In contemporary times most countries are now embracing the open trade and free economy, more than before. The so called communist states that practiced socialism are beginning to embrace free trade, making their economies open to other countries to trade with them. The advantages associated with free trade and an open economy is many, which as resulted in the advancement of some developed countries into developed economies.
The neo-liberalists views in international trade has always supported a globalize and open market order in which every countries is expected to open up its market and imbibe the culture of free trade, free economy entry and exit of labor and the opening of the state economy to the international market for active competition. The adoption of open markets have resulted in the political responses in terms of change in the political structure, that is hitherto exhibited and the way government intervene in her country’s economy. This change has resulted in the adoption of the neo-liberal stand.
This can be seen vividly in the case of Eastern European countries which are known as communist and socialist states, w hen free trade doctrine crept into their economies it is seen there is a gradual change in the level of government intervention in the economy. This paper will look at the merits and demerits of open or free trade to countries, both advanced and developing countries. CONCEPT OF FREE TRADE The opening of a country’s market to free trade entails that there should be little or no government intervention in the economy, but the price mechanism should be the determinant of forces of production and the allocation of resources.
Thus, the open markets and international trader has supported the growth of the private sector, hence the doctrine of privatization of government owned enterprises has been the responses to the practice of free trade. The political responses of many governments to open market are for them to withdraw their level of intervention in their countries? Economy and embark on privatization of most of the existing public enterprises. The adoption of open market has encouraged globalization trends.
Across a broad political spectrum, economic strategies have come to be based on the common premise that there is no alternative that globalization is irreversible and that economic success depends upon encouraging and enhancing this process. Neo-liberals have fostered the movement to freer trade and deregulation of labor markets, arguing that overcoming the constant of limited markets is the means to increase growth, remedy trade imbalances, and lower unemployment. The state needs to be forced to comply with the laws of the market” (Albo, 1996, pg 6)
Thus, responses from government to such free trade is accomplished by deregulation in the countries economy, removal of subsidies from the operation of public enterprises, commercialization and privatization of government owned enterprises, and the free flow of goods from foreign countries to encourage competition. ADVANTAGES ASSOCIATED WITH FREE TRADE Gaining comparative advantage: Many countries have comparative advantages in the production of certain goods. Thus, they have the ability, skill, material and capability to supply these goods cheaper and at low cost.
Thus, free trade promotes low cost production of goods. The law of comparative advantage advocated by David Ricardo came into limelight in 1816. This law has it that in the international trade arena, a country with the least cost of production of a goods and the most comparative cost advantage, compared to other countries, should be specialize in the production of such goods. The law of comparative advantage is based on the efficient production of goods and the adequate maximization of cost advantage in the production of these goods to the advantage of the country and the global trade.
Thus, it is assumed, ceteris paribus when two countries ‘X’ & ‘Y’ produce 2 goods ‘A’ & ‘B’, if country X has more comparative advantage in the production of commodity A and country Y has more comparative advantage in producing commodity B, then each should specialize in the production of each of these product in which they have more comparative advantage to the other country. There has been modification to this law of David Ricardo. Paul Samuelson, for instance has come up with his version termed ‘Historians of the Law of Comparative’.
Thus, here the idea is described as incredible one. According to Samuelson, In Ricardian equilibrium analysis, there is never any longest run unemployment. What does Ricardo-Mill arithmetic tell us about realistic U. S. long-run effects from such outsourcings? In Act II, the new Ricardian productivities imply that, this invention abroad that gives to China some of the comparative advantage that had belonged to the United States can induce for the United States permanent lost per capita real income ‘an Act II loss even equal to all of Act I(a)’s 100 percent gain over autarky.
And, mind well, this would not be a short run impact effect. Ceteris paribus it can be a permanent hurt. In Ricardian equilibrium analysis, there is never any longest run unemployment’. So it is not that U. S. jobs are ever lost in the long run; it is that the new labor-market clearing real wage has been lowered by this version of dynamic fair free trade. (Does Act II forget about how the United States benefits from cheaper imports? No. There are no such neat net benefits, but rather there are now new net harmful U. S. terms of trade.
) So it is not that U. S. jobs are ever lost in the long run; it is that the new labor-market clearing real wage has been lowered by this version of dynamic fair free trade (Samuelson, 2004) This critic of Ricardo’s law shows that the comparative advantage of the United states in the long run do not result in lost in job in the United States but new market tend to attain the lost of job status at the long run, because they just emerging into the market. So Samuelson sees Ricardo’s view as not applicable, giving the US economy, in this instance.
The comparative advantage of U. S. international trade, in regards to its manpower training is one that is based on its long term experience. And this has madder its personnel training one that is very competitive in the global arena. The comparative advantage of a program operated by the U. S. government agencies is that it can draw on its own long term expertise in the investigation, prosecution and, in some cases adjudication of competition matters’ overtime and with the accumulation of experience, the U. S.
agencies have learned a great deal about how to operate an effective technical assistance program at relatively low cost”( U. S. Federal trade Commission, 2006). The view of Paul Samuelson, is base on the post Keynesian theory that is “focused on history and institutions, and argued that a free market economic progress was fundamentally unstable, production rather than exchange was the base of analysis and disequilibrium and change overtime rather than equilibrium and stability were essential” (Chilcote, 2000). Thus, this view on historical perspective and institutional setup further buttress the fact that U.
S. comparative advantage in its manpower level of competence is based on its long time wealth of experience and the institutional framework on ground overtime. The effectively management of a competitive assistance programme is, according to the U. S. Federal Trade Commission, expressed in three reasons: first, a body of internal expertise and experience in international work has resulted from repeated contact with foreign counterparts. Second, program management at both agencies has been steady overtime, so that administration of programs and interagency co-ordination is optional.
Third, high quality control has been achieved through ongoing routine review of program activities (U. S. Federal trade Commission, 2006) DISADVTAGES IN FREE TRADE Though there are many advantages associated with free trade, however, many critics oppose this seeing it as a way of exploitation of developing countries by the Western and developed economies. It is also seen that the adoption of open market has resulted in the change of socialism and communism in Eastern European countries, whereby there is a gradual turning around into a capitalist economy.
“Eastern Europe’s market for policy ideas, suddenly opened in 1989, was swiftly captured by an Anglo-American product with a liberal brand name. This policy equivalent of fast food erected barriers to other new entrants and established a virtual monopoly on advice in most targets states in the region” (Gowan, 1995, pg 3). Thus, it is seen that the adoption of open market and free trade in socialist and communist states, hitherto where government intervention in the economy is very strong. This is giving way to the build up in private sector.
But nevertheless many critics have opposed this neoliberalism doctrine of open market. It is argued that it has resulted in an uneven globalize economy. Sorensen & Holm, have argued that “Globalization has meant increased integration for the organization for Economic Cooperation and Development (OECD) countries, yet this process of a number of Third world countries or parts of countries(Sorensen, et al 1995, pg 6). Open market and free trade in the international arena has led to interconnection between national economies.
It involves the increasing integration of more and more nations and economic actors into market relationships” the form of interdependence between nations remains, however, of the strategic kind. That is, it implies the continued relative separation of the domestic and international framework for policy making and the management of economic affairs”(ibid). The reduction of government intervention in their countries economy has not gone well with some critics. This is seen as an evil associated with neoliberalism, whereby the critics argue that every sector is being privatized leaving government to be a mere spectator in her economy.
According to the Bolivarian President, on his address on world Food day, he stated that” In my opinion because it was given the highest of all doses of neoliberalism in Latin America- they privatized everything” the ferocious thinking behind neoliberalism” No, the state should on no account intervene in the economy- intervention would be the work of the devil” but what the neoliberals want to do is to throw out the concept of ethics and government” (Frias, 2002)
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