Does Global Capitalism Mean Free Trade? Term Paper

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global capitalism and free trade. We will discuss the impact of the World trade organization on global capitalism and free trade. In addition we will discuss the purpose of the International Monetary Fund in underdeveloped worlds. We will discuss multinational corporations and the role that they play in free trade and global capitalism. Our research will also include an investigation of the political, economic and social issues the surround global capitalism and free trade. The integration of all these topics will aid us in determining whether or not global capitalism is synonymous with free trade.

Defining Global Capitalism and Free Trade

The Macmillan Encyclopedia defines free trade as "trade that takes place without tariffs or quotas." ("Free Trade")

The encyclopedia also reports that free trade maximizes world production but that free trade can also cause countries to encounter creates "domestic pressures from their own producers to apply tariffs." ("Free Trade") This is because when tariffs are lowered to create free trade it floods a nation's market with competition. In many cases this competition drives the domestic suppliers out of business.

The Encyclopedia Britannica describes capitalism as a free-market economy in which most of the means of production are privately owned, and production is guided and income distributed largely through the operation of markets. ("Capitalism") The concept of capitalism is prevalent throughout the western world and democratic nations. Many believe that capitalism is the most proven economic method of decreasing poverty and promoting development.

As you can see, by definition free trade and global capitalism are not synonymous. However there are a plethora of other issues that contribute to determining whether or not global capitalism is synonymous with free trade. First let's examine the relationship that the World Trade organization has with free trade and global capitalism.

World Trade Organization

The World Trade Organization is an international organization which operates globally to deal with regulations governing trade among the nations. ("What is the WTO")

One Hundred forty four trading nations have signed the WTO agreements. ("What is the WTO") The purpose of the World Trade organization is to aid producers, importers and exporters to trade freely and conduct business operations. ("What is the WTO")

In short the World Trade Organization serves as a mediator between the trading nations. The WTO is often criticized as an organization that encourages free trade at any cost. However the World Trade Organization contends that,

One of the principles of the WTO system is for countries to lower their trade barriers and to allow trade to flow more freely. After all, countries benefit from the increased trade that results from lower trade barriers. But just how low those barriers should go is something member countries bargain with each other." ("10 Common Misunderstandings about the WTO")

The WTO contends that it only provides the countries with a blue print of how to enter into free trade -- a nation's decision to enter into liberalization is made by that nation and not the WTO. ("10 Common misunderstandings of the WTO")

In addition the WTO has programs that are designed to help developing nations and protect nations from "dumping." ("10 Common misunderstandings of the WTO")

Many in the global community assert that the WTO favors large capitalistic countries -- a claim that the WTO denies. ("10 Common misunderstandings of the WTO")

However skeptics and officials in smaller countries contend that the WTO's stance on free trade makes it impossible for the organization not to show some favoritism toward capitalistic countries; since capitalistic countries encourage free trade. Conversely the WTO contends that without the WTO small countries would be powerless and that the WTO provides them with a platform to present their concerns. ("10 Common misunderstandings of the WTO")

It seems that the stance of the WTO proves that free trade and global capitalism are synonymous. However the WTO did not create this synonymous phenomenon -- although it does seem that they encouraged it -- they simply provided countries with a platform to negotiate and the countries decided together that lower tariffs would be beneficial.

International Monetary Fund

The International Monetary Fund (IMF) is an international organization with 184 member nations. ("About The IMF") The purpose of the organization is,

To promote international monetary cooperation, exchange stability, and orderly exchange arrangements; to foster economic growth and high levels of employment; and to provide temporary financial assistance to countries to help ease balance of payments adjustment."("About The IMF")

Like the World Trade Organization the International Monetary Fund serves as an intermediary among the nations and desires to "eliminate foreign exchange restrictions which hamper the growth of world trade.

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"("Articles of Agreement") The stance of the International Monetary fund is that the fewer restrictions that are imposed on trade the better off the global community will be. ("Articles of Agreement

One of the main arguments that people have about the IMF is that it bullies smaller undeveloped countries into a capitalistic system of free trade. The organization does this by providing these countries with money to stabilize their economies' but as a condition of receiving the money these nations are forced to comply with certain regulations of the IMF. ("Articles of Agreement) Many assert that these regulations simply serve to expand global capitalism and thus free trade. Those that oppose the IMF also assert that undeveloped countries should be given help without these types of conditions attached and they should be allowed to have whatever type of economy that they choose to have without the fear of loosing funds.

The International Monetary Fund argues that the stabilization of trade amongst the nations of the world leads to prosperity, decreases poverty and job security. The IMF contends that establishing these conditions for borrowers ensures that the nation will be able to prosper without help from the monetary fund. The IMF does not define the tactics that are used as bullying they simply believe that the stabilization of free trade is essential to the prosperity of the global economy.

It seems that the International Monetary Fund is also an essential part of ensuring that the global capitalism and free trade are synonymous terms. The organization does this by only providing funds to countries that promise to promote free trade which become global capitalism and vice versa. At the least the International Monetary fund makes it difficult for undeveloped nations to receive needed funding unless they allow for a system of free trade.

Multinational Corporations

Multinational corporations are defined as "large business enterprises with headquarters (the parent company) in one country and operating divisions (subsidiaries) in one or more other countries." ("Multinational Corporations") These corporations are very important to global capitalism for several reasons. The most obvious reason is that multinational corporations are more likely to set up subsidiaries in capitalistic countries that encourage free trade. This is generally the case because there are less risk associated with such a strategy and more benefits to be gained.

In recent years many complaints have been waged against multinational corporations because they are able to circumvent certain tax laws and other regulations. Many multinational corporations avoid paying taxes and fail to comply with the laws of the countries where they conduct business. These complaints notwithstanding multinational corporations continue to be a driving force for free trade and global capitalism.

Political, Economic and Social Issues of Free Trade and Global Capitalism

Political Issues

On the political front free trade and global capitalism has emerged as a product of the collapse of communism throughout the world. (Lukas) This is especially true in the post-communist countries of Europe such as the Czech Republic. As a result of the collapse of communism and the failure of centralized economies created by communist governments, the new governments in these countries have embraced global capitalism and free trade. (Lukas) This concept was best explained in an article entitled "I love Global Capitalism" the author writes, see the move toward economic freedom that has swept through the Communist and developing worlds over the past decades for what it is: a recognition on the part of national leaders that their state-dominated systems have failed -- failed in absolute terms as billions of people remained mired in grinding poverty, and failed in relative terms by comparison with the prosperous West and the relatively open and thriving Pacific Rim. Free trade has not been imposed from the top down; it has emerged from the bottom up."(Lukas)

Moreover global capitalism and free trade encourage diplomatic relations between countries. It gives the countries of the world some common interests that can serve as a catalyst to confront other issues. Free trade and capitalism serve to bridge the gaps between countries and allows developed countries to help undeveloped countries help themselves by stabilizing their economies' through free trade and capitalism.

Economic

On the economic front many countries have recognized the prosperity of capitalistic/free trading countries in the West and want the same kind of economic prosperity for their own countries. In addition many nations realize that the only way to….....

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