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Economic thoughts of adam smith
Impact on globalization
Impact on globalization
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Classical Economics Background Both fathers of economics, Adam Smith and David Ricardo, made a strong case for the implementation of free trade and laissez-faire policies, in opposition to the then-dominating theory of mercantilism, usually associated with France. Smith 's idea of absolute advantage, perfected by Ricardo 's comparative advantage, stated clearly that free trade is a win-win situation, because it pushes nations towards division of labour – today usually called specialisation – in an international market. According to Smith: “The greatest improvement in the productive powers of labour, and the greatest part of the skill, dexterity, and judgement with which it is anywhere directed, or applied, seem to have been the effects of …show more content…
This resulted in what we now call the phenomenon of globalisation, which has become evident to almost everyone in recent decades. Shortcomings of Classical Theory The effects of this phenomenon, however, do not exactly match the theory that supported it: in fact, many intellectuals including economists and politicians, have criticised globalisation as a trigger for inequality, and blamed it for hindering development. As Hung and Kucinskas (2011) state: “there is a consensus that within-country inequalities in most countries have increased for the greater part of the past three decades under globalization” where “three decades” refers to the 1980-2005 period. Also, data shows that between 1960 and 1980, average per capita growth in all countries of the world grew 83 percent, while in the globalisation era (1980-2000), it fell to 33 percent.2 Another shortcoming of classical economics was found in the so-called Leontief paradox (1953), when Wassily Leontief observed that “the most capital-abundant country in the world by any criterion”3, the US, exported labour-intensive commodities and imported capital-intensive ones, thus undermining the validity of the Heckscher-Ohlin model at its very …show more content…
Thus, it becomes vital that the government can redistribute wealth generated by liberalisation, so that the society as a whole can thrive on it. Importance of Policies It is essential to understand that the most important feature of Kuznets 's “turning point” is the rise of social welfare and “pro-poor” policies actively carried out by governments, which are the natural response of societies to the rising wealth divide. We can find examples of the latter in Mexico 's large-scale social protection schemes Progresa and Oportunidades.15 More generally, four policies have proven to be the most effective in reducing income inequality. Greater spending in education (not only the higher sector) as a percentage of GDP, along with a greater access to education for lower-income families, and higher tax revenues are two of the internal policies correlated to higher equality, whereas on the external side Foreign Direct Investment and depreciation of the currency are believed to indirectly lower inequality by boosting the country 's competitiveness, as found by Cornia
Those groups who bled and died from 1910-1917 for a more just and equitable Mexico were subsequently denied the fruits of economic growth and transparent political representation. Efforts to accelerate growth since the mid 1930s “have tended to produce- or at least, to reinforce- a highly inequitable pattern of income distribution” (Hansen 71). According to Roger Hansen, the author of The Politics of Mexican Development, “no other Latin American political system has provided “more rewards for its new industrial and commercial agricultural elites” (87) since 1940 and “in no other major Latin American country has less been done directly by the government for the bottom quarter of society” (87). Mexico’s development created a middle class and brought a certain measure of industrialization but further disenfranchised the poor.
In the Humanistic Tradition the author, Gloria Fiero introduces Adam smith as a Scottish moral philosopher, pioneer of political economy, and a key figure in the Scottish Enlightenment. Smith also known as the Father of Political economy, is best known for one of his two classic works An Inquiry into the nature and causes of the Wealth of Nations. Fiero looks at Smith’s work because the division of labor is important. One thing Smith thinks is even more important for creating a wealthy nation, is to interact and have open trade with different countries. Fiero states,“It is necessary, though very slow and gradual, consequence of a certain propensity in human nature which has in view no such extensive utility; the propensity to truck, barter,
Our global world is being more connected as we become integrated politically, socially and even economically. Due to the Bretton woods agreement, different countries have been economically dependent on each other in fear for war to erupt. From then on different organizations and policies tied more countries into being economic globalized. This economic globalization had then given us many opportunities in trades and more access to natural resources in other countries. Unfortunately, there are some negative effects that are brought to less developed country. Overall, many people believe that economic globalization does a great work on accumulating our economy and our quality of life.
Firebaugh, Glenn. "The Trend in Between-Nation Income Inequality." Annual Review of Sociology (2000): 323-352. online.
Wilhelm, Heather “The Great Income Inequality Sham” Real Clear Politics. May 2013. Web. 29 Apr 2014.
Free trade for Ricardo is more based off of labor then pricing as it is with Smith and Hume. He talks on how the amount of labor per unit produced is the most important factor for finding comparative advantages. “Through a mathematical approach, Ricardo furthers the analysis of Smith’s absolute advantage and better demonstrates the trade gains. In addition, while developing his approach Ricardo only used one factor of production, which is labor.”(Emilienne Kamandinako)This comparative advantage is in a country that possibly has no absolute advantage in any sector of their market. They have, though, a sector where they can create a product with less labor then another country. Since they can do this, the country stops putting labor toward that area and lets the country with the comparative advantage take over and then make a trade. Comparative advantage is, for Ricardo, a fuel for economic growth since there will be more products supplied to the consumers in any market. This economic growth comes from comparative advantage in free trade and commerce, which Ricardo explains more by
Out of the total population in Mexico, twenty million are considered to live in extreme poverty. (DePalma, nytimes.com) In The Pearl by John Steinbeck, (which takes place in Baja California, Mexico) the main character and his wife live in very poor conditions; however, just a few miles away from their village, lives a rich town. This presents a major gap in the quality of life between these classes. The answers to the questions discussed in this paper (i.e., “To what extent is this financial gap in Mexico?” “Why does this gap exist?” and “What could we have done to prevent this gap?”) provide a basis of understanding of this topic. Although The Pearl was written in 1945, this paper will be focusing on these issues in present-day Mexico.
Adam Smith was the first person to publish ideas about the markets. He suggested that a free market was the most viable and sturdy option for the economic system, as it meant that there could be no governmental regulation. This was an advantage as selfishness of the individual creates competition
In the long run, an economy of a nation that seeks to gain wealth by focusing on expanding its industrial sectors through specialization and the division of labour is not only natural, but it is also beneficial for self-interests of all by creating more dexterous workers, increasing labour efficiency, and spurring innovation.
On the other hand, opponents question if the benefits of globalization compensate the created downsides. In their opinion, globalization has manifested unemployment, poverty and marginalization. Additionally, it has been one of the key drivers ...
Globalisation can be construed in many ways. Many sociologists describe it as an era in which national sovereignty is disappearing as a result of a technological revolution, causing space and time to be virtually irrelevant. It is an economic revolution, which Roland Robertson refers to in his book ‘Globalisation’ 1992 pg 8, as “the compression of the world and the intensification of consciousness of the world as a whole”. It is argued that globalisation allows the world to become increasingly more united, with people more conscious of ethnic, societal, civilizational and individual aspects of their lives.
Just as governments, nations and economies have become intensified and connected, through the transmission of cultural ideas, meanings and values have also merged together (Wise, 2010), this acculturation has been enabled and sped up by the internet, media and a cheaper air-travel (Kofman and Youngs, 2008). Socio-cultural globalisation has contributed to an expansion of people 's consciousness (Steger, 2009), Roland Robertson coins the term "glocalisation" when referring to cultural hybridity, such a process has allowed people to enjoy a variety of cuisines, traditions, music, movies and books that were not previously available before in one country (Crothers, 2010). Although greater cultural unification creates a more dynamic society, some
(Bilton et al 1996:5) The process of globalization has certainly had many changing effects to the world we live in; it has also changed the way many factors operate. Globalization is said "to have transformed the structure and scale of human relationships that social, cultural, political, and economic processes now operate at a global scale with a consequent reduction in the significance of other geographical scales. "(The Dictionary of human geography 2004:315) Globalization has had both positive and negative effects on a local, national, international and global level. Globalization often brings benefits at one level which cause negative effects at another, these results and the scale at which they manifest are often uncertain and unpredictable.
The central thesis of The Wealth of Nations is that capital is best employed for the production and distribution of wealth under conditions of governmental noninterference, or laissez-faire, and free trade. In Smith’s view, the production and exchange of goods can be stimulated, and a consequent rise in the general standard of living attained, only through the efficient operations of private industrial and commercial entrepreneurs acting with a minimum of regulation and control by the governments. To explain this concept of government maintaining laissez-faire attitude toward the commercial endeavors, Smith proclaimed the principle of the “invisible hand”: Every individual in pursuing his or her own good is led, as if by an invisible hand, to achieve the best good for all. Therefore any interference with free competition by government is almost certain to be injurious.
This paper discusses Adam Smith's and David Ricardo's view on the labor theory of value. It includes a discussion of the validity of the arguments they present in relation to social and Economic contexts. To the pursuance of this objective, the paper has explored five published articles available both in the internet and as hand copies.