World Economics Question

[DarkCloud]

DanS

Originally posted by DanS


But as I understand it, that has minimally to do with comparative advantage. The working classes could agitate for artificially high pay in an industry with a comparative advantage as well.

It might be true that this agitation is much less effective during the period in which industries change to those in which a country has a comparative advantage -- i.e., you may not be able to identify what is a temporary impact and what is a permanent impact.

So are you saying that should Country B develop a CA in a product that the working classes might create a sort of monopoly on labor, thus pushing up the cost and perhaps destroying the CA and making it worthwhile for the producers in Country A to continue producing the good in some quantity?

I can see this happening in some industries, like Imran's call center ideas, but what about when heavy industry moves abroad- like Steel, which is technique and infrastructure intensive... Or the American footwear industry, for example. The WSJ did a good article on how it is impossible to make shoes in america any more because the supply chain process is now all in Asia. What happens when mfg. becomes throughly gutted in one place due to massive efficiency in production elsewhere?

[DarkCloud]

Traivinus

You can't have Comparative Advantage in Capital. Probably not in technology either.

Comparative Advantage applies only to goods that can be traded.

Well, Traivinus, couldn't it be argued that captial currently is being traded considering, for example: currency markets, bank transfers, investment banking corporations, the fact that there are nexuses of investment "silicon valley in america", hollywood, bollywood, the northeast american cooridor, the tech corridor in texas, the former SEZs in Hong Kong, etc. By concentrating talent and wealth, those places become hotbeds of development. In that sense the "capital" can be traded around the world as new places become "hot."



--
Agathon

They finally read Marx, who was clear that communist societies must develop out of advanced capitalist societies, and not semi-feudal aristocracies or agrarian societies. It is the attempts of people like Stalin and Mao to jump start the process that created havoc.

Yes. It would be sort of odd if it turns out that Marx was right all along. I am very much pro-free market, but more and more I can see this scenario as a possibility unless as was said earlier, the world invents itself out of crisis. Thankfully though with the rapid pace of inventions, it looks like the world might be able to save itself.

The future will be that societies like China and India will be economically dominant. The reason for this is that they simply have the most people. Not just a few more, but many times more.

indeed. China accounted for 1/3rd of the world GDP in 1810...and sank to near negligibility in the 1900s.- Just goes to demonstrate its vast potential...

[DarkCloud]

Also Victor, thanks again for the response.

[snoopy369]

a more apt description would be that education and industrial base tend to track each other as countries move up the productivity ladders. Education might come first, but as snoopy states, it's difficult to fully develop it unless more cash is coming in.

This is definitely the case; one is needed for the other, so both increase simultaneously. That's why, for example, we can't just start schools in Nepal, or whatever; we have to start schools, AND start businesses. Both must go hand in hand; and global businesses must begin to think long-term, rather than short term, in developing a global workforce.

[Vanguard]

Comparative Advantage is a concept with very limited uses. Mostly it is just a way to explain obvious pre-existing conditions. Ie., Brazil has a Comparative Advantage in the production of tropical hardwoods----- because it is in the tropics.... and it has a lot of trees. Duh.

Nobody is going to win a Nobel Prize for anything about it. Not unless you have a really cool equation that divides the Comparative Advantage into infinitesimal bits and spreads it over the domain of World Trade or something.

Well, Traivinus, couldn't it be argued that captial currently is being traded considering, for example: currency markets, bank transfers, investment banking corporations, the fact that there are nexuses of investment "silicon valley in america", hollywood, bollywood, the northeast american cooridor, the tech corridor in texas, the former SEZs in Hong Kong, etc. By concentrating talent and wealth, those places become hotbeds of development. In that sense the "capital" can be traded around the world as new places become "hot."

This is a good point, actually, since for the past 15 years or so, the 'Carry-trade' has become an important part of the US and Japanese economies.

Basically this trade consists of borrowing money where the interest rates are low and re-lending it where interest rates are high. You could, if you wished, consider this to "exporting" capital from someplace that "produces" it more cheaply to someplace that "consumes" it.

But that is really just nonsense. Comparative advantage implies some sort of "advantage" in the production of a good compared to some other country. Having lower central bank rates because you can't export goods competitively is exactly the opposite of a Comparative Advantage.

[snoopy369]

I think if you could prove that comparitive advantage was false, you would win a nobel prize (or be shot by crazed economists, one of the two).

Comparitive advantage can apply to currency transactions via local laws and stability of currency, I would think. I think you're oversimplifying the concept of CA - it is not just 'natural advantage', but takes into account the relative advantage to other industries in the same country; so you can have a natural advantage in nothing, and still have a comparitive advantage in something.

Lending speculation is most profitable when:
* Currency is borrowed and lent in stable currency
* The location where it is lent is relatively 'safe' (high chance of return)
* Local laws permit more aggressive pursuit of defaults
* Taxes on this speculation is low

Etc... all of these contribute to one country having a comparitive advantage in one half or the other, compared to doing something else with the capital.

[VetLegion]

Originally posted by DarkCloud
VetLegion

Then why do so many countries fail at supplying that factor? You can't just, for example, expand the college system in one year from 100 to 1000 graduates without reducing the quality of the children being taught- either you would have to increase class sizes to do that, or hire teachers that aren't very good at teaching.

It can be done. Who said it needs to be done in one year? Any country can organize a decent education system (literacy for all capable of it, secondary education for many or most, university for a small minority) if the government is commited to do so and the population is such that it puts value on education.

[snoopy369]

VL - again, it is hard to value education when survival is borderline. You can say "education is important" all you want to a mother of 5 who needs all 5 kids to come home and work on the family garden/farm to grow enough food to support the family... she's not going to value education, though. Valuing education comes with industrialization and a higher standard of living...

This is why it is a good thing to have companies come to developing countries and start employing the work force, even in relatively low-paying jobs; they're still paying more than subsistence farming, and they often encourage education as well.

[VetLegion]

The five-kid mother that doesn't value education has nothing to do with her having five kids and needing them to work but with other cultural issues.

I remember reading how commies went about literacy programs. You send people to villages and you teach peasants to read. Attending is compulsory

The fact that attending had to be compulsory even though the education was free tells you something about attitudes. Not all populations think it's great to be educated. Some, for example, consider half the population (women) not worth educating at all.

[snoopy369]

I think you're making an unwarranted assumption. There are many people (mostly in the orange and red areas of your map) who can't afford to value education.

It is very easy for folks in the second and first world to accuse those in the third world of not valuing education. It is harder for us to understand why they do not value it, and accept that this value is something that is not entirely illogical, and must be changed through actions, not words.

[VetLegion]

How can you not afford to value education? A set of values is in your head and completely costless.

It is very easy for folks in the second and first world to accuse those in the third world of not valuing education. It is harder for us to understand why they do not value it, and accept that this value is something that is not entirely illogical, and must be changed through actions, not words.

Why do people in some countries pierce their noses and in some countries don't? Why do you think everyone is like you?

[snoopy369]

Do you not understand that people have different values than you?

Education costs time, and pays off in the future, as opposed to now. Education of the sort you are talking does not put food on the table or a roof over your head for years.

I don't understand your second line at all... I am not the one here saying everyone is like me

[VetLegion]

Education costs time, but valuing education costs nothing. We're talking about values here. Beliefs. Culture.

[Heraclitus]

Originally posted by snoopy369
I think you're making an unwarranted assumption. There are many people (mostly in the orange and red areas of your map) who can't afford to value education.

Yes but why does Khazahstan have just as high a literacy rate as the US on the map? Aren't they even a tad poorer than Saudi Arabia.

[snoopy369]

Perhaps because they do not accurately report their literacy? (Russia and China both likely significantly overreport their literacy...)

Vet, you don't seem to accept that values are defined by the life experience. You 'value' what is important to you. It is silly to suggest that people in third world countries should suddenly value education, just out of the blue... things need to change such that they DO value education.