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Know Good Things: Regarding Mercantilism and Globilization

October 28, 2017

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“Open-ended demands are a mandate for ever-expanding government bureaucracies with ever-expanding budgets and powers”. – Thomas Sowell

Howdy, gang! Another week is upon us, which means another opportunity is here! Deciding what we see as opportunities is, in my humble opinion, one of the biggest things that separates happy folks from victims.

We left things off last week with a discussion about free trade agreements and the underlying concept of globalism as a popular political ideal of our day. I don’t think that the notion of free trade is foreign to anyone (especially if you’re involved with trading as a way to create wealth and income), but I do think that the political ideals of globalism may very well be something we don’t really understand, nor do we really want to understand. Europe, for example, has engaged in one of the most intense experiments of globalism in modern history by creating the European Union (free trade zone) as well as a new unifying currency, the Euro. What began as an idea in a bureaucrat’s mind has now festered into a completely different animal that no one really identifies with anymore. Some, like England, no longer want anything to do with it!

I explained globalization as the process through which restrictions to international trade are removed and companies trade freely across national boundaries. The process is usually accompanied by increased outsourcing, whereby individual stages of production are allocated to companies in different countries, according to price, resulting in a massive increase in transportation. It would seem that shipping (transportation) would be a pretty decent industry to be involved with if you are doing business in a region involved with efforts of globalism.

Something that bureaucrats tend to ignore when coming up with grandiose ideas is the use value of the individual’s needs. By that, I mean that the first thing that usually gets sacrificed when government expands is the individual. Bureaucrats love to focus on the group at the expense of the individual. In the European Union, for example, there are several countries who fear losing their cultural and traditional identities as they further mix in with the whole. Today, the ideal that is diametrically opposed to globalism (and multiculturalism, which is a similar but very different bureaucratic nightmare) is what we used to call “nationalism”. One could also use the word, “mercantilism”.

A proponent of an economic nationalist (mercantilism) system would argue that to get a national economy to develop quickly and to catch up with more advanced nations, you would need the government to intervene in the economy to protect local industry and firms by protectionist measures, such as tariffs and subsidies. You also need to limit as much as possible the import of goods and services and the export of capital. Simply put, you need to sell foreigners more things than they sell you and you must keep and invest your money in your own country. That doesn’t sound so bad, does it? It’s a pretty simple idea shrouded in national pride, which is why it had a lot of support once upon a time. Could mercantilism work today?

Mercantilism was the most popular economic doctrine between the 16th and 18th centuries. The system went on to inform 19th century American and German economic policy, while also playing a role in the development of Japan and other East Asian nations such as Taiwan, South Korea, Singapore, and especially China during the late 20th century. In today’s world, mercantilism mostly goes by the name of economic nationalism or as the theory of export-oriented growth. Some critical economists use mercantilism to criticize globalization by arguing that globalization and the has “kicked away the ladder” of state intervention and protectionism that rich countries once used to develop strong economies from beneath the feet of today’s poor and developing countries.

What most people forget is that America operated, for the most part, under mercantilism immediately after winning independence in order to create our own economy. We essentially had nothing after the war and we were struggling. Rather than becoming embroiled in fancy trade deals with other European countries, we decided to implement a certain level of isolationism…economically as well as politically. George Washington, if I remember correctly, was criticized for this decision by political opponents, but he was ultimately proven to be correct. America needed to create industry and couldn’t allow foreign competition to hinder her growth at such a critical time. Mercantilism was exactly what the doctor ordered for that particular time and place, but it wouldn’t be the same today.

It’s an interesting battle between proponents of globalization and proponents of mercantilism. Countries that are striving towards creating an identity as well as wealth need to focus on protecting their native industries. Countries that already have wealth need more customers to sell to and definitely support measures that make it easier (and cheaper) to conduct business abroad. It’s pretty much impossible for both of these economic models to exist at the same time because they’re polar opposites. However, I would argue that taking the beneficial tenets of both philosophies and merging them into a global economic policy makes a lot of sense. America has resources and competitive advantages that should be protected by our political leaders, but we should also be striving towards making the pie bigger in order to allow businesses to grow…or at least allow people to create more businesses.

Today, we are mired in a globalized economic model and it will essentially take a third World War to change that. Our wealth, as a country, has surpassed every other country on the planet, but so has our debt. We find ourselves at an interesting cross road of wealth and responsibility. At some point, we will be forced to confront our irresponsible fiscal behavior and the repercussions could be transformative. Perhaps we could find ourselves adopting a policy of mercantilism in the future because of the economic reaction from dealing with our debt? Eight years ago, we found ourselves at $10 trillion in actionable debt; today we find ourselves at $20 trillion. It will be very interesting to see what transpires because this is a problem that won’t simply go away.

Bottom line, there are benefits of economic globalization that we need to take advantage of as best we can right now because there will come a time when things change. At that point, it would seem that a certain level of mercantilism would be beneficial as we kind of hit the “reset button” and work towards economic regrowth. Time will tell, but at least now we’re all informed.

Be good. Do good. Know good.

Kleiny (@KnowGoodThings)
Columbus, Indiana

4 Replies to “Know Good Things: Regarding Mercantilism and Globilization”

  1. JacobAgbor says:

    Very good post. First time I’ve heard the word “mercantilism”, but the concept is very near and dear…. Thanks!

    1. DATNGUYEN says:

      Thank you for the post, it is a very good read.

  2. CODYMAKI says:

    hmmm interesting

  3. JINGLI says:

    Good post, thank you

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