QUESTIONS TO KNOW
Global economic Prospects:
Developing countries face a tough upcoming time. They are expected to endure higher
borrowing costs in an era with low prices for oil and other key commodities. This will
result in a fourth disappointing year of economic growth. In 2015 Developing countries
are projected to grow by 4.4% and by 2016 are projected to grow by 5.2%.
It is said that countries that invest in health and education improve the business
environment.
South Africa’s Economic prospects:
Annual growth is expected to rebound to 2% in 2015 from 1.4%. This is as a result of the
large rand depreciation which may stimulate an export-led recovery, the global economy
will thus also gradually improve.
How is Economic Development Measured:
Human Development Index, which is a more comprehensive measure. This is a measure
of a combination of health, education and standard of living (income).
Real GDP = C + I + G + X - M
Countries similar to South Africa:
BRICS. Thus Brazil, Ice land, Russia and India.
THE THEORY OF FREE TRADE (B. INGHAM)
INTRODUCTION
The Corn Laws:
The duties on imports of grain, which had been in force in England from the middle
of the fifteenth century.
Reasoning: Grain, mainly wheat, was an important food stuff and for the majority
of labouring people was in fact a staple. However, its price varied greatly from year
to year, thus the Corn Laws were there to stabilise its price. It was worked on a
“sliding scale”, thus when the domestic price of wheat was high due to a poor
harvest, duties were lowered to permit imports. When the domestic price was low,
the duties were increased to stabilise the price.
The Problem: the sliding scale was tending to increase rather than reduce
fluctuations in the price. When the domestic price was high, traders tended to
withhold supply to raise the price even further. When import duties were
eventually lowered, traders would import wheat on a large scale. The supply
, would then increase, the price would drop and the duties were raised. This
creating an amplification in the fluctuations, and made a vulnerable market even
more unstable.
Other effect: they benefited agricultural interests at the expense of the newly
emerging manufacturing sectors. High prices of grain, maintained through the
restriction on foreign supply increased the value of land.
“Free Traders”: Believed that lower grain prices were needed so that the labouring
sector could have access to cheap foodstuff. They formally argued for the opening
up of British markets to cheap grain imports from overseas.
In 1836 Britain repealed the Corn Laws.
KEY FEATURES OF MERCANTILIST THINKING:
1) Extensive regulation of imports and exports
Some imports were prohibited altogether, while others had extremely high
import duties. This was all due to a fixed money supply, countries did not want
to import. England banned the imports of raw materials to keep input costs
low.
2) Trade Monopolies Flourished
Governments permitted one merchant to operate iin domestic and foreign
markets. This meant that these merchants could trade abroad at extremely
high prices because there was no competition.
3) Smuggling Flourished
Large profits could be made by smugglers who were willing to to import or
export prohibited goods. Smuggling of bullion (gold currency) was
exceptionally profitable.
4) Significant incentives to establish colonial empires
Colonies enabled the metropolitan countries to control trade with the weaker
countries.
HOW ADAM SMITH’S THEORY BROKE THE MERCANTILIST THINKING:
Smith’s criticisms of mercantilism: merchants exploit monopolies and get other
extraordinary privileges.
Smith favoured a free market where hard work, enterprise and thrift would be rewarded.
Without state regulation, monopoly and privilege, where entrepreneurs would be
encouraged to behave in a competitive, efficient and dynamic manner.
Specialisation and Trade
Division of labour increases productivity
Specialisation leads to more productive and more dependent on others
3 main ideas:
o A nations wealth depends on its productive capacity
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