Global Trends Assignment
GROUP 2
GROUP MEMBERS ID SECTION
1.Hussein Meftuh ETS1676/16 B
2.Meron Feleke ETS0948/16
3.Nigus Solomon ETS1127/16
4.Yeabisra Reta ETS1423/16
5.Lielina Zena ETS0870/16
6.Tsege Tesfaye ETS1373/16
7.Mohammed Abdulmelik ETS1006/16
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Table of Contents
Introduction
Mercantilism and Liberalism in International Political Economy ............................. 2
Mercantilism ............................................................................................................... 2
Core Argument....................................................................................................... 2
Key Features............................................................................................................ 2
Examples in Practice.............................................................................................. 3
Liberalism.................................................................................................................... 3
Core Argument....................................................................................................... 3
Key Features............................................................................................................ 4
Examples in Practice.............................................................................................. 4
Key Differences Between Mercantilism and Liberalism ......................................... 5
Criticisms and Limitations.......................................................................................... 6
Mercantilism Criticisms........................................................................................... 6
Liberalism Criticisms................................................................................................ 6
Conclusion.................................................................................................................. 6
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INTRODUCTION
The study of Political economy has always been dominated by a national
or/and international level debate over the responsibilities of the state with
regard to the economy. This debate still continues to occupy a central place in
political economy of the 21st century. For example, should the state or the
individuals within that state be the ones to determine how the national
economy should be operated. In the study of international political economy
(IPE), two foundational theories—mercantilism and liberalism—offer distinct
perspectives on the relationship between economics and politics.
Mercantilism and Liberalism in International Political Economy
Mercantilism and liberalism represent two contrasting paradigms in the study of
international political economy (IPE). These theories differ significantly in how
they perceive the relationship between economics and politics, the role of the
state, and the nature of international economic interactions. Understanding
their core arguments and distinguishing features provides a foundation for
analyzing economic policy decisions in the global arena.
Mercantilism
Mercantilism is one of the oldest theories of IPE, rooted in the economic
practices of 16th- to 18th-century Europe. It emphasizes the role of the state in
shaping economic outcomes to strengthen national power.
Core Argument
The fundamental premise of mercantilism is that economic activity serves the
interests of the state. Mercantilists view international trade as a zero-sum game,
meaning that one nation's gain inevitably comes at the expense of another. This
perspective underscores a competitive global environment where nations vie
for wealth and resources to bolster their power.
Key Features
Economic Nationalism:
Mercantilists prioritize the state’s interests over those of individuals or firms.
Policies are designed to maximize the wealth and resources of the nation to
ensure long-term power and security.
Protectionism:
To shield domestic industries from foreign competition, mercantilist policies
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include tariffs, quotas, and subsidies. Such measures aim to reduce imports and
encourage self-sufficiency.
Export-Oriented Growth:
Mercantilism emphasizes maintaining a trade surplus, where exports exceed
imports. By doing so, a nation accumulates wealth, often in the form of precious
metals, which were historically equated with national strength.
Interconnection of Wealth and Power:
Economic resources are seen as vital to military strength and geopolitical
influence. A strong economy supports a powerful military, which in turn protects
the economy.
Examples in Practice
Historically, European colonial powers like Spain and Britain pursued mercantilist
policies. Colonies were used as sources of raw materials and markets for finished
goods, ensuring wealth flowed back to the colonizing nation. In contemporary
times, policies reflecting mercantilist tendencies can be observed in China’s
industrial strategy, including subsidies for key sectors and stringent controls over
foreign investments.
Liberalism
Liberalism offers a stark contrast to mercantilism by advocating for minimal state
intervention in economic activities. It emerged during the Enlightenment and
became formalized with the works of economists like Adam Smith and David
Ricardo.
Core Argument
Liberalism asserts that free markets and open trade benefit all participants.
Unlike mercantilism, it views the global economy as a positive-sum game, where
mutual gains are achievable through cooperation and specialization.
Key Features
Market Efficiency:
Liberals argue that markets function best when they are free from excessive
state intervention. The natural forces of supply and demand lead to optimal
allocation of resources.
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Comparative Advantage:
A central idea in liberalism is that nations should specialize in producing goods
where they have a comparative advantage, even if another country can
produce the same goods more efficiently. This specialization increases global
productivity and benefits all trading partners.
Global Interdependence:
Liberalism highlights the importance of interconnected economies. Trade fosters
mutual dependency, reducing the likelihood of conflict and promoting
international stability.
Limited Role of the State:
The state’s role is to create and enforce a framework for free markets, including
protecting property rights and ensuring competition. Beyond that, government
interference is seen as counterproductive.
Examples in Practice
Liberal principles underpin the global economic system established after World
War II, such as the General Agreement on Tariffs and Trade (GATT), which
evolved into the World Trade Organization (WTO). Similarly, the neoliberal
policies of the 1980s, characterized by deregulation, privatization, and trade
liberalization, reflect this paradigm.
Key Differences Between Mercantilism and Liberalism
Mercantilism Liberalism
-It is an economic theory and -Liberalism, especially about
practice which dominated economy issues, is a school of
European economic thought from thought emphasizing free markets,
the 16th to the 18th century. It individual liberties, and scant
stresses the role of the state in government intervention on
managing the economy to amass economic issues.
greater national wealth and power.
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-Mercantilists believe that a nation -The main precept held by liberals is
should export more than it imports, that of free trade. According to
leading to a favorable balance of them, trade should be based upon
trade. The accumulation of a country's comparative
precious metals, especially gold advantage. In other terms, they say
and silver, is in some views crucial that countries should specialize in
for national wealth. making those goods they make the
most efficiently and then trade for
the others.
-Mercantilism advocates strong -Liberalism advocates for minimal
government intervention in the government intervention in the
economy. This includes protectionist economy. The belief is that markets
policies such as tariffs, quotas, and function best when left to operate
subsidies to promote domestic freely, allowing supply and demand
industries at the expense of imports. to determine prices and
production.
-Mercantilist policies usually -Liberal economic theory supports
promoted colonial expansion since globalization and international
many regarded colonies as sources cooperation, arguing that free
of raw materials and markets for trade leads to mutual benefits for all
finished goods that added to the participating countries.
wealth of the mother country.
-Mercantilism is inextricably related -Liberalism stresses individual rights
to nationalism, wherein it is believed and liberties, stating that the state
that economic strength is directly should not be involved in making
related to national power. economic decisions; it is for the
individuals to decide.
These differences reveal fundamentally opposing perspectives on the purpose
of economic activity and its impact on international relations.
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Criticisms and Limitations
Both mercantilism and liberalism have been critiqued for their assumptions and
outcomes.
Mercantilism Criticisms
Inefficiency: Protectionist policies can stifle innovation and lead to inefficiencies
in domestic markets.
Conflict-prone: Its competitive nature may exacerbate tensions between
nations, leading to trade wars or actual conflicts.
Outdated Focus: Modern economies rely less on physical resources like gold and
more on intangible assets like technology and services.
Liberalism Criticisms
Unequal Benefits: Critics argue that free markets often benefit wealthier nations
more, exacerbating inequality between developed and developing countries.
Vulnerability: Over-reliance on global interdependence can make nations
vulnerable to economic shocks or disruptions, as seen during the COVID-19
pandemic.
Neglect of Strategic Interests: Liberal policies might overlook the strategic
importance of certain industries, risking national security.
Conclusion
Mercantilism and liberalism provide contrasting lenses for understanding the
dynamics of international political economy. Mercantilism prioritizes state control
and national security, viewing the global economy as a battleground for power
and resources. Liberalism, on the other hand, champions free markets and
interdependence, aiming for mutual gains through cooperation.
The choice between these paradigms often depends on a nation’s priorities
and circumstances. While liberalism dominates contemporary economic
thought, mercantilist ideas persist in national strategies that emphasize
economic sovereignty and strategic industries. Understanding both theories is
essential for navigating the complexities of the modern global economy.
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REFERENCE
• Module
• International political economy - Wikipedia
• WALTERCH01
• Political economy | Definition, History, Types, Examples, & Facts | Britannica Money
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