Global Political Economy

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Answer the Following Questions Based on Balaam and Dillman, Chs. 1-4.

1. Compare and contrast the liberal view of competition, as found in Adam Smith’s invisible hand, with the mercantilist view of competition. What accounts for the differences between the two views? Explain.
Answer: Liberals view competition as an inherent part of human nature in a constructive way, guided by reason. Liberalism considers competition as an advantage for economy and economy activities. That kind of competition is called “the invisible hand” by Adam Smith, who describes it as the responsible for promoting the common good within a society, and the factor which guide economy to success. Economy activities are motivated by self-interests of consumers, and competition regulates these activities in order to prevent catastrophic and destructives practices. Competition also results in the efficient allocation of resources guided by the preferences and tastes of individual consumers. In summary, the market forces are regulated by competition instead of the state. That is the way how economy should make progress.

On the other hand, mercantilism doesn’t consider competition within economy activities. The economy activities are regulated and controlled by the state in order to guarantee security, to protect the nation against foreign threats, and to support its own industries. The internal market forces act the way the state dictates to bring wealth and sovereignty. Among the actions to get that outcome, are imposition of trade barriers to exports and imports, subsides to local activities in order to be competitive against other countries. So, I could say that mercantilist view establishes no competition among internal market activities. Instead the state creates conditions to obtain the best profits from its resources.

The key difference between liberalism and mercantilism is based on the way each perspective

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