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Introduction
Economic freedom refers to a state or condition wherein people and organizations can do business freely without being ruled over or being subject to any restrictions or limitations. In his seminal work, ‘An Inquiry into the Nature and Causes of the Wealth of Nations,’ Adam Smith, a British philosopher and economist, argued that laissez-faire, or the doctrine that industries and markets functions best if they are unregulated and free, is best for the economy. Smith believes that if the markets are unregulated, traders and merchants will compete against each other in order to provide better products and services to their clients (Smith 179). For the same reason, Smith concluded that the “freer and more general the competition,” the more advantageous it is for the public (Smith 179). For Smith, economic freedom is a natural consequence when people are left to trade on their own (Smith 13). Economic freedom, however, is a broad concept as it constitutes many vital elements. Economic freedom, for instance, is dependent on the presence of trade freedom, sound monetary policies, freedom to engage in investments, security of property rights and many other elements that impacts the voluntary exchange of goods and services (Gwartney, Lawson, & Hall 1). However, among these many elements that constitute economic freedom, the ability to trade freely is one of its most basic cornerstone.
Trade Freedom
Considered as one of the most important aspect of economic freedom, the freedom to trade is one of the indexes used by scholars to determine how a country stands in terms of economic freedom (Gwartney, Lawson, & Hall 1). But why is trade freedom important and how does it determine economic freedom in general? One particular reason why the freedom to trade is necessary, according to Adam Smith is that it guarantee the smooth flow of goods in the market, which, in turn, benefits both traders and consumers alike. According to Smith, the freedom of trade assures the people that they will always have the commodities that they want or need. The freedom of trade, for instance, assures people that the traders will supply the people with merchandize as well as assures that money will continue to circulate (Smith 234). In today’s society wherein the production of goods are outsourced from different locations, the freedom to trade in contemporary society has never been more important. Many companies, for instance, outsource their raw materials from other countries while some are outsourcing even their production in countries where there is an abundance of labor and raw materials. Take for example, Gildan, a Canadian manufacturer of basic apparels. The company was first established in Canada, but later on transferred their manufacturing hub in Cental America . The finished products are then shipped back to North America where the company maintains a strong market. Gildan is just one example of the many multinational companies whose supply chain are global in scale. With the increasing phenomenon of globalization, the ability to trade internationally with less restriction can determine the success of these companies as well as the economic prosperity of the countries that hosts them. Today, a country’s economy is increasingly interconnected with the economies of its neighbors. In a sense, everyone contributes to the global utilization of resources giving rise to economic globalization (Robinson 125).
Globalization and International Trade
Some scholars would like to think that globalization is one of the most important forces that shaped the economies of the world. Others believe that it was the propensity of people and nations to trade among themselves, which gave rise to the phenomenon of globalization. One way or another, globalization and trade are inextricably linked towards each other that it is quite challenging to determine which caused which. The beginning of globalization, for instance, has been attributed by scholars to Chinese traders in the 14th century and the European exploration in the 15th and 16th century. With their outstanding naval capabilities, Chinese traders were able to establish trade routes not only by land, but also by sea. Under the Ming Dynasty, Chinese explorers greatly increased their global influence through trade as they bought armadas of treasure vessels loaded with merchandise and traded as far as India. One of the major factors that Chinese global trade flourished during this era is the support that Chinese explorers and traders get from their government. At its peak, the Ming Dynasty was able to establish diplomatic relations beyond its borders and was able to control and establish order on the high seas, which promoted the safe passage of its traders. Internal issues, however, cut short, China’s trading expeditions and with the fall of the Ming Dynasty, China’s global trading paused to a halt. Trade, however, did not stop with the discontinuation of the Chinese expeditions. In fact, the Europeans with their insatiable demand for gold and spices travelled across the globe and established trading ports in major cities and continents. The age of exploration, however, has been just the start of an emerging global economy. After serving their political and economic agenda for several centuries, a time came when Europeans found could not control the natives with their politics anymore and yet trade continued to persist and flourish.
Trade and Progress
Aside from its influence on globalization, trade is also an important factor in the advancement of science and technology. At the core of the industrial revolution, for instance, is commercialism. Perhaps one of the most important aspects to the industrialization is the improvement of the transport system. Horse and human drawn carts, for instance, were replaced with locomotives and cars that are at first powered by steam engines and later on by combustion and diesel engines (Wilkins, A., 2011). Steam and diesel engines were also used to power cargo vessels, which revolutionized the maritime industry. Apparently, these modern and better modes of transportation, paved way for the rapid exchange of goods and consequently the rapid economic development of the Western nations. The advent of new technologies in transportation and communications further enhanced the ability of to trade. Not so long ago, people communicated through the use of correspondence. Today, the present technology will allow people and organizations to communicate in real time, no matter how far they are from each other through the internet and mobile devices. All these technologies contribute to the advancement of trade. Historically, some nations have tried to curtail the freedom to trade by restricting their contacts with foreigners. China, for instance, gradually closed its doors to foreign trade in the past with devastating consequences. Because of their limited interaction with the world, China failed to progress in science and technology, making the country severely behind their western counterparts. Similarly, for more than 200 years, the Japanese tried to live on their own by isolating themselves from the rest of the world . Japan eventually ended its isolation or perhaps was forced to end its isolation when the United States Navy landed in Japan on board four warships and two frigates; a technology unknown to Japan during the period . Perhaps realizing that the foreigners will not leave them alone and that sooner or later, the country would have to deal with foreign international activities, Japan could not help but open their doors to international trade.
Elements to a Free Trade
The freedom to trade is not just a simple endeavor. In order for a country to score high in this index, it must have “low tariffs, easy clearance and efficient administration of customs, a freely convertible currency, and few controls on the movement of physical and human capital” (Gwartney, Lawson, & Hall, 6). It shows then that trade freedom could not be achieved without intervention and assistance from the government. Investors, for instance, would not invest in a country where there are insurgencies or if the political situation is in turmoil. Apparently, businesses and entrepreneurs need assurance of their money. They also want to be secure with their properties and to be offered lucrative tax discounts. For the same reason, in promoting freedom of trade, it is empirical that a country should also provide civil liberties in order to support and promote trade. There are some people, however, who does not believe that free trade and markets are good for a nation’s economy. Many, for instance, are against the statement of economist, Milton Friedman, who believe that the major obligation of a business enterprise is only to create profits. Most of these people believe that if left on their own, businesses will eventually exploit the environment and natural resources until they are depleted. Another drawback for the freedom to trade is the eventual exposure of a particular country and its local entrepreneurs to the fierce competition of international firms. One particular example is the entry of Japanese motorcycles in the United States during the 1960s. As observed, the influx of cheaper and yet quality motorcycle destabilized the country’s motorcycle industry, which was then dominated by Harley Davidson.
Conclusion
Economic freedom is one of the indicators of a country’s prosperity. The freer it is for a nation to trade in a global scale, for instance, could determine how energetic a country’s economy is. Economic freedom, however, could not be achieved without the freedom of trade. A huge of bulk of a nation’s economy, for instance, is all about trading while all the other factors only act as support activities. Trade has been one of the most important economic activity since time can tell. A country is expected to trade either locally or internationally, so that the government would be able to support its social, political and economic agendas. Trade somehow induced globalization, industrialization and the advancement of modern technology. Even in the contemporary era, the ability to trade freely is still one of the major tenets of economic freedom. Being one of the foundations of economic freedom, trade freedom or the ability to exchange goods without any undue restraints should be at the core of a country’s economic policy.
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