Comparative Advantage and Externalities

The best argument for free trade is probably Ricardo’s comparative advantage. The argument is as follows, that even countries that are less efficient at producing any good compared to a more developed country would be able to specialise in a given prduct that has the lowest opportunity cost to them and trade that good in an advantageous way.

I personally feel that this argument should be disputed.

The main reason is the trading of externalities. Specialised countries are more prone to import externalities. Many markets have natural entrance-barriers. Structural and institutional deficits arising from specialisation hinder real „creative destruction“.

Argumentation for free trade follows a certain structure of argumentation: Comparative Advantage through specialisation enables less developed countries to participate in advantageous trade. Countries that are affected by free trade should improve flexibility of the work-force and infrastructure.

I would believe that a country with limited ressources would have a hard time increasing both specialisation and generalisation at the same time. A specialised country will therefore experience brain-drain. Stripped of the possibility to generalise to react to competition and with little room to improve the efficiency of its specialised industry it will be forced to either keep the living-standard down and decrease wages or to invite industries that other regions reject – for good reasons. Those bring externalities with them that the society will have to bear.

Is there a real difference to regions within a country? East-Germany for example experienced a significant brain-drain in the wake of reunification. However, countries like Germany or the US have the ressources to improve the infrastructure of their regions and support generalisation. Poorer countries with less ressources will have a harder time to do so.

Would free trade in terms of mobility and capital flows help better than free flow of goods? I don’t know yet – but I feel that it is not as easy as to say: „no trade barriers“.

Scott Sumner asks about cultural appropriation

In a recent blog post, Scott Sumner asks about recent trends in American society concerning Cultural appropriation:

Scott Sumner’s blog: TheMoneyIllusion

I also weighed in on this discussion:

In my opinion, Cultural appropriation is combative term., that includes too many different aspects too describe any specific situation.

Learning a foreign language or become invested in a foreign culture implies the view that those “goods” are neither rivalrous nor excludable.

However, sometimes the history of a group of people founds a specific and current political claim. Then taking part in it undermines the political strive of that group. Take for example the situation of descendants of African people in the US: Occasionally, efforts from outside-people to identify with that culture is received in an hostile way because it undermines the integrity of the group and its unity in the socio-political sphere (as it kind of relativizes their situation). It might be comparable to religious rituals or military honors. Here trying to take part in that “culture” hurts the integrity of the group and its goals.

When talking about cultural appropriation one should differentiate between taking part in a non-rivalrous and non-excludable good on the one hand and hurting the sociological, religious or political efforts and claims of a specific group on the other hand.

I understand Trumpian thought to be utilizing the whole of an (yet to be defined?) American culture as an instrument to political ends – it becomes a rivalrous good. Of course, in that perspective the culture of non-Americans must be perceived in that same way – namely being instruments to political goals that are rivalling with one’s own.

 

What is your opinion on cultural appropriation? Also I recommend Scott Sumner’s blog – More than only economist matters, he often comments on political and social issues with very interesting point of views.

A new „Eastern Front“?

As I argued in my previous post a new, serious approach to the Integration of the European East into the European Union is much needed. That integration should not aim to win the East for special interests of the European core – as the setting up of camps for refugees in Albania would be – but to really integrate it into the European Union. Using the East as a source for cheap labour or dumping place for Europe’s unwanted will cause big problems for the Union soon. Symbolic and practical acts that show solidarity and seriousness may be costly but are necessary.

That the East is not waiting for the EU but is moving on its own accord is shown by the formation of an East European Club named „16+1“ in 2012 in which 16 Central and East European Countries (CEEC) are cooperating with China to promote Chinese investments in the area. According to the Chinese website „Cooperation between China and Central and East European Countries“ (china-ceec.org)  Chinese investments exceeded 9 billion US$ by the end of 2017 as a result of the Cooperation.

While some argue that Chinese investments are not yet significant (zeit.de) they might be seen in the context of recent decisions by East European States and Greece to block some of Europe’s efforts to encounter China’s growing influence sphere internationally: Significantly, declarations on China’s records on human rights violations and her behaviour in the South Chinese Sea (zeit.de). Also, it appears that Chinese thoughts are making their ways into the European Union’s Parliament and Commission – transported by Eastern European Representatives.

Some of the investments might also undermine European policies. For example the investment into nuclear power plants or Chinese controlled infrastructure (china-ceec.org).

The Brexit is having a huge impact on the European Budget, so Chinese investments are much welcomed in the East. However, it would be dangerous, if those new relationships undermine European Politics.

It is my opinion that a lack of trust in the solidarity of Europe that opens the East to China. Europe needs to learn that public diplomacy is needed not only outside of Europe but inside it as well. Therefore Germany needs to step up and act in real solidarity. Take the so-called „refugee-problem“ off the table: Germany needs to offer real solutions to the problems and stop trying to export them. That is, taking more refugees in, offering them faster and easier integration into the job-market and counteract ethnic isolation in the cities. Germany needs to enforce its own commitments to the European Union and the European Integration. European policy-makers need to have the capacity to take care of other problems in Europe.

Europa dem Osten – A Europe for the East

Today, the European Union is being understood as the embodiment of the European idea. The dream of a European Community was conceived before and especially during the second World War and was realized first in an Community of Steel and Coal. Steel and Coal were, of course, not only the foundation of any industrial growth at the time but also necessary for any war. Sharing these ressources should hopefully lead to peace in Europe and the emergence of a global counterbalance to the US and the USSR. From there on, the project turned liberal and developed into a supranational institution that influences many areas of our daily lives. But the Institution is under a lot of scrutiny today. The single market and the four freedoms at its core appear to alienate people in many European societies. And as it is dominated by the economic powerhouses of France and Germany many Eastern Europeans understand the European project as a hegemony-project of central Europe.

This situation appears to me as a sad twist of history. It was after all especially states in the East like Poland that first championed a European Union – that was before Poland was occupied by Nazi-Germany. That and the subsequent occupation by the USSR and the creation of the Eastern Bloc burried any hopes for an Eastern Euroean Union.

The point is – the European Union of today needs to understand that it is not yet the institutional realisation of the European dream. It should understand that it can not yet claim the whole history of the European idea for itself and that if it wants to do that, it needs to accept and respect that it cannot substitute the Eastern European dream by the Western European dream.

Europe is a heterogeneous construct. It is heterogeneous not only in its cultural, historical and lingustical aspects but also in the very ideas that form the foundation of the construct itself. Trying to create one unifying narrative for the history of the principles and ideas of Europe should be understood the same way as would any attempt to create one single culture or language for the European Union would be understood.

Now, going forward, the European states are trying to fall back on principles everybody could agree on. Then the European Union would become a Union to encourage growth and to stop wars in Europe. That in itself are important goals and righteous causes but it leaves behind the people, the culture and the European dreams. As in ecumenical discourse falling back on general terms that everybody can agree on is robbing religions of their core characteristics and will leave everybody dissatisfied. Europe, as Religions, must find a way of discourse that incorporates differences rather than ignoring them.