Open-Economy - A Progressive Economic System
Free Trade and Capitalism:
Around the world, most of the economies are following capitalism i.e. no restrictions on the promotion of trade and use of ‘ease of doing business'. As the demand for goods and services is growing, capitalism is the best way to fulfill the demand and provide opportunities to traders, contractors, service providers in the economic growth of the economy. The world of today is best known for its ‘Free Trade’, also known as ‘Globalization’. India with its new industrial policy open trade for the whole world in 1991 and it nurtured technological innovations and today Indians are known around the world for their technological skills. No doubt, capitalism is the best way to ensure a high rate of economic growth. In ‘Free Trade’, the economies or markets balance the demand and supply of goods and services and as per the demand, the entrepreneurs are motivated to use the resources.
The era of Globalization promoted Privatization and fixed the inefficiencies of the public sector by incorporating the Public-Private Partnerships (PPPs). However, the major drawback, capitalism, and globalization brought, is the domination of economically powerful nations upon weaker countries of the world.
Why ‘Free Trade’ is best for Economic Growth?
It is fact that money is a great tool for motivating people for doing more work, due to greed the workers, laborers, entrepreneurs, executives work more and earn rewards or bonuses from the increase in revenues. The competition is increased and the people performing well are awarded high-paying jobs and assignments. The same had happened during the last three decades in India. However, the biggest concerns which are coming today, are environmental concerns. Due to the over-exploitation of economic resources, the developing economies are facing environmental concerns with the rising levels of various types of pollution.
Development of India:
India meets its capital and technology transfer requirements from developed nations including America, Russia, Japan, etc. Every year most Indian citizens get employment opportunities from these developed nations. Due to the support of these nations, India stays protected from terrorism and uplifts its standards of defense on the national boundaries. The Prime Minister of India visits the developed nations to strengthen the relationships and further seek the support of these nations for the upliftment of Indian citizens. The industrial policy was implemented in 1991 to increase liberalization and opened the Indian market to Multinational companies. The policy was implemented due to the pressure of sustaining good relationships with the developed nations. Due to plenty of resources, India is still growing instead of being exploited by foreign companies.
Development of China:
China is the second-largest economy in the world and is known for its competitiveness in offering products and services around the world. The political stability in China and promotion to socialism than capitalism made the nation stand separate from the other nations of the world. The major economic problem of China is poverty and with the help of reforms, it is continuously targeting the economic problem. The poverty alleviation programs of China are helping people to uplift themselves and get rid of the vicious circle of poverty.
By improving the exports of the nation, China is providing opportunities to the rural poor people to generate opportunities for self-employment. The high-quality and cost-efficient products are prepared and exported by China. The second critical problem is the large population of China. Around one-fifth of the world’s population resides in China. Instead of such critical problems of population and poverty, China is doing remarkable work in ensuring the rate of economic growth by taking necessary initiatives.
Trade War by the United States of America:
The book ‘The Wealth of Nations' which was written by a great economist, ‘Adam Smith’ explains that encouraging export and discouraging imports can reduce the current account deficit and the industries are automatically motivated to perform well in the country. Honorable President of United States, Sh. Donald Trump just after taking the charge started to do the same. The United States started a trade war by imposing higher import duties for the importers of the United States and also warned the countries not to restrict exporters to export commodities in the United States. The signal of making the United States restrict and improve the financial cash flows in the United States through raising taxes on imports. However, there is a threat that may create problems for the United States that the BRICS countries may decide to restrict trade with the United States. China being a powerful economy started to oppose the policies of the United States by restricting its trade. The foreign minister of China in March 2018 asked India to shake hands in trade. He asked if India and China known as Elephant and Dragon respectively be clubbed for trade then the countries can fight with the United States in the trade war and the power of united India-China will be Eleven instead of Two.
Threat to open economies:
An open economy doesn't restrict its producers and traders to import and export products and services. The Chinese President Xi Jinping supports an open economy and China has emerged as a nation with maximum liberalization in trade. But there are a few initiatives that have been taken recently but are against the concept of the open economy like shutting down access to Google and Facebook in Beijing, restrictions, and removal of foreign TV shows on online portals in China, new rules for online news websites, etc. The control over online media in China and India; is really a new concern. The developing nations sometimes find disruptions from online media like in India, during the 'Jat stir' in North India, Whatsapp had been deactivated by restricting Internet connectivity for a few days.
Role of open economies in economic progress:
Controlling online media and restricting foreign investments with targeting nations cannot be considered fair for the countries that opted to remain open economy. India and China both are leading to success due to liberalization and openness to the whole world i.e. globalization. Both economies are actively maintaining stock markets and attracting foreign investment by creating a comfort zone for the investors. The Punjab National Bank Scam through misusing SWIFT by Nirav Modi and Scam by Rotomac's Vikram Kothari again raised the concerns of corruption in the Indian economy.
China's progress in other countries:
The claim of China's Ministry of Industry and Information Technology to clean up domestic internet, the introduction of new cyber security law, shutting down online services of video services, are the steps that are moving Facebook and Google to invest more money in India, and indirectly the benefits are coming to Indian citizens.
India's initiatives for economic growth:
The Note-Ban, implementation of GST, and controlling inflation through increasing foreign investment, made India stand firm for getting more growth rate in coming years. The countries are competing to survive and grow faster in coming years and the concept of the open economy can be added advantage in it. It's required to utilize the technologies with safety and security because misuse of technologies can also add to corruption.
Capitalism and Trade War by the United States is a threat for the whole world:
Being an economist and expert in Financial Matters, I can predict the consequences of the present policy of the United States, on the whole world. The developing nations and underdeveloped nations would be facing great economic problems due to the trade war of the United States. The professionals, talented people, experts, of developing and underdeveloped nations are being offered lucrative packages to work in the United States and other developed nations of the world. The scientists who are great researchers and innovators are flying to developed nations to serve them and poverty is taking place with more speed in the developing and underdeveloped nations. Today, more than 40% of the doctors of developed nations like the United States, United Kingdom; are from overseas and the percentage will rise further in the coming years because it will become hard to afford the cost of medical services, professional services, and the services relating to professionals. The Asian Countries, Eastern Europe, and African countries are facing the problem of talent crunch and it will grow further. The result will be adverse for the poor countries.What can poor countries do to defend the trade war of the United States and other Developed Nations?
It is fact that the United States and other Developed Nations are ruling poor countries through their policies and the poor countries which had adopted capitalism like India, are facing critical problems. The current account deficit and devaluation of currency are the results of it. The major point is, how such nations like India can defend the trade war of the United States and grow on their own?
The answer is to develop their own industries, their own talent to work in their countries, giving lucrative packages at par with the developed nations to the professionals by linking with their performances. The poor countries should enrich the entrepreneurship skills and give incentives to the individuals coming ahead for optimum use of resources and the taxes should be imposed on Multi-National Companies (MNCs) related to developed nations for working in the poor countries. However, it is very difficult but the only resort to defend the trade war from the United States and other developed nations are to adopt such policies. In case, the employment opportunities are increased in poor countries and it is ensured that the talented people should not escape to the rich countries; definitely, the economies will proceed on the path of prosperity and can easily ensure a higher rate of economic growth.
*Copyright © 2021 Dr. Lalit Kumar. All rights reserved.
This content is written by Dr. Lalit Kumar Setia; a renowned author and trainer. He completed his Doctorate in Commerce from Kurukshetra University Kurukshetra and MBA in Information Technology from GJU, Hisar. He also wrote two books, 15 research papers, and organized more than 200 Training Courses during his working period since 2006 in Haryana Institute of Public Administration, Gurugram. The article was published in 2019 and last updated on 18th November 2021. The writer can be contacted on lalitkumarsetia@gmail.com
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