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
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
Although globalization induces worldwide inequality in many aspects such as educational inequality and income inequality, the most serious one is income inequality since it exacerbates the wealth gap and consequently causes severe social problems. The world GDP has risen from 36 percent to 55 percent since 1980 as a result of the expanding world trade caused by globalization (Lall, Jaumotte, Papageorgiou & Topalova, 2007). Global Domestic income has increased, but the income distribution across the continents appears to be unequal. For instance, in the United States (U.S.), among the income distribution, the bottom 20 percent have an income boost of only 3.7 percent while the top 5 percent enjoy an income boost of 57 percent (Kearney, 2014). Furthermore, this widened wealth gap makes the people in poverty become poorer and has resulted in many serious social problems. According to Thorbecke and Charumilind (2002), the crime rate may become higher since “legal wages represent the opportunity cost to crime”. Also, because the level of income has a positive and explicit correlation with the health condition, the poor’s average life expectancy may become shorter. Therefore, the income inequality is severe since it increases the wealth gap and gen...
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.
7. The cloth factory owner never intended to improve society; he just wanted to make money for himself. But his self-interest, as if "led by an invisible hand," resulted in the betterment of all. As Adam Smith himself put it, "By pursuing his own interest he frequently promotes that of the society more effectively than when he really intends to promote
In 1776, Adam Smith completed and published “An Inquiry into the Nature and Causes of the Wealth of Nations”, more commonly referred to as simply “The Wealth of Nations”. In this document, Smith analyzed wages, labor, trade, population, rents, and money supply (Andrea, 151). Because of his work, Smith is known as the founder of the academic study of economics and the father of capitalism. The kind of economy Smith envisioned and described in “The Wealth of Nations” resembles capitalism, as well as promoted a free market. Smith also spends a great deal of time arguing against mercantilism, which was largely popular at the time. Throughout Smith’s work, he talks about self-interest, embodying the Enlightenment obsession with human nature and progress. All in all, Smith helped shape the modern views on economics today.
Adam Smith helped shaped how the world is today. He helped form many different theories in order to help us understand how and why people think certain ways and helped us understand how to think as well. He helped to publish The Wealth of Nations and understood that people have the self interest in mind and that no matter what year you live in, people will worry about themselves and put their own self interest ahead of the rest of people. As i have stated in this paper Adam Smith has been a founding father of economists. He has taught us so much and really makes us understand exactly how countries become poorer and what we can do to help benefit ourselves.
Adam Smith’s economic genius presented in The Wealth of Nations is stimulating because it proves that the economy is constantly changing, but is founded upon basic principles that consistently remain the same. One theme that is regularly reiterated in Smith’s The Wealth of Nations is that each country’s economy plays an important role in the global economy. For example, the idea of the division of labor and trade specialization suggests that each country should utilize its’ resources and citizens’ expertise in order to maximize productivity and gain through trade with other countries. It does not make sense for a country produce a product more expensively when it can simply trade with another country. In addition, the concepts of the invisible
The first economist we will discuss is Adam Smith. Before we discuss Smith's views, we will provide a brief description of the setting in which Smith was able to create his assumptions, and formulate his theories. Smith studied Social Philosophy at the University of Glasgow and the University of Oxford, the latter of which he was not as fond of. The primary economic theory at the time (18th Century) was mercantilism, which focused on foreign trade and a positive balance of trade (Net Imports > Net Exports;Trade Surplus). Around 1760, Smith was in France, which was horribly in debt due to the ruinous aiding of Americans against the British, amongst other reasons. Smith envisioned the government playing a larger role, one which consisted of protection through mercha...
Globalization, the acceleration and strengthening of worldwide interactions among people, companies and governments, has taken a huge toll on the world, both culturally and economically. It’s generating a fast-paced, increasingly tied world and also praising individualism. It has been a massive subject of matter amongst scientists, politicians, government bureaucrats and the normal, average human population. Globalization promoted the independence of nations and people, relying on organizations such as the World Bank and also regional organizations such as the BRICs that encourage “a world free of poverty” (World Bank). Despite the fact that critics can argue that globalization is an overall positive trend, globalization has had a rather negative cultural and economic effect such as the gigantic wealth gaps and the widespread of American culture, “Americanization”; globalization had good intentions but bad results.
These results change or modify political organizations to be suitable for the needs of global capital. Regions and nations are encouraged to import and export of goods from other parts of the world rather than supplying or manufacturing them in their own homeland. Thus, seeking expensive manufactured supplies or goods from third world countries to import them to the first world corporation’s injunction with the free trade zones of globalization (Ravelli and Webber, 2015). These negotiations raises new organizations, for example, the World Trade Organization (WTO) to aid and supervise both countries to for a legalized trade. However, Neoliberalism amplifies the negative aspects of globalization’s effect on the economy. For example, deregulation, decrease of government benefits, and tax modifications (Bunjun, 2014). Nevertheless, relating these negative aspects to the documentary Made in L.A. (Carracedo, 2007) which is the main issue of increased risk of employment for both the first world and third world countries. In regards to, a switch from full time stable and secure jobs to part time unstable and insecure jobs. This reduces career growth for many employees, which they recognize, and thus switch jobs – where as they may not fit as well (Bunjun, 2014). As a result, globalization causes market inefficiency via labor market segregation and exploitation, unemployment and underemployment, unequal access to employment (Bunjun,
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.
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 ...
On the other side, many analysts and economists suggest that Globalization has proven to improve society’s overall wealth (Bryan & Farrell, 1996) and that it will continue to do so in the future. Others also affirm that Globalization will improve people’s well being, encourage cultural exchange and promote democratization (Wildavsky, 1995) (Friedman, 2000) (Byrnea & Gloverb, 2002).
Adam Smith was a Scottish philosopher and economist. He is most widely known as the father of economics and for his work An Inquiry into the Nature and Causes of the Wealth of Nations. In this book he proposes ideas that continue to play a huge role in our economy today.
The Relationship between Globalization, Economic Growth and Income Inequality. (2010, January). TEMEP Discussion Paper. Retrieved from ftp://147.46.237.98/DP-51.pdf