Re: SI Comparative Advantage [was Re: Free Will]

Wed, 25 Aug 1999 11:50:16 -0700

> Brent Allsop <> wrote:

>> What is "the law of comparative advantage?" or where
>> can I find out more about it?  I disagree with Julian's assertion
>> here, does this law support this position?  If so, then how/why? replied:
> Brent,
> Comparative advantage is simply the idea that depending on your
> location or knowledge you are in a better "economic" position to do
> something than someone in a different location or with different
> knowledge. It is why all the shoe manufacturing moved from the U.S. to
> Asia (lowest labor costs), or why all the steel manufacture is done in
> Japan/Korea (conglomerates with close ties to banks and high savings
> rates provide low interest rates, allowing businesses to secure low
> cost loans and build the biggest iron ore blast furnaces which have
> the lowest production costs).

Sorry Robert, but you've misrepresented the economist's idea of of comparative advantage. The idea starts with the observation you've focussed on--depending on local resources, infrastructure, talent, training, or other differences, people and companies in different places will have advantages in competing in different markets and some advantages may lead to relative dominance in some markets. This much is not very surprising.

The part that *is* surprising (and particularly relevant to the SI discussion)
is that even if some firm or country has a competitive advantage in *all* interesting markets, it will still benefit everyone if those at a disadvantage
produce in the markets in which they have the least disadvantage. All traders
would be strictly worse off if the worst producers refrain from producing. The implications for the SI debate should be obvious.

Now that I've written this, I begin to suspect that it's an analysis based on old-fashioned static economics. If you take evolution and changing populations into account, it may be that the worst producers (if it's an inherited trait, like being biological :-) ) get competed out of the population over the long term. It still remains the case that in every market
at every point in time, all potential producers should find their area of greatest comparative advantage (which may not be an area of absolute
advantage) and compete there.