Economic theories of the past have shown that they still have a positive impact on the improvement and development of the modern society. Economic theories have greatly facilitated the growth of societies by assisting them to reach their current state of being informational societies which have consequently become global villages. Economic theories and concepts cannot be underestimated and are greatly associated with the present state of humankind. Adam Smith is the most famous economist in the world’s history given his immense contribution to knowledge based economies.
He created certain ideas and concepts that led to creation of free markets in the 18th Century which are still revolutionary concepts that can be reliably used in the 21st Century. The idea of globalization may seem new but its key models were conceptualized in the 18th Century. Adam’s works and theories have been acknowledged to have been the ones that stimulated globalization because in the contemporary times, the idea of globalization is based on the elements of his theory. The concept of a free market has therefore drawn the attention of other economists and necessitated the creation of new knowledge.
Adam Smith’s revolutionary ideas on improving economics
The concepts of globalization have improved business practices across the globe.The idea of a free market as espoused by Adam Smith has led to the reduction of trade embargos, sanctions and unnecessary imposition of tariffs on products and services across regions. His principles have been contextualized in many states of the world. The economics and business fields have built on Adam Smith’s principles and realized positive results (Antonelli, 34).
The wealth of nations, fundamental solutions leading to economic improvement and progress
Adam Smith wrote a book called The Wealth of Nations. This book is considered as his best work regarding economic theories. This book has really contributed to the understanding, interpretation and analysis of his ideas on globalization and free markets. According to this book, Smith explains his ideas on economic progress and globalization and the means of arranging them into sections that create channels of comprehension of his theories.
Adam Smith related the aspects of technological inventions and innovations to free markets. He linked the aspect of staff training and technological innovations. Smith claimed that a given company could provide the staff with the most recent, up to date and appropriate facilities that would allow fast, effective and efficient organizational processes. These facilities however would consequently equip the employees with skills that would help them improve their performance at their work places. Smith also pointed out the aspect of division of labor in organizations. Smith argued that division of labor within a company was practically determined by the status of the market.
Smith suggested that division of labor also resulted in the increase of various fields of specialization. This fact led to the accumulation of people who had technological knowledge and expertise and who would work towards producing new and better technological innovations and inventions for given companies (Antonelli, 15). The impact of modern technological innovations and inventions on the modern market is significant and has led to drastic growth and development of new and old markets. This fact clearly shows that Adam Smith’s concepts on the economy were formulated to encourage people towards worldwide globalization through development of new technologies.
The principles and stimuli of free markets
The idea of free markets as explained by Adam Smith was meant to be the foundation of the recent global economic system. This aspect was supposed to facilitate the establishment of good relationships between all private entrepreneurs who originated from different regions of the world. The social relationships would then encourage international economic relations therefore allowing trade and improving both the GNP and the GDP of different countries. According to Smith’s explanations, trade relationships were necessary for the growth and development of a given company. Trade relationships served as natural stimuli for a company’s development.
The significance of free markets as demonstrated by Smith: The beginning of a new era
Adam Smith perceived the idea of free markets as any other system that required having its own significance, functions and a specific purpose that it served. Adam Smith considered the fact that free markets were to be relevant and were to help in forming relations and uniting different nations together for a common purpose. The purpose of the free markets was to serve as a field where all private entrepreneurs would conduct and run their businesses in worldwide scales. This description therefore gave a clear indication and interpretation as to what the economists viewed as the process of globalization. Greaves, an economist described a free market as a ‘democracy’ in which every “penny had a vote that supported entrepreneurs to know the preferences of their owners” (Greaves, 220).
The threshold of economic change
Adam Smith suggested that that a number of economic changes would occur in the world after certain periods of time. It was predicted that the changes of the economies from one specific state to another would allow the emergence and development of new private firms and companies that would inevitably stimulate radical changes within a country. It was however expected that many nations would experience forms of crises during the transition periods and this fact would later have undesirable effects on their economies in the end.
The laissez- faire policy of leaving entrepreneurs alone
The laissez- faire policy is also considered as an important component that is related to Adam Smith’s theory of free markets. The laissez faire policy has existed since the 18th Century and is also practiced even in modern times. According to the explanation given by Killon, “Adam Smith’s argument against governmental intervention was grounded in a philosophy of laissez faire economics that assumed the existence of perfectly competitive markets” (Killon, 56). In almost all the records of countries in the modern world, the government does not display any monopoly over the current and existing forms of entrepreneurship.
The countries’ governments have adopted the development patterns postulated by Adam Smith to enhance business growth and development and also in spurring economic revolutions within their countries. This fact in turn has greatly contributed to the whole globalization process and has led to formation of worldwide financial and trading relationships. However, the laissez faire as a capitalist approach is likely to replace Adam Smith’s policy of free market because it offers a lot of opportunities for the growth and development of private firms and companies. This idea is represented in the words, “The laissez faire capitalism that drives globalization is actually incompatible with authentic democracy.”(Burbach, Geffris and Robinson, 10).
Smith’s prophecy on division of labor as a significant value of globalization
The division of labor is considered a vital component of Smith’s free market theory and the whole globalization process. Moreover, the idea of offering specific training on a job to specific people has led to job specialization and also transformed the training of the company’s staff to achieve reliable and relevant performance. This idea is captured by Gospel’s explanation, “Since Adam Smith, economists have dealt with training as a form of investment in human capital” (Gospel, 2). The concept of division of labor and job specialization as advanced by Smith’s ideas has been implemented and improved in almost all countries of the world.
Market capital extensions and other issues related to globalization
Market capital extensions have a significant influence on globalization. They are also considered as crucial processes of Smith’s theory of free market growth and development. This fact clearly shows that Smith’s relation of market capital extension to his free market theory offered processes that would gradually lead to worldwide globalization.
Smith’s prognosis on the future’s anticipated results
In respect to Smith’s ideas and theories on how the then global economical scale could be improved, he also postulated his own accounts on the possible outcomes and results that the changes and transitions would bring about. By comparing the present day economy state and Smith’s prognosis, there is a graphical illustration of the reliability demonstrated by Smith’s free markets theory. According to Prof Nik Coupland of Cardiff University, “Adam Smith, for example, anticipated the emergence of a (beneficial and liberalizing, in his view) world market system” (Coupland, 2). Currently, a free market system is in existence although certain people have different views about the system.
A lot of people believe that the existing free market systems provide the right amount of “fair political liberty” causing resistance (Tomasi, 243). This aspect has therefore demonstrated that not all of Adam Smith’s free market notions are accepted and implemented in the present 21st Century’s economic environments. By evaluating Adam Smith’s concepts and ideas, we can analyze the ideas in a unique and different perspective and how they are executed in the 21st Century economic set up and the changes that have been adopted and made from Adam Smith’s laissez faire and free market policies.
The progress of globalization from the 18TH Century to 21ST Century in relation to Smith’s concepts
The success of smith’s ideas: Positive effects
Adam Smith provided a perfect and steady foundation for the development and growth of the present day market and trade relationships. He also offered the key idea of the independence from the state of private entrepreneurs to conduct their businesses internationally and also enabled the entrepreneurs to be able to determine their own destinies for their businesses. This aspect shows that the state of the modern economy is primarily based on Adam Smith’s theory. By considering some of the elements in Adam Smith’s theory, it can be perceived that the whole modern globalization process follows the key steps postulated by his theory, “The 3W Model (Washington, World Bank and Wall Street) of globalization is built around the theoretical structure of three great economists – Adam Smith, David Ricardo and John Maynard Keynes” (Nayak, xvii).
The failures’ of Smith’s ideas: Negative outcomes
As we have discussed earlier, the present globalization process is based on the general concepts and ideas of Adam Smith’ free market theory. The world’s free market has developed with the help of free international entrepreneurships and the established trade relations. These relations do not at all depend on any choices made by the government but on the basis of the patterns of development that Adam Smith suggested. However, when we make analyses on the details of Adam Smith’s free market development, certain of his ideas have been modified and reconsidered in order to make them adaptable and applicable to the current and dynamic 21st Century’s economic environment. Jenewein explained that, “Adam Smith has merely taken the world capital in that sense in which it is necessarily taken by renters or merchants in their book-keeping and their balance sheets… He has forgotten that he himself includes (in his definition of capital) the intellectual and bodily abilities of the producers under his term” (Jenewein 2005, p. 5).
Conclusion: Restoration of the world’s economic balance
Despite the fact that a very long time has passed since Adam Smith came up with his market free theory and laissez -faire policy, his ideas have stimulated the globalization process which is currently and continuously taking place. His theories have formed the key foundation of economic development and worldwide globalization. His theory has been adopted by countries across the globe.Certain organizations are using the elements of his theory in order to develop their economies and also promote globalization. It can therefore be concluded that the discoveries, concepts and suggestions made by Adam Smith for the growth and development of free markets will forever remain relevant and reliable in modern times. Economic scholars should conduct intensive research that can improve Adam Smith’s theories for the benefit of economic growth and trade liberalization in the world (Tomasi, 23). The government should allocate adequate funding to research programs. Adam Smith’s theories will continue to provide solutions to economic programs in several countries in the world like the case of China.
Antonelli, Cristiano. Handbook of the Economic Complexity of Technological Change. Northampton, UK: Edward Elgar Publishing, 2011. Print.
Burbach, Roger, Fiona Geffris and William I. Robinson. Globalization and Postmodern Politics: From Zapatistas to High-Tech Robber Barons. London, UK: Pluto Press, 2001. Print.
Coupland. N, Handbook of Language and Globalization, Oxford Printing Press, United Kingdom: 2010. Print.
Gospel, Howard F. Industrial Training and Technological Innovation: A Comparative and Historical Study, New York, USA: Taylor & Francis, 2010. Print.
Greaves, Bettina Bien.Free Market Economics: A Syllabus, New York, USA: The Ludwig von Mises Institute, 2007. Print.
Jenewein, Klaus. Intellectual Property Management: The Role of Technology-Brands in the Appropriation of Technological Innovation, New York, USA: Springer, 2005. Print.
Nayak, Satyendra. Globalization and the Indian Economy: Roadmap to Convertible Rupee. New York, USA: Routledge, 2008. Print.
Tomasi, John. Free Market Fairness, Princeton, USA: Princeton University Press, 2012. Print.