most important actor in the global economy is the state. To them, since international politics is characterized by a system of anarchy, the survival of countries in the global economy is based on the policies their respective leaders make. They have various assumptions and policy prescriptions towards the Global Economy. They argue that for the survival of a state in the Global Economy, the individual states should first prioritize in building the foundation of their Economy, protect the infant industries and regulate the competition before subjecting the state`s economy to international competition. Friedrich List a proponent of Economic Nationalism, argues that “the power of producing wealth is more important than wealth itself… the wealth of any country is dependent primarily upon its productive powers” (1841, 17-18). Economic Nationalists hold that the ultimate measure of a society is not its ability to consume, but rather its ability to produce, a society`s well-being is determined not by what it can buy, but by what it can make. To scholars like List, the main assumption of Economic Nationalism is to create a stable economy by ensuring that production is done locally. List, in his work `The Theory of the Powers of Production and Theory of Values`, argues that in building the stable economy locally, various factors come into being which are fundamental in ensuring that the local economy is advanced before taking part in International Trade. “However, most depends in all these respects on the conditions of the society in which the individual has been brought up…….whether in the Nation all the factors of material prosperity, agriculture, manufactures and trade, have been equally and harmoniously cultivated; whether the power of the nation is strong enough to secure to its individual citizens progress in wealth and education from generation to generation” (1841, 20).
According to Economic Nationalists, the most important aspect in International Economics is the future of the local markets in individual states and a lot of concern should be on how these local manufactures can prosper; the immediate benefit in the market should not be a factor but the concern should be future benefits. Countries should value the development of manufacturing industries. “Manufactories and manufactures are the mothers and children of municipal liberty, of intelligence, of the arts and science, of internal and external commerce, of navigation and improvements in transport, of civilization and political power.” (List, 1841, 23). For the betterment and building of infant industries which is a major concern of Economic Nationalist, List argues that it would be important for states to even sacrifice some present advantages in order to ensure future advantages.
There exist some policy prescriptions in promoted Economic Nationalist; one of the main policies is to protect the market and infant industries. “New unprotected manufacturing power cannot possibly be raised up under free competition with a power which has long since grown and is protected on its own territory………cheap imports can have immediate benefits but devastating long-term economic consequences for a country by limiting the development of its manufacturing capacity” (List 1841,25). To them, the market economy should be regulated specially to protect small and infant industries. Capital inflows should be checked, “ in any country, especially in the early stages of development, capital flights have to be prevented in order to ensure that whatever investable surplus that is generated in the economy at least stays in the country” (Chang 2002, 204). They can also impose heavy tariffs and domestic taxes so as to ensure foreign industries do not overwhelm the local economies thus protecting the local market. “Governments increasingly tightened the terms on which international companies could operate forcing on them joint ventures with state institutions and occasion expelling them altogether” (Weitzman 2012, 92). Economic Nationalism prioritizes political considerations over purely economic ones; they believe International Economics is zero-sum game.
However good the paradigm is, it has faced various criticisms especially on its policy prescriptions, critics argue that over-protection of the economy can scare away investors and make the local market saturated with local goods that lack international competitors. They also prioritize politics at the expense of the economy. Critics argue that it could be cheaper to buy some products than to produce them locally therefore, not everything should be made locally. In my opinion, the idea of protecting infant industries is a hindrance to development since an economy cannot grow on locally produced goods and services alone; there should be diversity and economic competition with other economies.
Economic Liberalism is another paradigm used in the study of International Political Economy; Liberalism is a theory that is built around the idea of democracy. Economic Liberalism advocates for free and open market in the world economy. Proponents of this school of thought are anti-protectionist of the market economy as they argue that trade promotes economic development and that industries should specialize in those areas where it has some advantages. To Economic Liberalists, trade restrictions to promote certain industries are counterproductive; they reduce the amount of capital available to invest in the economy.
Just like Economic Nationalists, Economic Liberals too have various assumptions and policy prescriptions. To them, the main actor in the Global economy is the individual; he is the primary decision maker in the market world. Since individuals are rational actors, they tend to maximize utility at the lowest cost to themselves. Economic Liberals assert that the market functions in accordance with the laws of supply and demand; for example, if all factors remain constant, the higher the price of a good, the lower the quantity demanded. There is long-term harmony of interest between buyers and sellers. When problems arise these forces work to ensure equilibrium in the market. To them, a market economy has self adjusting mechanisms. State intervention is viewed with deep suspicion; markets should be left to be free. Classical Liberals focused on long- term equilibrium; however to Keynes the concern is the short term. He argued that the long term projection of the market will find us dead. “Keynes sided with Malthus. His first major impact on economics was to switch the focus of economics reasoning from the long run to the short term…..but this long run is misleading guide to the affairs. In the long run we are all dead” (Skidelsky 2009, 79-80).
Liberals believe that states benefit mutually from international production and exchange. Free flow of capital should be supported. Under economic Liberalism, there are some concepts that explain the ideas behind Economic Liberalism; Hegemonic Stability theory and Globalization. However to broaden the discussion of Economic Liberalism, I will discuss Globalization. Globalization refers to the idea of expanding market economies around the globe so as to reach a wide range of people. It has been propagated by liberals who argue that there should be free market economies, free trade, and little government interventions in the market.
There are ways in which globalization has impacted the developing world, positively and negatively. Some of the arguments in the support of Globalization are that it puts limits on the power of government; it makes trade easier and faster, consequently increasing the production of goods and services. “As economic integration has progressed, the annual growth rate of the world economy has accelerated from 1 percent in mid-nineteenth century to 3.5percent in 1960-2000. Sustained over many years, such jump in growth makes a huge difference in real living standards” (Dollar 2002, 123). It also works in favor of poor people; it uplifts the poor to be rich and benefits producers by giving them greater choice over their raw materials, production techniques, and human talent. “Across all countries, income of the poor grows at around the same rate as GDP. Of course, there is a great deal of variation around that average relationship. In some countries, income distribution has shifted in favor of the poor………for many globalizers, the overall change in distribution was small, and in some cases (such as the Philippines and Malaysia) it was even in favor of the poor” (Dollar 2002, 128).
Globalization provides Economic benefits and enhances individual liberty. It helps to enhance the most fundamental freedom of all, the freedom to define our own identities. Globalization reduces poverty and increases education. “Child labor has declined...