Camilla Cavendish made the following quite mindboggling assertion in her Times column:
The theory of comparative advantage, which has underpinned trade for 200 years, is fraying.
Eh? How so?
The argument was that everyone would gain because emerging economies would take over low-wage jobs and rich countries would gain new markets for high-end services.
Ah, whatever it is that she’s talking about there it’s not comparative advantage. A precis of which is that, whether we’re talking about me and my kid brother, two companies or many countries, we should each do what we’re least bad at and swap the resulting production.
That’s the way that we get maximum production at our current level of technology and resources and thus have the maximum amount of things to swap with each other: a reasonable definition of being as wealthy as we can be is that we have that maximal amount of stuff to share, no?
And once we’ve got the idea properly stated it then becomes apparent that there is no threat, no possible fraying of the theory, because other people move up the value chain, other people become more productive:
But India is already better at high-end technology than the West, and is filing an increasing number of patent applications. Western politicians make glib statements about the need to improve education. But the globalisation of innovation should shake them to the core. That’s why many G20 countries talk up trade while implementing protectionism.
If people in India invent cool new things then that’s just more cool things for us all to swap and share. If Indian, or Chinese, or Martian (and yes, if they do indeed exist we will indeed trade with them), workers become more productive then that’s just more production that we can share.
This idea that other people, companies or countries, because they start doing high wage, high value things, are some sort of a threat to us or our way of life is entirely arse about face. We want their labour to be worth more, we want them to be as productive as they can be, we want all of the many billions across the Earth to be adding the most value they can, creating the most from the sweat of their brow.
For as they do so they’ll be creating more things, more stuff, more goods and services, more goodies which we can all partake of by the simple method of trading what we make for what they do.
The “globalisation of innovation” isn’t a threat. It’s a blessing, a joy to be welcomed rapturously. Good grief, do you want a few hundred million already rich people thinking about how to make your life better or all of humanity, all 6 or 7 billion of them, feverishly beavering away in attempts to satiate your every desire?