Mercantilism I. Analytical Focus of Mercantilism

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?