LifeHack International

 The “Great Recession” in 2008 showed the weaknesses in Western economic models. The crisis highlighted the differences in political and economic paths adopted by Western and Asian countries. It all started in late 1990s, when American real estate prices were soaring and banks provided mortgages to anyone without income guarantee until 2007 when the real estate prices fell and borrowers defaulted on their repayments. But before we analyze the crisis, it’s necessary to understand the western economic liberal policies which led to it. After decades of government intervention, the US President Ronald Reagan and the UK PM Margret Thatcher started to “roll back the state” from national economies. They demanded a return to Adam Smith’s liberal policies which were encourage individual realization and reducing the social welfare spending. The renewed belief in ‘market’ and ‘invisible hand’ led them to believe that market itself would provide welfare for all. Western Liberal Economy Lib...

 The miraculous rise of Japanese economy in 1970-80s inspired many Asian countries to adopt state driven growth model. East and Southeast Asian countries mirrored the Japanese economies policies and registered an impressive growth during 1980s. These countries were nicknamed “Asian Tigers”. However, the growth bubble burst in July 1997 in Asia and soon it became a global crisis. Asian Tigers’ economic growth were based upon the two important pillars provided by people and government, respectively. Asian countries faced low inflation and high employment rates as people were willing to work long hours at lower wages. And governments worked as catalyst providing capital and tax benefits to domestic industries. They selected industries which could successfully compete with foreign firms. Banks provided credit to businesses as per the government policies. Banks’s Overseas Borrowings: Lower Interest Rates in the US The US interest rates were much lower than Asian rates. Thus, Asian ban...

Wikipedia Commons   Like Wallerstein, Dependency Theory emerged in Latin America which argued that world trading system benefited only advanced capitalists' economies. Often the Terms of Trade favored these countries over the least developing countries (LDCs).  Terms of Trade = Export Prices / Import Prices LDC economies depend upon export of raw materials and agricultural commodities. And they import finished products from developed countries.  As the commodity prices rise slowly but manufactured product prices rise sharply, the terms of trade would deteriorate for LDCs unless their exports rise faster than the imports. The global trade is done mostly by corporate subsidiaries thus commodity prices are not exposed to market. These giant corporations often secure the deal with long term agreements, thus even though commodity prices might have rose but they would pay what was agreed in the agreement. They also have sophisticated accounting devices which enable them to avoi...

//www.wearethethread.com/   In contrast to mercantilism, the underlying theme of economic liberalism is that economic policies should improve citizen's standard of living, not increase state power. The economic liberalism was championed by Adam Smith and later, David Ricardo.  Adam Smith: The Wealth of Nations Actually, the term mercantilist was first given by Adam Smith in his book The Wealth of Nations. He championed the idea of market economy.  He argued that manufacturers were more important than accumulation of metals for states. Countries could achieve economies of scale by specializing in good that they could produce more efficiently. Smith believed in market which provided general welfare. Competition among entrepreneurs provide a wide range of products at lower prices for consumers. And most importantly, market works under an 'invisible hand' which transforms individual greed into social prosperity. Government should be limited to provide nation defense and publi...

  Mercantilists slogan was "export more, import less." During the 16th and 17th centuries, states were the main players of global economies and they encouraged exports over imports to finance their huge armies. Similar to realists, mercantilists argued that economic policies should advance state power.  They believed accumulation of metals (gold and silver) was more important than trade as it increased the national wealth. So national economies that time were measured on how much gold one country had not how much trade they had. Spain's conquest of Latin American countries: Panama, West Indies, Venezuela and Peru, provided abundance of gold mines and Spaniards became extensively rich. Spain also put restriction on the colonial trades. colonies couldn't trade with other countries. Mercantilism thrived in Europe from the exploitation of colonies. Soon other European countries joined the loot of colonies in Africa, Asia and elsewhere.  Mercantilists as with realists arg...

Until recent centuries, trade was mostly local and there was no monetary system. The barter trade system where people exchanged one good with another was the dominant exchange of trade. When barter became inadequate for long distance trade, gold and sliver became the mode of payment. And when metals became difficult to sustain the global trade, the currency notes were introduced and global monetary system emerged. Roman Empire was probably the first to create a monetary system throughout its empire.  The countries involved in global trade had different understandings of how their national economies should be governed. Should it adhere to free market policies? Or, should it adopt protectionist measures for national wealth? Or, a complete overhaul of global economy where working class would own the means of production? These are the primary questions when we study International Political Economy. And primarily there are three theoretical lenses to see the political economy: Mercantil...