Common sense economics- A summary (with a little analysis)-

Common Sense Economics: What Everyone Should Know About Wealth and Prosperity- James Gwartney, Richard L. Stroup, Dwight R. Lee

A Summary (with a little analysis)- 

Genius ain't anything more than elegant common sense.
                                                                                                                  -Josh Billings 

This book reinforces nothing but what one faces everyday on the economic front. It is a must read to understand how the "science" of economics functions. It is observed that one tends to undermine things that generally governs the daily life. This book is a reminder that it is not a herculean task to be wise on the economic vanguard, all you got to have is a little common sense about economics.


Introduction- The purpose of the book

This book is designed for beginners, specialists in the subject of economics as well as policy makers who are responsible for bringing ‘actual’ concrete changes in the economy.
For policy makers, this book gives an insight of the ‘larger picture’ which entails political rules and policy.
It highlights how people’s ‘economic illiteracy’ in a Democratic society can result disastrous for the economy of the country.

This books aims at explaining why some nations prosper which usually depends on the common people’ understanding of good economic arrangements.
The link between good political choices and prosperity is highly interlinked. The wonders of understanding common economic principles are very often underestimated.

The importance of understanding how specified principles that govern developed countries can be replicated anywhere is explained in the book.
This book shows in what ways politics and economics are intertwined. The question of whether taxes hurt more than they benefit an economy is answered.

I

Ten key elements of Economics-

Incentives matter-

Firstly, let us make an endeavor to understand what incentive means literally. Incentive is a thing that motivates or encourages one to do something. The author stresses how human nature is intertwined with incentives. Regardless of whether a person is a materialist or an altruist, his/her actions are to a large extent influenced by incentives.

The very crux of why ‘incentive matter’ explains the reason why individuals, business houses and even governments behave the way they do. The basic economic principle of demand and supply reflects how individual incentives result is altering the entire working of the market. While understanding the market behavior one needs to keep in mind the role of ‘time’ and how it affects incentives of suppliers as well as buyers.

‘Incentives’ has a direct influence on political choices as well. The author links the similarity between an individual who goes out for shopping and the ones who are in a voting booth. In both the cases, their behavior is directly affected by incentives. They are guided by the motive of benefitting one way or the other. Incentives play an important role no matter what sort of government structure one has.

There is no such thing as a free lunch- 

There is a simple explanation for why there is no free lunch. Though it sounds stereotypical, it is quintessential to understand the fact that our planet’s resources are not infinitely abundant.  The constraints in availability of resources make it a must for everyone to earn their own living. This problem is created because even the producer incurs costs for various factors of production. The ‘reality of scarcity’ somehow makes it pertinent that someone has to bear the cost, which makes it compulsory for one to pay for what he/she is demanding.

Decisions are made at the margin-

Making a conscious decision is the manifestation of the entire thinking process. When one’s motive is clear, one takes decisions based upon it. A rational individual will always base decisions on pragmatic grounds. The reason why they are called marginal is because decisions are always based on calculation of either loss or profits in units. Something gets sacrificed at the cost of getting something else. It is necessary to strike a balance between what is viable and what is approachable. Marginal benefits needs to exceed marginal cost. Necessity governs people’s decisions. For instance, in a poverty stricken country more money is expected to be invested in basic necessities than recreational activities.

Trade promotes economic growth-

The benefits of trade are beyond argument. The main emphasis is that both the parties benefit mutually.
Trade facilitates various essential advantages. Firstly, it creates the utility of transferring the good to people who value them more from the people who value them less. We could take the example of medicine manufacturers and its consumers. The manufacturer does not use its produce by it ‘self, the very purpose of its establishment is to hand over them to sick patients. Trade creates utility for all the participants.
Secondly, trade makes specialization possible. This helps in production of goods in economies of scale and ultimately upgrades quality and efficiency. The law of comparative advantage makes it possible for one individual to enjoy different products at the most reasonable price. It is of not pragmatic to produce everything at a higher cost, trade helps in avoiding this problem.

Transaction cost are an obstacle to trade-

Some sort of specialists, often called as middlemen who facilitate trade help in reducing the transaction cost. These middlemen help in overcoming barriers of time and space. At a very nominal charge they deliver the producer’s goods to the consumers. Hence, they help in avoiding too much transaction cost.

Profits direct businesses activities that increase wealth-

Any given country has limited resources. More emphasis needs to be put on productive activities than less productive activities. These resources are determined by geography and their accessibility. Producers need to focus on producing goods that consumers value more. It is obvious that when consumers are willing to purchase something, they are also willing to pay as per the demand of the manufacturer. Otherwise, there would have been no incentive for any one of them, which will lead to a halt in progress.

People earn income by helping others-

Every individual who makes an income is helping other as well. It hardly matter what this individuals’ motive is. But he is providing service to others, and the consumers reciprocate by paying them something in return. High incomes are possible only when one creates utility based products that others benefit from.

The prerequisites for economic growth-

These prerequisites include engagement in trade, investment in technology (including human capital) and sound economic institutions. The evolution of progress can be traced through the development of the above factors. The more advanced these requisites become, the more likely an economy will progress. There is a very proportional relation between progress and the mentioned factors. The economic institutions also determine progress as they create proper grounds for sound economy. Free market is always necessary as it facilitates a platform for innovative ideas. This is very essential for entrepreneurship to flourish.

Role of the ‘Invisible Hand’-

As Adam Smith propounded the idea of ‘Invisible Hand’, he stressed that market prices directs buyers and sellers towards transactions that ultimately promotes general welfare. It is true that modern economy based on private property encourages self-interest but the ‘invisible hand’ of market prices promotes overall prosperity. The presence of market prices avoids the problem of central planning, which has proved to be inefficient after the collapse of the former Soviet Union. It guides the producer as well as the consumer in the best way possible. It is not possible for any individual or central planning authority to obtain information needed for millions of consumers and producers of myriad number of goods, but market prices contain this information that is the best guide for everyone in the market.

Shortsightedness is a major economic deficiency-

There is a tendency of people to ignore the long term consequences as well as the secondary effects of an action. This is highly prevalent in the political arena. The voters often try their best at maximizing the immediate benefits. The secondary effect of an action is not immediately visible. The question of government spending on generating jobs highlights this case. For instance if a government spends a billion rupees in employing 10,000 workers for a project and decides to fund this project by imposing taxes on general people, these taxes will reduce consumer spending and consequently leads to destroying jobs.
Secondary effects are a problem not just for government, but for individuals as well.

II

Seven major sources of economic progress-

Efficient Legal system- 

As explained above, it is an established fact that a country can only flourish with free trade, enhancement of industries and the existence of private property. Only an effective legal system can guarantee optimum utilization of these factors. Legal system helps in avoiding uncertainties and arbitration on the part of the players in the market. Property includes ownership of labor services and ideas as well as physical assets such as buildings and land. Private ownership not only helps in prosperity but also makes individuals responsible for their own action. Private ownership encourages wise stewardship, as one feels responsible towards one’s own property. As ‘self-interest’ is at stake, the owner tends to use his/her property for productive endeavors. Private ownership encourages usage of their property in a way that automatically benefits others. Usually private owners focus on conserving their resources for the long term, this leads to planning and consequently systematic growth. It is necessary to understand the incentives that private ownership operates with. When there is a scarcity of these resources, the prices usually soar up which leads to automatic conservation of these resources and also people are encouraged to find better alternatives then.
A legal system that protects private property provides foundation for capital formation and gains from trade which is the mainsprings of economic growth.

Competition- A driving force for pushing innovation and efficient use of resources-

In a free market, consumers tend to play an important role of choosing from the best available alternative. This creates competition for the producers who are compelled to make the best of what resources they have. Competition eradicates inefficient producers. It creates incentives for producers to develop better products, and that also in a lower cost. Complacency in the part of the producer is avoided. As Adam Smith puts ‘it is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner but from their regard to their own self-interest’. This clearly indicates that competition leads to mutual gain to everyone.

Too much regulatory policies that reduce trade also retard economic progress-

The tendency of imposing too many regulations on trade in many countries has resulted in disastrous results. This includes limiting entry of new firms in various businesses. Regulations that give priority to political authority over the rule of law and freedom of contract always undermine gains from trade. This creates the problem of corruption, red tape, and inefficiency. The other problem that rigid government regulations create is fixing of prices by themselves. When they set the price above the market price, consumers are discouraged to purchase them.

Allocating capital-

Allocation of capital into wealth creating projects is a sign of vibrant capital market. It is essential to have mechanisms capable of efficiently using the available resources for a country to realize its potential. Investment in capital needs to be consumption-oriented. The value of the additional output derived from the investment needs to exceed the cost of investment. The country needs to develop mechanisms that encourage saving which usually is used for investment. The country needs to invest its resources in productive endeavors. In the modern economy, the capital market plays an important role.
Private investors such as small business owners, corporate stockholders, and venture capitalist place funds at their own risk. On the contrary, when investment funds are allocated by the governments rather than by the market, an entirely different set of factors come into play. Rather than investing in projects that have more market return, political influence decide here. Former Soviet Union and other eastern European countries highlight the disastrous results. Here, when governments fix interest rates which are lower than the rate of inflation, the wealth of the people also fall. Hence, it leaves less incentive for saving. In countries where governments control capital movements, fix interest rates, and allocate capital on the basis of political rather than economic considerations, inefficiency will surely take over.

The need for monetary stability- 

As money is the main means of storing purchasing power for future use, instability in it will create confusion for both lenders as well as borrowers as it creates circumstances that discourage negotiations. Savings and investing will involve very high risks. Hence, gains from specialization, large scale production will be hindered because of the mistrust in the credibility of money. When too much money is supplied in comparison to the supply of goods and services, the value of money declines, and prices increase. This happens when governments print money or borrow too much from central banks in order to pay their bills. Usually the governments have a tendency to blame the greedy businesses, labor unions, big oil companies. This is just a fraud tactic to divert their actions. When there is too much inflation, people will spend less time producing and more time trying to protect their wealth.
Another major problem is that it undermines the credibility and confidence in the government. Hence, the government’s ability to take concrete actions also diminishes. This solely happens because the well being of common people is put in risk. Only when money supply is controlled the price stability can be maintained.

The role of tax-rates-

People are encouraged to produce more when they are allowed to keep more of what they earn. It will also discourage foreign investors from investing in the domestic market and encourage domestic investors to invest abroad. Another disadvantage of high rate of taxation is that people get encouraged to consume tax-deductible goods in place of non-deductible good against their preference as tax-deductible goods will be cheaper. In a nutshell, high tax rates reduce productivity activity, retard capital formation and promote wasteful use of resources.

The advantages of free trade-

The law of comparative advantage comes into play when a country engages in free trade. This means that a country will be selling goods and services that it can produce at a relatively low cost and buying those that would be costly to produce. In this way, when a country produces in bulk it enjoys from the economies of scale. It also is in an advantageous position as it can get a wide variety of goods at the cheapest price possible. International trade also promotes competition in domestic markets and allows the consumers to purchase a wider variety of goods at lower prices. Trade restraints such as tariffs, quotas, exchange rate controls on imports or exports tend to hinder complete advantage from international trade.

The claim that non-economists often argue that import restrictions create jobs is fallacious. The main concern is to generate goods and services that people value, and just creating job does not facilitate this. As free trade fosters competition, when people are allowed to engage in it the producers as well as consumers are benefited. As every country is advantaged over others in producing something or the other, free trade allows the most efficient mode of making the best of what is produced in all countries.

Conclusion- How much does institutions and policies matter?

There is a direct co-relation between prosperity on one hand and the way a country provides secure protection of privately owned property, evenhanded enforcement of contracts, and a stable monetary environment. Government needs to be the facilitator rather than the provider. The institutions and policies need to enhance the above mentioned factors for economic progress. When low income countries get the institutions and policies right, they are able to achieve exceedingly high growth rates and narrow their income gap with the high-income industrial nations. Countries like HongKong, Singapore, Taiwan, Ireland, Chile, Mauritius and Botswana illustrate this point. In the past decades all of these countries have made substantial moves toward economic freedom, and all of them have grown rapidly and achieve substantial increases in income levels and living standards. Without any doubt, if any country wants to strive towards prosperity it needs to provide greater economic freedom.

III

Economic progress and the role of government-

The government has been an integral part of every modern civilization. A good government always engages itself in protective and productive endeavors. It protects people’s lives, liberties and properties. And it produces goods that normally private producers cannot provide.
As the government has the monopoly on the use of legitimate force, it needs to protect the people’s efforts and the profits that it results in. Hence, people are encouraged to engage in productive endeavors. The nature of public goods and the way it is regulated makes it impossible for private businesses to produce them. This is why the government needs to take the responsibility to engage in producing goods that only it can produce compared to the private sectors. For example, building a damn is not feasible for private companies.

Government is not a corrective device-

The misconception that government is a corrective device is widespread. The government is just a medium through which people collectively make choices and carry out activities. Even a democratic government which is based on the will of the majority does not assure the best use of resources. They need to play the role of a facilitator rather than the provider.

The costs of government are not just taxes- 

Very frequently politicians fail to mention the entire expenditure they incur. Only taxes are mentioned which is only a partial cost incurred by the government. They tend to miss out on explaining about the ‘opportunity cost’. Three types of costs are incurred by the government. The first one is the loss of private sector output that could have been produced with the resources that are now employed producing the goods supplied by the government. The second cost is the resources expended in the collection of taxes and the enforcement of government mandates. And finally, the cost of price distortions resulting from taxes and borrowing. This creates a gap between what buyers pay and sellers receive. These other costs also need to be considered when analyzing the merits of government programs.

The need for constitutional rules to restrain advantages to special interest groups-

There is a tendency that democratically elected officials favor special interest groups at the expense of the general public. When the government policy is limited to its proper function, it contributes mightily to economic prosperity. We could take the case of a policy that will generate personal gains for the members of the specific groups at the expense of the broader interest of taxpayers or consumers. Hence, constitutional rules need to restrict misallocation of the resources.
Unless restrained by constitutional rules, legislators will run budget deficits and spend excessively-
Budget deficit emerges when government spending exceeds earnings. Then they issue interest earning bonds to finance their budget deficits. These bonds comprise the national debt. Constitutional restraints need to be introduced to prevent the government spending more than what they are willing to tax.

Economic growth is hindered when government is involved to help some people at the expense of others-

Individuals acquire wealth either by engaging in production or by plunder. Government needs to encourage productive activity and discourage plunder. Government in this case needs to act as a neutral force. When the effective law of the land makes it difficult to take away the property of others, few resources will flow into plunder. The quantity of resources directed towards lobbying, political campaigns, and the various forms of “favor-seeking” from the government is rampant in the modern world. The unfair transfer of wealth from tax-payers to well-organized groups and voting blocs has become the business of the modern politics.

Too much cost of income transfers makes it unfeasible-

The need to transfer income is widely recognized in the modern world. But the cost of income transfers is far greater than the net gain to the intended beneficiaries. This failure is explained by the common proposition: this transfer of income does not guarantee the well-being of the recipient in the long run. Moreover, it is a tedious task to identify the right beneficiaries. At times, people modify their behavior just to qualify for being a beneficiary. Apart from making people less productive, people are encouraged to make choices that are likely to make them more prone to adversity.

The unsuitability of central planning-

Market price has been established as being the most efficient medium to cater progress, and central planning contradicts this. Central planning hardly substitutes politics for market verdicts. Even when decisions are made by the general public, it needs to be ratified by legislators. Governments hardly involve in innovative endeavors. Innovative tasks are highly risky because of the unlikelihood of success. Moreover, it is guaranteed that when one is putting his/her own investment they will try to make the best decisions because of the stakes involved. Central planning is not feasible because, they tend to miss out on recognizing problems created by lack of accessibility. Moreover, in this dynamic world where things tend to change very often, the government is sure to look out and amend its plan as per required.

Competition is just as important in government as in markets-

Unlike in the private sector where performance can be monitored, there are no methods to identify performance of the personnel in the government sector. Hence, it is very essential for government enterprises to face competition. To make the best out of the government organizations, private firms should be permitted to compete on a level playing field with government agencies and enterprises. The government cannot act oppressive when citizens have the right to choose from whom to seek services. Competition among decentralized government units- state and local governments will also help promote economic progress.

Need of constitutional rules to bring political process and sound economics in harmony-

Only democratic elections will not ensure economic progress. The government needs to strive to set political rules that encourage self-interest of voters, politicians, and bureaucrats into harmony with economic progress. This makes it necessary for it to keep its role limited and neutral among various sub-groups of citizens.

Things to remember- 

Economic prosperity is only possible through private ownership, freedom of exchange, competitive markets, the rule of law, and monetary stability. After these prerequisites are present citizens will be able to “reap what they sow”, and consequently which will lead towards a prosperous economy. 

In defense of global capitalism- Johan Norbeg: A summary-

Johan Norberg has made an audacious case that compels the readers to make a choice; a choice for either economic prosperity or orthodox inefficient ideologies. As the Chinese reformist leader Deng Xiaoping once said “It doesn't matter if a cat is black or white, so long as it catches mice”; similarly the author voices out that it hardly matters what kind of system of governance is existent till it facilitates prosperity. The question of how to cater to “the greatest good of the greatest number” is answered persuasively. Along with being the most economically apt system capitalism creates a conducive environment for liberal values such as individual liberty and freedom to flourish. Johan Norberg has brought light to many of the misleading statistics of our times. In contrast to countries that liberalized their economies, the ones that imposed trade restrictions and chose to stay isolated were the most unsuccessful in diminishing poverty inequality. This book is a must read for both the pro/anti capitalists. Is it viable to believe that the world today would progress this far with the best ever technological advancements, advanced communication and transportation, vaccines for fatal diseases and a global society without the conducive space capitalism for progress? The answer is obvious. 

Certain indicators have been identified and deliberated upon to show why capitalism is comparatively the best mode of socio-economic organization.

The half truth- It is true that the rich are getting richer, but it would be unfair to disregard the fact that the poor are catching up too. As globalization penetrates deeper, citizens all the world are getting empowered with “freedom of choice”. People are free to ‘trial and error’ and hence, choose what is suitable for them-selves without the permission of the rulers. Of course, critiques will argue that not everything can be justified in term of economics. But the point is to adopt “market economy, not a market society”. Plain statistics show how these changes are taking place. As per the UNDP poverty has decreased more in the past 50 years than the last 500 years. Average life expectancy has increased highly. Some of the factors mentioned indicate development with the advent of democracy.

Hunger- Though population has increased tenfold; there has never been a case of famine in a democratic country. Economist Amartya Sen points out that even poor countries like India and Botswana have not seen cases of famine. There is no doubt that education brings prosperity. Economic stability creates a conducive environment for better education. There is no contradiction between democracy and capitalism. Usually the rulers are scared that the status quo will change. ‘Democratic peace theory’ in International puts forward the idea that democracies do not fight each other. International exchange makes countries friendly. Today, China being the world’s second largest economy is looked with much less distrust than couple of years ago.

Awareness has helped women’s oppression to fall in leaps and bounds. Social mobility has increased. It attacks status-quoist . There is link between prosperity and liberation of women. 

Astounding transformations- 

China- In the 1970’s Deng Xiaoping pointed out that collectivization was impending development. For the first after allowing private property, people began to have food surplus rather than famines. Free economic zones were established along the coastal cities. China has succeeded in bringing biggest and fastest poverty reduction in history. In 2013 they were the highest spending tourists all over the world. 

India initiated LPG (Liberalization, Privatization and Globalization) in 1991.Between 1993-99 alone there was a decrease in poverty by 10 %. These schemes have succeeded in breaking the stratification created by the caste system. The ‘unprejudiced market’ is given the credit.

The question of reducing global inequality remains the important task in hand. Inequality decreased rapidly between countries during the 1070’s. HDI has increased in all countries but more in the poor countries.

A deliberate process for prosperity-

What one needs to understand is growth all over the world is a result of deliberate decisions taken by various countries. It is not a miracle. There is a reason why some countries have become so affluent and some have remained the same. The living standards, per capita income and the average life expectancy have increased on a whole. The only answer to poverty is growth. There is a ‘trickle down’ effect when overall growth is realized. In a dynamic market economy there is high social mobility. 

When standard of living increases for everyone, it hardly matters how well some groups are doing. G.W Sully found that ‘incomes were evenly distributed in countries with a liberal economy, open markets, and property rights. 

Property rights- 

It is not necessarily an ideology of the rich. It is a universally accepted fact that one’s economic positions improves with upgrading in production capabilities. In a liberal economy, any one with ideas is allowed to try his/her luck. Ownership rights protect the poor as they are more vulnerable to state regulations. Property rights provide an incentive for foresight and personal initiative. If government is allowed to regulate everything nepotism and corruption will proliferate. 

The East Asian Tigers-

If one needs to understand the impact of politics on development, one can juxtapose the growth of East Asian Tigers and the wretched economic conditions of some African nations. The East Asian Tigers have shown the other developing countries how it is possible to develop with the adoption of right political and economic reforms. These countries have allowed freedom of enterprise. Opening their economy attracted foreign investment and encouraged export oriented production. They engaged themselves in internationalization. 

The African economic impasse-   

Without any doubt the wretched condition of these countries are due to its domestic politics and institutions. The drive self-sufficiency via draconian tariffs, nationalization and detailed control of industries has taken a toll on their economy. Economist Jeffrey Sachs and Andrew Warner have attempted to calculate what changes would have come if they brought East Asian policies of open market. 4.3 % annual growth between 1965-1990 could have materialized and also which could have increased the income by triple. Botswana and Ghana are doing exceptionally well.  

Free trade is fair trade-

Mutual benefit-

Trade is based on voluntary cooperation and exchange which is leads to mutual benefits. Tariffs and quotas stand as restrictions on citizen’s choice to choose. Individual skills used in the best possible way This way people are entitled to choose the best at the least possible price. Absolute comparative advantage is possible. The unfeasibility for opting for self-sufficiency is clearly demonstrated by African nations. The fallacy that there needs to be least imports as possible is widespread. Anyway the money earned from exports will need to be used to buy imports to increase the standard of living of the people. The main purpose of exporting is to get us import in return. ‘Trade is not a zero-sum game’, all participants benefit. Schemes to increase tariffs and quotas are just a way to manipulate people. When there are different rules for domestic and foreign businesses, injustices arises.

Free trade brings growth-

Free trade gives freedom to buy what one wants which provides an incentive to the producer to use resources and capital optimally. With healthy competition, inefficiency is kept in check. This brings new ideas and new techniques from all over the world. Isolation leads to stagnation. World output is 6 times what it was 50 years ago, and world trade is 16 times greater. It is necessary to understand that it is trade has facilitated the needs to billions of people today. As Harvard economist Jeffrey Sachs points out based on examination of trade policies of 117 countries that there is direct relationship between growth and free trade. In many cases inequality has decreased with free trade. A convergence has emerged as developing countries are catching up with rich countries.

No end of work-

As productive capacity increases with technology there is a fear that unemployment will be predominant. Usually the reason for unemployment is inefficient politics rather than trade and market. There has been unprecedented creation of jobs all over the world. With employment in one sector saturating new avenues will be created for more jobs. The unlimited wants that humans have will always create new jobs. For example, with the advent of motor cars horse-drawn cabs almost got extinct.  

Most of the Western countries have sought for strict immigration policies, but this tends to become counter-productive at times. Countries have to incur huge sum of money for stricter immigration measures. Usually people in dire conditions attempt to immigrate and opt for dangerous methods just to escape. Globalization will not be a complete phenomenon unless people are allowed to move freely. Immigration to an extent can help ease a country’s problems, especially to maintain the ratio of working and retired population. Immigration also leads to higher consumption which leads to market growth. 

The development of developing countries-

Development results out of productive capacity rather than natural endowments of a country. The uneven distribution of wealth in the world is due to the uneven distribution of capitalism. Is it viable to argue against the fact that a trillion dollar was channelized into the poor countries between 1990- 2000? Staying isolated will prove to be fatal today.

During the 1960’s the drive for ‘self-sufficiency’ led governments to impose sky high tariff walls to protect the native industries. The economy became more and more publicized as the government attempted to direct man power, prices and production. Huge burden of debt and absence of foreign trade proved disastrous. 

Even when trade was believed to solve economic problems; the presence of enormous privileges and discrimination was the problem. When Chilean government replaced authoritarian economic policy with liberalization and free trade in 1975 real earnings doubled by 1995.  

On the trade route-

Today developing countries are demanding that the affluent market be open to their exports. Because of satellite communication and the internet, local inhabitants are hired for remote management of things like payroll, invoicing, customer services to developed countries. Now developing countries are also exporting finished products than just raw materials. 

Tariffs?

The worst thing that tariffs result in is it allows only certain sectors of a country to prosper. These sectors do not have to face competition, hence, they are never in the pressure to improve efficiency and reduce their price. It is a fatal fallacy to believe that the politicians know better than the market and investors. Tariff walls instead give permanent protection to inefficient corporations.

Capitalism has improved vaccines tremendously. With the improvement in economic capability the poor countries are becoming capable to produce medicines as per required by domestic diseases.

Free trade has loopholes that can be amended.

There are strings attached even in free trade such a strong protectionist measures. When developed countries impose regulations on labor conditions in developing countries, it becomes a choice to either to choose employment or no employment at all. No matter what the prevailing conditions, increase in trade seems to be the only way to increase the standard of living of the poor countries. It is a necessary evil for the developing countries to engage in trade with their prevailing bad conditions, otherwise their growth will remain stagnant. Around 250 million children are engaged in child labor, but if the west stop trading with developing countries based on this, their prospect of improvement will be shunned forever. The alternatives for these children are worse if they do not engage in export industries. In 1992 the American Congress prohibited imports from Bangladesh because the garments that were imported by Wal-Mart were produced by children. Thousands of children were fired out of job as a result. Consequently, children moved to more hazardous jobs. Trade weakens any kind of centralization. 

Big is beautiful only when monopoly is checked-

Corporations are looked with distrust because of their mammoth size and the influence. The possibility having a monopoly is a threat rather than their enormous size. Free trade exposes corporations to competition. As corporations run according to consumer demands, even the biggest companies survive on their whims. Free and efficient financial markets allow capital to new entrepreneurs with fresh ideas to compete with big corporations. Big mergers show how even the big corporations are vulnerable. Multinationals on an average pay up to 8 times more than the country’s average wage. Due to their size multinationals are able to finance research and long-term projects. OECD points out that 90 % of the profits are reinvested in the host country itself. The Economist has observed that corporate morality is often superior to that of the average government.

The environmental dilemma-

Anti-globalists point out that corporations settle in developing countries which have less environment regulations. But this thesis is a fallacy. The truth is that American and European investments go to countries with environment regulations similar to their own. Globalization has made possible the spread of environment friendly technology.  

The leadership collective-

People get paranoid looking at how the stock market functions. Critics point out how ‘hyper-inflation’ is problematic. But this very global freedom has enabled capital to move where it can yield the biggest returns. The developing countries receive quarter of the world’s combined investments in businesses, projects and land. In this way this ‘leaderless collective’ has been more than five times cleverer than the governments and development aid establishments of the affluent countries at channeling capital to the developing countries. International finance facilitates spreading of risks as one can invest in different places.

Regulate more?

Liberal economies with freer financial markets emerge from their crises more quickly as the Asian states recovered rapidly after the Asian Crisis in comparison to the Latin American countries who had strict regulations. Some have recommended the use of Tobin tax. This means each country would impose a low tax of 0.05-0.25 % on all currency exchange but there are too many complexities in imposing it. This will only discourage investors from investing.

Remedy for volatile market behavior-

A healthy economic policy is one way to check the unstable market behavior. It is true that liberalized economies are vulnerable to financial crisis; however, it is the absence of the necessary institutions that make things worse. A country needs to first have political stability, free trade, and domestic reforms before attempting to liberalize their financial markets. When a country accepts economic freedom, civil freedom automatically flourishes. Market economy often leads to democracy and democracy consolidates the market economy. Political pluralism is possible only through decentralized economy. There is a direct relationship between economic freedom and democratic rights. Democracy acclimatizes to change easily. 

 There is always a lesson to be learned from old economic blunders. In the same way developing countries can learn from the developed countries. For instance, the development that took 80-100 years for west only took 25 years for China. New information technology is now revolutionizing old economic activities all over the world. Though some people fear globalization is leading to a homogeneous world, people have the right to choose how they want to live. 

The onward march of freedom-

The idea of self-determination has inspired the globalized world. When one realizes that a certain right is present in another country, demanding for it comes out naturally. International laws have been supplementing local laws. The idea of human rights as a ‘Universal norm’ would not have been possible without globalization.