Mercantilism, Classical Liberalism and Economic Nationalism

Economic policy refers to an interaction between the market and states in a traditional way. The international economic policy also looks for connections between markets and states on the political base. While the world becoming more global, international economics become more problematic. Political economy focuses on international money and today as we see in history, financial crises and sanctions are the topic of this subject. All nations are shaped by different schools of thought. In the realm of political economy classical liberalism, mercantilism, and economic nationalism have played crucial roles in shaping the nation's economic policies. As well as these thoughts are important for economic policies, it is now getting harder to analyse while the world becoming more globalised. The only distinction is if we look only at economics which explains a lot about how markets work but it does not take a part of power or security issues. International political economy brings them all into one piece. It shows a map of how to analyse the interaction between the global economy and politics and also understand the consequences of that.

Today's global economic system is based on the capitalist economic system that originated in Europe, especially in the Netherlands and Britain during the 16th century. Until people got familiar with that word in the 19th century there were different forms of a thinking base. It was commonly free-market area systems and all capitalist systems shared similarities. Private property is the first thing that should said. It is a cornerstone for economic organisation. It gives a right to people to own, and control whether it can be tangible or intangible. Private property is the way to invest and innovate. Also, capitalism enables self-interest and focuses on individual rights. On the other hand, capitalism points out limited government action will make more free market-based competition and thus it will determine wages and prices.

Adam Smith’s invisible hand is generally associated with liberalism. According to Smith to grow the wealth in the world free trade is important. Production must go from rich countries to poor countries. If states make free trade and not protectionist politics, the welfare of the world will increase. At this point, when referring to protectionist policies it comes to Mercantilism. This thought cares about gold and silver. In the 16th century when there was a gold shortage in Europe it appeared 16th century. Mercantilism cares about gold and silver because when there is money in the government's account it means this state is powerful. Because mercantilist believes that gold is limited in the world. As a matter of course there is no win-win game. Trade is a zero-sum game. While one side has to win the other one must lose. State intervention is necessary to accumulate valuable metals, protect the trade surplus, and promote national wealth and power.

Comparing liberals and mercantilists is about, while liberals favour less government and more market, mercantilists believe that in a world where the law of the jungle reigns supreme, even the market should be under the authority and supervision of the state. Mercantilism has affected a lot of European countries. For example in the 19th century, Bismarck at the period of the establishment of German unification, Germany became industrialised. Since that day this concept has played a crucial role in the German economy. Mercantilism means that the country's economy is based on exports; despite its tiny population, mercantilism propelled Germany to the world's third-largest exporter and industrial powerhouse, after only China and the United States. Also, China is in the close perspective of mercantilism. With its policies focussing on exports rather than imports, China's plan to increase the welfare of the state can be shown as an example.

Economic nationalism is an extension of Mercantilism. It emphasised that not only wealth but agriculture must be turned into industrial power. Differently from mercantilism, economic nationalists cared rapid growth of industry and emphasised the support of the national economy for growth. After World War I, Germany lost %15 of its cropland, a portion of its iron reserves with the Paris Treatment. Also with the dissolution of the Austro-Hungarian Empire there was lots of new independent states emerged. This state was focused on a nationalist economy but they were not alone. Russia was also after withdrawing from the war only selling and buying only what politicians deemed necessary strategically. In this period from Europe to the USA, nations apply protectionist politics to keep their reserves. They point out that industrialisation should be state-led. It is because there was uncertainty around the world. Trade gets worse and states can not make trade with their enemies. It is the only way to survive is to keep reserves for your society. States did not hesitate to intervene in the economy when the country was in distress. In today's world, Brazil is one of the prominent examples. Both its efforts to protect its domestic industries and its efforts for economic independence have led Brazil to pursue nationalist policies.

In this context, developing countries after the second half of the 20th century, based on protectionist policies began to remember the principle of free trade, and attempted to speed up global liberalization, particularly since the General Agreement on Tariffs and Trade (GATT) negotiations. liberalism should come to mind here. This is because liberalism holds that spontaneous markets can organize themselves without being controlled by anything. The government should not be completely interested in this, but its actions must be limited. In a free trade market, there is always a win-win situation. If someone loses it means that everyone loses.

The worldwide trading system is now interdependent. Countries also require imports to increase their exports. As a result, given that interruptions in imports would also influence exports, the chance of experiencing unforeseen events grows. To give an example about this USA-China is the competitive today liberal economy. On the other hand, while the USA is known as good at individual rights China does not give the same impression. The USA gives a trustable economy to the world and makes the dollar a reserve currency. China is known for savings and USA is known for consumption rates. So shortly China would want more power and give orders. The USA does not let it be the best economy in the world.

However, there is uncertainty rising from the current environment regarding free trade stems from the activities of interest groups affecting the economic infrastructure and protectionist economic policy decisions of emerging nations. Even in the last half-century global trade tends to increase, after the 2008 crisis there is a loss of momentum. Before that crisis, the global trade in world GDP reached %51, but it never reached 50 per cent in the following period. On the other hand, it is opposite to liberal ideas. Liberalism's specialisation was free trade that everyone could benefit. This was a consequence of comparative advantage. So if someone is good at something and not good at other things it has to be make trade. This proved a win-win game for everyone.

With the COVID-19 pandemic in recent years, the global scenario has shifted dramatically. Trade has changed dramatically during the epidemic due to increased demand for specific items and challenging transportation. Due to the environmental imbalance, countries attempted to hang on to their reserves throughout this time. Protectionist views resurfaced and began to shape state policy. Since the rate of spread of the epidemic in developing and developing countries also varied greatly, it was a period of increasing global inequality. At this point, the differences seen in the ability to cope with the epidemic, the inefficiency brought about by the supply of vaccines and recovery from the epidemic under unequal conditions are proof of this situation. Finally, with the current growth in global climate change, it may be stated that long-term green policies will have an impact on liberal and mercantilist policies.

References

• Mehmetçik, H. (2023). Week 4 Theories of International Political Economy. International Political Economy Course. 26 October 2023. İstanbul.
• Mehmetçik, H. (2023) Week 5 Theories of International Political Economy II.
  International Political Economy Course. 02 November 2023. İstanbul.
• Cirillo, R. (1966). Capitalism, Private Property and Freedom. Review of Social Economy, 24(2), 157–166. http://www.jstor.org/stable/29767823
• John Ravenhill (ed.), Global Political Economy, Oxford University Press, 6th edition (2020).