Laissez-faire: The way to go from here

For the uninitiated, laissez-faire is a setup in which the government doesn't interfere in wealth distribution and relies on charity and the market system to protect people from poverty.

Conflict with Mercantilism :-

Laissez-faire was in conflict with mercantilism, which advocates that the government should maintain a positive difference between exports and imports. Here the government has to intervene and discourage imports. Here the government has to play a protectionist role in the economy by laying heavy tarrifs on imported goods. Infact, it was mercantilism that led to many of the wars in the European countries and fueled imperialism.
The founding fathers of america, modified Mercantilism to form the american school of economics. It has the following key points.

1. Selective high tariffs and subsidies to protect the local industries. This can be viewed as reduced mercantilism. The government does interfere, but only in few key business activities.

2. High investment and regulation of Infrastructure. Privately owned infrastructure comes under constant scrutiny. This is to promote intra-national trade.

3. A national bank to promote infant industries.

The result of the american system was the American Civil War. Subsidies were mostly given to industries in the northern areas, with the chiefly agrarian south being met with step motherly treatment. Any involvement by the government in the trade is liable to corruption and favoritism, as history as taught us.

Indian Economic Policy : The evil Intervention:-

It has been 60 years since we got our independence. State intervention is required only in the juvenile stages of the economy. Our economy is now strong enough to support laissez-faire and free trade should be encouraged. Government intervention should only be at a defensive level, protecting the people from the immediate evil effects of capitalization. The only hindrance to this move is the less stable government with a left pull stronger than ever before.

Right now, the state intervenes in imports levying a heavy duty, despite local brands having gained a big name. Also FDI doesn't get sufficient encouragement in many financial service sectors like equity funds. Major players are still Indian here. If foreign players enter the market, they bring with them more attractive offers from which the Indian elite can benefit. Of course, Indians must be encouraged to invest in equity funds, as they usually go for low risk, low return schemes offered by the various banks.

Conclusion:-


A picture speaks a thousand words. The success of the american economy teaches us all a valuable lesson in free trades. As V quotes,"Freedom is not just an idea. It's a perspective." It's time for us to loose the shackles.