Historical macroeconomics page

Comparative Advantage Today

By Imago Klast
22 February 1998

The classical economic principle of Comparative Advantage is appearing in the news more and more each day, but the major characteristics of this advantage have changed.

When this modern concept was first postulated it referred to an ancient city state, nation, or empire and later versions of such polities having an advantage over others in production techniques, craftsman skills, material resources and transportation facility by land or water. In most ancient political entities comparative advantage included the use of slave labor. Slaves could be forced to toil in underground mines and to tend ore roasting and smelting ovens in harsh environments. Slave labor has a near zero cost after the cost of the military victories that generally obtained such labor. In today's world comparative advantage of nations exists primarily in labor costs. Although slave labor doesn't exist in a literal sense, it could probably be said to exist in a relative sense when comparing a Chinese seamstress to a German railroad conductress

Comparative advantage also exists in the possession of material resources, but a nation like Japan without such resources has been able to circumvent such disadvantage by the import of basic materials and the export of finished product-Japan is an amplifying producer.

In addition to chattering about comparative disadvantage, business publications are gabbing about worldwide overproduction which is a result of the loss of significant comparative advantage in production techniques, technology and transport. These facilities are now equally available to most any energetic nation. As a result, factories in Latin America, Portugal, Poland, India, Southeast Asia, China and even Mongolia in addition to the long time industrialized nations are pouring excess product into world markets. Everyone wants to get in on the act of production and export for profit. There is nothing wrong with this an ideal of enterprise, but practically it can swamp the market place with unsold product.

Prominent industrial nations have strnuouisly promoted the development of emerging nations in an effort to make such nations self sustaining as their population burgeons, but the fruition of such effort increases world product even more.

Consider the tiny enclave of Israel. Here is a half barren, half desolate, half desert land devoid of any significant material resources which is trying to become an amplifying production entity for a world market already overflowing with supply. The try is unrealistic. A barren land has little promise for agricultural or manufacturing production that can compete profitably and certainly less promising than many African nations. Other nations are thereby begged to support Israel by loans which bode to be never ending.

As a related aside to the above, Edward Said, an eminent professor with Arab Palestinian roots who was born in Jerusalem, has written a book, The Politics of Dispossession, in which he points out that any semblance of autonomy or concession of land for a Palestinian nation that may ultimately come from the current Israeli dominated negotiations will be negated by further loans from the U.S. supporting the continuing Israeli industrial development which can only be non-competitive in an international context and add to excess product however small that be.

However, the economy of the Arab Palestinians was destroyed long ago by the Israelis, and they have no support for redevelopment of a reasonably self sustaining economy in any pseudo-autonomous polity. They will be dependent on Israel for jobs at peon's low rates and on Israel for products to enable them to survive however meagerly. Israel will continue to dominate the Palestinians economically and politically. Because of their proximity to surrounding markets Said strongly suggests that it is possible and perhaps probable that Israel would extend that economic and political dominance to Syria, Jordan, Arabia and even Egypt from a land they have usurped by terrorism and force which was financially supported from the U.S. These actions from the U.S. are equitably incomprehensible and morally reprehensible.

As the economic pundits would have it, the world is in a bind of excess production. Increments of increasing population in many areas of the world are poverty stricken and do not increase demand for product. In spite of this and excess product on world markets economists and politicos constantly stress and encourage economic growth-nominally that of productivity and product-to keep up with growing population and ostensibly afford jobs for personal income to maintain consumer demand. However, growth on Earth cannot be a never ending process. This reality is recognized by many world organizations. Unrestrained and promoted growth will ultimately result in increasing competitive violence, spreading poverty and starvation, and human and natural catastrophe. These unfortunate facts of human existence are operative now and have been for many, many years. The overpopulation, poverty and misery in India, China and Africa are not recent developments: they presage the future for much more of the Earth's population.

The lack of present day comparative advantage in technology and production techniques And the ensuing overproduction is a derivative of the continuing promotion of economic growth which can and will be self destructive. It is time for a detailed international analysis of what the goals of economic growth really are. Are we deluding ourselves and are we being deluded by specious arguments as to what these goals should be? Are we better off without such growth? How can we do without it or limit it for conservation of Earth's resources, the quality of life and for that matter the conservation of life?

Population growth is generally the cause for the promotion of economic growth throughout the world which is ostensibly for the general welfare, but there isn't much sign that it has had such an effect since the industrial revolution. The numbers of the disadvantaged have increased in spite of it. Does economic growth really create a proliferation of capital and the sequestration of wealth in the hands of a few? These phrases are, in fact general, but if you insist on seeing them as Marxist, please know that there are a goodly number of Marxist economists teaching in major U.S. universities. They are neither socialists nor communists, They subscribe to factual principle: not to ideology. We must have restraint of growth, and it must begin with reduction or curbing of population and with development of a replacement economy rather than a world growth economy.