Incident Command System, Mercantilism Concept - Essay Example

Running Header: Incident Command System Student’s Name: Instructor’s Name: Course Code & Name: Date of Submission: MERCANTILISM CONCEPT Mercantilism concept is a regressive concept in economic development of any country and the whole word. The concept emphasizes on wealth retention by use of tariffs and restriction in order to discourage import and encourage export therefore, increasing their foreign reserves accounts since there will be less or no money lost to foreign investors (Allen, William R. 1987). Countries who practice mercantilism always place more emphasis on expensive natural resources such as Gold and therefore, it should be discouraged due to restriction that might create monopoly issues and provision of substandard products. Also, this type of trade concept inhibit economic growth of any country practicing the same since there is low competition and reduced market in where for producers to sell their product internationally. For this concept to be successful, country should employ various trade tools and policies in order to regulated import and exports trade with other countries. This policies include; i. Administrative barriers This concerned with process required for a foreign investor to sell is good in domestic market. This a common tool used by various countries to regulate imports since if they would like to reduce import, country will lengthen the procedure or involve a lot of procedures and delay in granting the investor license to import his products to the another country. Therefore, for mercantilism to succeed country should make procedure followed by importers is made lengthy and tiresome thus discouraging importers attempt to import their products into domestic market. ii. Tariffs Tariffs is the common policy used by various countries in trade protectionism. This is where a country imposes certain level of tax on import or export product depending on the intention of the country’s trade effect on economy. For mercantilism, the government will increase taxes on imports therefor increasing prices of foreign products compared to locally produced products of the same kind therefore, reducing demand on imported goods this in return reduces profit to foreign investor hence withdrawal from the market or discourage from entering the market. Consequently, country will ease tax burden on exports in order to encourage exporters who in return brings in more wealth to the country. Therefore, leading to high rate of wealth coming into the country than the rate at which wealth leaves thus making mercantilism successful. iii. Anti-dumping legislation Dumping refers brining in substandard good and sell them in domestic market at a lower price than its value in the country where it is produced. This policy can be used in implementing mercantile concept since restriction on dumbing will ensure local producers have the same or higher advantage over foreign products due to the same pricing or local product is priced at a lower price thus reducing demand of the foreign product this reduces returns therefore, forcing foreign producers withdrawing its product in the market leading to reduction in wealth outflow hence fulfilling mercantile principle. iv. Import quotas Import quotas is restriction policy where amount of import entering the country is restricted to certain amount and any further imports will be imposed with strict procedure or higher taxes to discourage import. This allows the country to maintain the wealth level it sets to have by controlling the rate at which it exchange wealth with other countries. This policy works well in implementing mercantile trade concept in the country. v. Direct subsidies Domestic producers can be subsidized by the government in order to reduce their cost of production thus being able to reduce prices of their product. This in return enable local producers to compete well with foreign producers with economies of scale or government may subsidize with aim of chasing foreign producers from their local market (Lang, T. & Hines, C. 1993). Therefore, increasing wealth accumulation within the country due to reduction or elimination of wealth outflow from consumption of imported goods thus fulfillment of mercantile concept of reducing imports and increasing exports. vi. Export subsidies It is a move by government to encourage exporters to export more since exporter get payment when they import their product as a proportion of entire exported goods. Therefore, exporters will export more goods since the more you increase export, payment value increases too. This will increase the rate of foreign exchange coming in than the rate it leaves the country’s economy therefore, supports implementation of mercantile concepts since it increases country’s income which is one of its core objective. vii. Exchange rate manipulation This where government manipulate the foreign exchange rate by selling it currency in foreign market thus making it more expensive. Consequently, this will increase the cost incurred thus making imports expensive in local market and therefore, creating favorable condition for the local producers to compete with foreign producer if not to eliminate them from local market. This increases wealth accumulation due to reduced loss of cash to other countries due to reduced demand of their goods. Therefore, this policy assist in implementation of mercantile concept. viii. Employment-based immigration restriction The government can put in policies to increase expatriates by reducing procedures and restriction for anyone who wish to work in a foreign country since they will always invest in the country thus increasing amount of foreign cash inflows. In the other hand, government will increase requirement and taxes on any foreign employee in the country in order to discourage one seeking employment in the country or reduce cash outflow due to increased tax on salary. ix. Political campaigns and Preferential government spending Political campaigns where government encourage its citizens to promote local industries by buying locally produced goods while preferential government spending entails government buying more of locally produced goods than importing. This enables country to retain its wealth by allowing circulation of money within country’s economy this brings mercantile effect on economy of the country. CRITIQUE OF MERCANTILISM The main critics of the mercantilism concept were Adam smith and David. Adam Smith based his critique by defining the meaning of real wealth to a country in contrary to what mercantilism concept on countries wealth (Heckscher, Eli 1934). From Adam Smith point of view real wealth of a country goes beyond the accumulation of wealth and it is composed of availability of variety of goods brought in by foreign investors, good housing and land etc. Early economic scholars urged out that mercantilism concept earned no return to the country since when country sell this metals to another country they will have to import goods that they are not producing in their country and therefore, they will be incurring additional cost of transportation of the good hence at the end their will be no wealth gained instead it is lost to intermediaries. The scholars also urged out that the concept is regressive and inhibits economic growth of a country since there is no free trade. First, the concept discouraged foreign investment therefore, reducing competition in the local market this in return makes local industries to be reluctant in improving their technology leading to manufacture of substandard goods, which do not qualify the standards required for export hence low foreign gain from import and reduced level in local consumer satisfaction. Secondly, imports and foreign investment encourages exchange in technology and introduction of new products in the market therefore, increasing economic activity in the country this as a result improves country’s economic growth therefore, and any move to restrain foreign investment and imports will hinder economic growth of any given country. Lastly, wealth accumulation leads to excess money in the circulation since the country policies only allows inflows but restrain wealth outflow this will in return cause inflation due to excess money in the circulation (Smith, Adam 1937). Inflation impacts on economic condition of a country negatively since there will be excess money chasing few goods thus resulting to poor living standards of its citizens since low income earners will not be able to purchase such goods since only those with large sum of money are able to purchase. Comparative advantage is another factor brought forward by David where he disapproved the concept of mercantilism. He based his argument on the mutual benefit between different countries since a country cannot be able to produce all the products by its own (Salvatore, Dominick, ed. 1987). For example Australia can produce milk in abundance while Indonesia can produces rice. The two countries will exchange the goods therefore, there will be no imbalance trade of payment since the two transactions cancels out. Therefore, there is no effect of having free trade since it has no or little effect on country’s wealth if it will aggressively work on its exports in order to avoid instances where imports are greater than exports. CONCLUSION In conclusion, mercantilism has proved to be regressive method of conducting trade since it assumes various economic concepts that enables the country to maintain a stable economy by failing to understand real wealth of a country. Mercantilism also has proved to be the major cause hindering economic growth since there is no push for a country to improve its production capacity or product quality. Therefore, there is need to reduce trade restrictions in order to establish a stable economy. REFERENCE: Allen, William R. (1987) “Mercantilism.” In John Eatwell, Murray Milgate, and Peter Newman, eds., The New Palgrave: A Dictionary of Economics. Vol. 3. London: Macmillan. Pp. 445–448. Ekelund, Robert B. Jr., and Robert D. Tollison (1997). Politicized Economies: Monarchy, Monopoly and Mercantilism. College Station: Texas A&M University Press. Heckscher, Eli (1934). Mercantilism. 2 vols. London: Allen and Unwin, Magnusson, Lars (1994). Mercantilism: The Shaping of an Economic Language. London: Routledge. Salvatore, Dominick, ed. (1987). The New Protectionist Threat to World Welfare. New York: North-Holland. Smith, Adam.( 1937) . The Wealth of Nations. Edwin Cannan edition. Available online at: http://www.econlib.org/library/Smith/smWN.html Viner, Jacob (1937). Studies in the Theory of International Trade. New York: Harper and Brothers. Lahaye, L. (2010). Mercantilism: The Concise Encyclopedia of Economics | Library of Economics and Liberty. [online] Retrieved from: http://www.econlib.org/library/Enc/Mercantilism.html [Accessed: 19 Mar 2014] Verm & Er, B. (1998). Religions in Taiwan: Between mercantalism and millenarianism. Japanese Religions, 23 (1-2), pp. 111--123. Hufbauer, G. C. & Suominen, K. (2012). The economics of free trade. Cheltenham, Glos, UK: Edward Elgar. Heckscher, E. F. & Soderlund, E. F. (1955). Mercantalism. London: G. Allen & Unwin. Grossman, G. M. & Helpman, E. (1993). The politics of free trade agreements. Buttsworth, M. (2012). Polarshift. [Western Australia]: Buttsworth Books. Krugman, P. (1991). The move toward free trade zones. Economic Review, 76 (6), p. 5. Lang, T. & Hines, C. (1993). The new protectionism: Protecting the future against free trade. Earthscan Publications Ltd. Read More