The Political Economy Review 2017

access to markets and market information. Despite being initially described in the 18th century, free trade has only really come to the forefront during the latter half of the 19th century. Most notably the British Corn Laws of 1815, which restricted the foreign import of grain unless domestic grain reached a certain price, represented a period of anti-free trade beliefs espoused by British agriculturalists. Ultimately free trade has flourished, with the first free trade agreement, the Cobden-Chevalier Treaty of 1860, which reduced duties on French exports to Britain and vice-versa, preceding a huge growth in free trade and subsequent free trade agreements such as the North American Free Trade Agreement (NAFTA), the World Trade Organisation (WTO) and most famously, the European Union (EU). However some have argued that free trade and increased globalisation have left many people behind. George Soros, billionaire investor, states that ‘there's a lot of merit in an international economy and global markets, but they're not sufficient because markets don't look after social needs.’ An increase in wealth inequality and stagnation in living standards in poorer nations such as the sixty countries highlighted in The Bottom Billion by Paul Collier, who writes that ‘a miserable but possible scenario is that countries in the bottom billion oscillate between the traps and limbo, perhaps switching in the process from one trap to another’, have left many people considering the effects of free trade, previously dismissed as being necessary. The most prominent benefit of free trade is innovation and competition. Increased competition leads to lower prices as firms constantly attempt to gain an advantage over competitors by cutting their prices. This increased competition can also lead to a decrease in the influence of monopolies and their negative effects such as price-fixing and the lack of allocative efficiency, where resources are allocated to the production of goods and services based on the value that society places on them. However, free trade has seen a growth in the number of trans-national corporations (TNCs) who have an increasing market share, such as Microsoft and Nike. An increase in innovation, as firms seek to attract more consumers, leads to greater technological advancement, which can improve the productive efficiency of an economy as it increases the quality of capital goods, a factor of production. For example, in the US, The Economist writes that there is an “‘innovational complex' -- those thousands of entrepreneurs, venture capitalists, and engineers — unmatched anywhere in the world”. This has led to areas such as Silicon Valley in California and Wall Street in New York becoming unrivalled for the goods and services they provide such as the Apple iPhone. The increased transfer of expertise and technology between nations furthers the ability to produce better goods and services and increase economic growth. Free trade has also allowed for massive economic growth. With lower regulation, lower taxes, such as the 19% corporate tax rate in the UK, and increased labour outsourcing, firms have lowered production costs and been able to increase profit margins. This has also led to an increase in foreign direct investment (FDI), as firms seek a more positive business atmosphere. From 2015 to 2016, 1,600 jobs were created per week in the UK thanks to FDI 6 . Thanks to this increase in employment, unemployment rates in the UK have fallen, from 7.8% in November 2010 to 4.8% currently. Increased tax revenue due to the higher employment rate has led to a fall in the budget deficit and a fall in borrowing, down £48.7bn by the end of March 2017, the lowest since 2008. With this increase in economic growth there is an increase in capital within economies, allowing for an increase in borrowing and growth in start-up investment contributing to the furthering of technological and therefore economic progress, in 2016 it was estimated that there were 80 new start-ups per hour in the UK 7 .

6 Department for International Trade (2016) ‘UK remains number one investment destination in Europe’ 7 The Daily Telegraph (2016) ‘Record 80 new companies being born an hour in 2016’


Made with FlippingBook Annual report