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The Debate over Free Trade & Globalized Production.doc

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Political Science
Political Science 2211E
Adam Harmes

Feb 27 - The Debate over Free Trade & Globalized Production Four Main Positions in the Debate 1) Liberal 2) Neoliberal 3) Nationalist 4) Keynesian-Welfare 1) The Liberal View in Favour of Free Trade - Argues for 2 main reasons: o 1) Focus on efficiency o 2) Free trade increases overall amount of production - Adam Smith o Attacked protectionism (use of tariffs as an example), believed free trade is the most beneficial o Came up with concept of Absolute advantage  Based on specialization, broader economic notion of specialization, individuals specialize in one thing, creates more efficiency Specialization - Each worker specializes in a particular job - Increases productivity by allowing each worker to become more efficient at their tasks - Specialize in area of absolute advantage o I.e. a worker in Canada shouldn’t focus on producing coffee or tropical fruits but focus rather on wood since Canada has an abundant amount of wood o Worker in Columbia would have an absolute advantage to produce coffee and tropical fruits over a Canadian worker Economic of Scale - Cost savings that result from producing on a bigger scale due - Bigger market means that producers can spread out “fixed costs” over a larger number of units Free Trade, Specialization and Economies of Scale - Free trade means more people and bigger markets - Allows for greater specialization and economies of scale David Ricardo and Comparative Advantage - Would a country still benefit from trade if it had an absolute advantage in all products? - Ricardo says yes based on the theory of “comparative advantage” o Why trade is advantageous even when a country is superior to its competitors in every single product - **Comparative advantage means a country can produce a product better than another product, NOT compared to another country ****EXAM QUESTION**** - Makes more sense for one country to specialize in a given product o Rather than England and Portugal manufacturing both cloth and wine, it would make more sense for England for say to focus their attention on cloth and Portugal for wine which would be beneficial for both countries Liberals and Free Trade - Promotes efficiency and growth - Promotes development - Promotes peace, democracy and respects for human rights Interdependence - Countries become dependent on each other for many goods - Makes going to war more economically costly and difficult Trade and Democracy - Free trade promotes economic development and emergence of a middle class - Middle class uses economic power to demand democracy and human rights Democracy Peace Theory - Democracies are less likely to fight each other - Average people generally only vote to fight defensive wars - The logic is that because average people are the ones to actually fight, when they can vote and choose to go war, they only go to war out of necessity, and defensive wars 2) Neoliberal View - Priority is freedom rather than efficiency - More free market than classical liberals - Lock-in free market policies with: o Exit option and policy competition o Constitutional protections for property rights o Policy competition: what allows companies to have an exit option which allows them to move from country to country, or in terms of federalism from province to province, this helps attracts investors, without policy competition companies will simply move to places with less tariffs, which in turn will diminish employment and cause investors to invest their money elsewhere o Exit-option: allows companies to have the right to move their money to other countries - In favour of free trade o Believe in efficiency benefits of free trade o Free trade also creates an exit option and policy competition  Which is good, because i
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