DAVID RICARDO (1772 -1823) AND THE PETER LYNN MAXI OCTOPUS KITE
Ricardo's 1817 "Theory of Comparative Advantage" is perhaps the most widely accepted theory in Economics and predicts that open trade is beneficial even for weaker economies.
From Wikipedia: "-- Ricardo showed that there is mutual national benefit from trade even if one country is more competitive in every area than its trading counterpart and that a nation should concentrate resources only on industries where it had a comparative advantage.---" Acceptance of this theory led to England's 1846 repeal of the protectionist 'Corn Laws' that advantaged wheat growers (mostly upper class property owners ) at the expense of consumers. Incidentally, it was also the founding cause for the 'Economist' magazine. From then, "Open Trade", now shown to be a win-win, began to supplant "Mercantilism" by which countries had previously competed with each other internationally in a winner takes all fight for trade dominance.
Commitment to the Open Trade principle has been patchy in the 170 years since Great Britain (which really was "Great" back then) led the way, especially as countries have attempted to take the advantages while still protecting their uncompetitive sectors - self-defeating though this ultimately is, as Ricardo so ably shows.
But the increases in trade that have occurred, especially in the last 30 years or so, have been of enormous benefit by way of improved health and welfare for every person in the world, even for those who have not, as yet, been able to organise accountable governments for themselves.
And not least, rapid growth in world trade and interconnectedness has given poorer countries access to rich world markets for their products and services, the most effective way to reduce inequalities.
It is not unreasonable to suggest that more than half the world's current level of prosperity is directly attributable to the benefits of international trade.
But now this is under threat from three different directions simultaneously.
Because the generic name for the trends and processes above is Globalisation.
And Globalisation has become a whipping boy for the Left.
And for the Right (Trump style populists).
And for rising nationalist sentiments in many countries with their perverse 'buy local' policies.
I really struggle to understand why these various groups are now rejecting the very mechanisms that have generated their current wealth and prosperity.
On the Left, it's driven by the usual anti-everything failures who bitterly blame everyone but themselves for their own lack of success. Unfortunately, on this issue, their destructive message is now being pitched to a wider audience by a leadership that clearly doesn't believe it but ranks getting and holding power ahead of what's best for the people. Hilary Clinton's recent flip flop on the Trans Pacific Partnership (a trade deal) is a stark example.
On the Right, populist movements like Trump in the US are similarly telling their conspiracy believing followers what they like to hear, not what will make them more prosperous and secure. These followers are generally too thick to see past the sound bites (there seems to be a strong correlation between 'alternative beliefs' (Left nutters), conspiracy theories (Right nutters) and low intelligence.)**
Their leaders can't be excused so easily though; perhaps some of them actually believe their own anti-trade rhetoric (more fools them) but the advantages of globalisation are so compelling that it's more likely they've also sold out principles for personal advantage.
As for rising nationalism also driving anti-globalisation; it's anything that will distract the electorate from failures of government I suppose- especially as it's no longer generally acceptable to just blame the Jews (though the UK Labour Party seems to be having a tilt at this: http://www.bbc.com/news/uk-politics-36676018). Particularly tragic is that the EU is going down this path, because not only will they be the poorer for becoming even more protectionist (under the spurious guises of health, safety and labour standards of course), but scapegoating globalisation will inevitably delay squarely facing the root cause of their falling competitiveness (which I think is too much socialism).
But what if Ricardo is wrong? What if globalisation doesn't make us all wealthier? Or at the least, what if it benefits only the rich- as some Marxist Economists would have us believe (though Marx himself was a strong believer in Ricardo's theory).
We'll, there's another way to test the benefits of globalisation:
Which is that in 1996 a Peter Lynn maxi octopus kite (27m long) cost customers US$3000 on average. Now (2016) the same (but better made and better flying) kite costs around US$1500, and during these 20 years there has been 53% inflation ($4605 has the same value now as $3000 did in 1996) so actually this kite now costs 33% of what it did back then.
And just about every manufactured item has become similarly better and less expensive during this period- some to an even greater extent.
As have services.
The main reasons for this is that there is a sort of Moore's law* at work.
For manufacturing activities, every doubling of quantity seems to cause costs to reduce by roughly 20%, with no limit in sight as yet- and quality generally improves as well, in spite of anecdotes to the contrary.
Consider 2 countries producing equal quantities of 2 items. If each country ceases making one of them, buying it from the other instead, the total cost of making the same quantities reduces by 20%. This surplus of income over expenditure can then be spent on other desirable things (like, education, health, more holidays, and kites), and, provided the gains are shared, everyone is better off.
Most service functions (like public transport, air travel, water supply, and electricity reticulation for example) follow a similar relationship- though with various specific limits.
And another globalisation driver of 'better and cheaper' is internet effects.
Unlike for products and services that may be distance limited, successful computer and smart phone applications can be rapidly and almost costlessly extended to hundreds of millions of users world-wide.
Nor are these globalisation effects captured exclusively by the rich, they are of direct benefit to everyone who uses any good or service - which is pretty much everyone in the world.
So, by this every day evidence, globalisation DOES add wealth to the world, and it DOES benefit even the poor and indigent, arguments about who is, and who is not, getting their fair share notwithstanding.
Globalisation benefits everyone, elsewise you'd now be paying 3 times as much for our superb kites.
As Roberto Azevedo, the World Trade Organisation's director-general said last week in the Wall Street Journal, we need to be concerned that it's now being rolled back.*** I would put this much more strongly.
Mutter mutter mutter.
PETER LYNN, ASHBURTON, 1 OCTOBER '16.
*"Moore's law" is an observation made by Intel co-founder Gordon Moore in 1965 that the processing power of integrated circuits doubled every year. This has held fairly true for 50 years which is how come we now have computers that can beat humans at complex games like chess and Go, the internet, smart phones and embryonic artificial intelligence.
**"Those more receptive to bullshit are less reflective, lower in cognitive ability - numeracy, verbal and fluid intelligence), are more prone to ontological confusions and conspiratorial ideation, are more likely to hold religious and paranormal beliefs, and are more likely to endorse complementary and alternative medicine-".
***"The dramatic slowing of trade growth is serious and should serve as a wake-up call. ---- It is particularly concerning in the context of growing antiglobalization sentiment. We need to make sure that this does not translate into misguided policies that could make the situation much worse, not only from the perspective of trade but also for job creation and economic growth and development which are so closely linked to an open trading system."