Dr. NICHOLAS WATSON
IUC Savanna La Mar Tutorials
PhD; M.Ed; B.Ed
Caribbean Business Economics
Every day, people are inundated with decisions, big and small. Understanding how people arrive at their choices is an area of cognitive psychology that has received attention. Theories have been generated to explain how people make decisions, and what types of factors influence decision making in the present and future. In addition, heuristics have been researched to understand the decision making process. Several factors influence decision making. These factors, including past experience (Juliusson, Karlsson, & Gӓrling, 2005), cognitive biases (Stanovich & West, 2008), age and individual differences (Bruin, Parker, & Fischoff, 2007), belief in personal relevance (Acevedo, & Krueger, 2004), and an escalation of commitment, influence what choices people make. Understanding the factors that influence decision making process is important to understanding what decisions are made. That is, the factors that influence the process may impact the outcomes.
Heuristics serve as a framework in which satisfactory decisions are made quickly and with ease (Shah & Oppenheimer, 2008). Many types of heuristics have been developed to explain the decision making process; essentially, individuals work to reduce the effort they need to expend in making decisions and heuristics offer individuals a general guide to follow, thereby reducing the effort they must disburse. Together, heuristics and factors influencing decision making are a significant aspect of critical thinking (West, Toplak, & Stanovich, 2008). There is some indication that this can be taught, which benefits those learning how to make appropriate and the best decisions in various situations (Nokes &Hacker, 2007). Continue reading this section from the link above.
What are some major differences between protectionism and mercantilism?
adopted from: https://www.quora.com/What-are-some-major-differences-between-protectionism-and-mercantilism
Mercantalism was about making money from trade. Protectionism is about stopping trade. Mercantalism appeared during an era of European history which saw a significant increase in the volume of interregnum trade (due, largely, to the building of better roads usable in all seasons). And every prince had the same economic “policy” of skimming the profits of foreign merchants through the imposition of tariffs, taxes, tolls, fees, etc.. And so the mercantalist “policy” was to make money from trade without discouraging it. Protectionism, on the other hand, is aimed at specific industries (i.e., not just transportation and logistics). It is a development policy that targets particular goods and services with the aim of “protecting” domestic industry (while allowing everything else to be traded without interference). For example, it could impose high duties on the import of finished goods while allowing raw materials to enter without penalties. And so Mercatalism was about profiting from the transportation and distribution of goods (i.e., any goods) while protectionism is about regulating particular goods (e.g., pottery, shoes, automobiles, etc.).
the following was adopted from: https://www.economicshelp.org/blog/17553/trade/mercantilism-theory-and-examples/
Mercantilism involves
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Restrictions on imports – tariff barriers, quotas or non-tariff barriers.
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Accumulation of foreign currency reserves, plus gold and silver reserves. (also known as bullionism) In the sixteenth/seventeenth century, it was believed that the accumulation of gold reserves (at the expense of other countries) was the best way to increase the prosperity of a country.
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Granting of state monopolies to particular firms especially those associated with trade and shipping.
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Subsidies of export industries to give competitive advantage in global markets.
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Government investment in research and development to maximise efficiency and capacity of the domestic industry.
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Allowing copyright/intellectual theft from foreign companies.
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Limiting wages and consumption of the working classes to enable greater profits to stay with the merchant class.
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Control of colonies, e.g. making colonies buy from Empire country and taking control of colonies wealth.
Examples of mercantilism
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England Navigation Act of 1651 prohibited foreign vessels engaging in coastal trade.
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All colonial exports to Europe had to pass through England first and then be re-exported to Europe.
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Under the British Empire, India was restricted in buying from domestic industries and were forced to import salt from the UK. Protests against this salt tax led to the ‘Salt tax revolt’ led by Gandhi.
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In seventeenth-century France, the state promoted a controlled economy with strict regulations about the economy and labour markets
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Rise of protectionist policies following the great depression; countries sought to reduce imports and also reduce the value of the currency by leaving the gold standard.
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Some have accused China of mercantilism due to industrial policies which have led to an oversupply of industrial production – combined with a policy of undervaluing the currency.
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However, the extent of mercantilist policies are disputed
Modern Mercantilism
In the modern world, mercantilism is sometimes associated with policies, such as:
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Undervaluation of currency. e.g. government buying foreign currency assets to keep the exchange rate undervalued and make exports more competitive. A criticism often levelled at China.
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Government subsidy of industry for unfair advantage. Again China has been accused of offering state supported subsidies for industry, leading to oversupply of industries such as steel – meaning other countries struggle to compete.
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A surge of protectionist sentiment, e.g. US tariffs on Chinese imports, and US policies to ‘Buy American.’
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Copyright theft
Criticisms of Mercantilism
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Adam Smith’s “The Wealth of Nations” (1776) – argued for benefits of free trade and criticised the inefficiency of monopoly.
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Theory of comparative advantage (David Ricardo)
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Mercantilism is a philosophy of a zero-sum game – where people benefit at the expense of others. It is not a philosophy for increasing global growth and reducing global problems. Also, increasing other peoples wealth can lead to selfish benefits, e.g. growth of other countries, increases markets for our exports. Trying to impoverish other countries will harm our own growth and prosperity.
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Mercantilism which stresses government regulation and monopoly tends to lead to inefficiency and corruption.
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Mercantilism justified Empire building and the poverty of colonies to enrich the Empire country.
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Mercantilism leads to tit for tat policies – high tariffs on imports leads to retaliation.
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The growth of globalisation and free trade during the post-war period showed possibilities from opening markets and respecting other countries as equal players.
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Economies of scale from specialisation possible under free trade.
Justification for neo-mercantilism
Despite many criticisms of mercantilism, there are arguments to support the restriction of free trade in certain circumstances.
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Tariffs in response to domestic subsidies. Supporters argue that since China’s steel is effectively subsidised leading to a glut in supply, it is necessary and fair to impose tariffs on imports of Chinese steel to protect domestic producers from unfair competition. US tariffs on imports of steel from China 266%. In Europe, tariffs are 13%.
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Protection against dumping. If some countries have an excess supply of goods, they can sell at a very low price to get rid of the surplus. But, this can make domestic firms unprofitable. Protectionism can be justified to protect against this dumping. Examples, include EEC dumping excess agricultural production on world agricultural markets and China’s dumping of steel.
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Infant industry argument. For countries seeking to diversify their economy, tariffs may be justified to try and develop new industries. When the industries have developed and benefited from economies of scale, then the tariffs and protectionism can be dropped.