Mercantilism I. Analytical Focus of Mercantilism



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Mercantilism

I. Analytical Focus of Mercantilism

II. The Evolution of Mercantilism

III. Contemporary Arguments in Favor of Neomercantilist Policies

IV. Contemporary Arguments Against Neomercantilist Policies

V. Examples of Successes & Failures

I. Analytical Focus of Mercantilism

  • A. Nation-states are the key actors in IPE

  • B. State self-preservation & enrichment are central goals

  • [a perspective known as realism within the study of international relations].

  • C. Economic power is a useful form of power:

  • in its own right

  • as a means to military & political power in the international sphere

  • power serves the central goals in I.B. above

  • D. States that ignore the above do so at their own peril:

  • Government leaders’ awareness of this principle is held to produce mercantilist polices.

II. The Evolution of Mercantilism

  • A. Classical Mercantilism

  • more visible in the West w/ the rise of the nation-state in the 1500s

  • saw economic trade & competition as a zero-sum game played by states interested in power as a means to self-preservation & wealth

  • recommended policy goals:

  • accumulation of precious minerals

  • positive balance of trade

  • major policies:

  • barriers to imports (tariffs, quotas, etc.)

  • promotion of exports (esp. through financing)

  • establishment of colonies

  • find minerals in colonies
  • use political power to insure a positive balance of trade with colonies
  • B. Economic Nationalism

  • emerged in the 19th century as a response to early British industrialization (& liberal thought) during the 18th C

  • Alexander Hamilton in U.S. & Friedrich List in Germany

  • still saw economic trade & competition as a game played by states interested in power as a means to self-preservation & wealth

  • but now often accepted the liberal notion that trade is not zero-sum (even though some states gain more than others)

  • recommended policy goals:

  • positive balance of trade

  • creation of industrial base

  • major policies:

  • barriers to imports (tariffs, quotas, etc.)

  • promotion of exports (esp. through financing)




  • C. Contemporary Neomercantilism

  • emerged in the 20th century in two very different national settings

  • advanced industrial societies (USA, UK, etc.)

  • late-industrializing economies (first Japan, then Latin America, and then in decolonized nations in Africa & Asia)

  • trade & competition still a game played by states after power as a means to self-preservation & wealth

  • but now with differing specific goals across different contexts

  • recommended policy goals:

  • AIS: promotion of militarily, economically, or politically strategic sectors

  • late-industrializers: creation of industrial base

  • major policies:

  • AIS: shift from tariffs to NTBs & to sponsored R&D

  • late-industrializers: import-substitution v. export-oriented

III. Contemporary Arguments in Favor of Neomercantilist Policies

  • A. Infant Industry Argument

  • business needs a hothouse to enter the marketplace

  • otherwise, existing foreign firms will use edge to triumph

  • B. National Security Concerns

  • “national champions” for key sectors

  • C. Employment Concerns

  • aid to some sectors to promote/preserve employment

  • D. Strategic Trade Theory

  • identify new growth sectors and channel resources

  • aim to create “competitive” advantage in high value-added, high differentiation sectors

IV. Contemporary Arguments Against Neomercantilist Policies

  • A. The Neoclassical Economic Arguments

  • 1. Pursuit of free trade maximizes national consumption because any economic protection produces inevitable, “deadweight” losses of foregone consumption that help nobody

  • The neomercantilist rebuttal hinges on the success of the policies in improving competitiveness over time.

  • 2. Pursuit of free trade maximizes world & national consumption in accord with the principle of comparative advantage

  • More on this key idea’s supporters & critics next time.

IV. (cont.)

  • B. The Political Concerns

  • 1. Neomercantilist approach centers on using government to create gains over time

  • Contemporary “political time horizons” are very short -- especially in democracies

  • Poorer countries’ growing awareness of consumption patterns in wealthy countries increases political pressure on governments in poor countries to produce rapid improvements

  • 2. Strategic trade theory focuses on picking key sectors for the future:

  • How will governments make those judgments and how successful will they be?

  • What are the economic & political costs of failed attempts?

  • Will governments be willing and able to remove protection from uncompetitive firms and sectors that do not improve over time?

  • If not, both the deadweight losses of protection and the transfer of some national consumption from consumers to producers raise distributional questions.
  • 3. To achieve the sustained cooperation of direct participants (and the support of a sufficient segment of the general public), governments need to build a coalition in support of the plan.

  • Factors that make neomercantilism easier to sustain politically:

  • unitary > federal
  • disciplined parties > weak parties
  • lengthy governments &/or insulated bureaucracies
  • encompassing groups > divided groups


V. Examples of Successes & Failures

  • What are some examples of successful & failed neomercantilist efforts?



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