National Specialization, the Virtuous Obverse of Protectionism (Part Six of a Series)

Luis, I, the Canadian farmer, Hans, and Pierre have all improved our productivity. We all earn more. We have increased our ability to buy anything at all, stuff, leisure, occupational training, or anything we want. We did this without working more than we used to. We have helped the world become richer. None of us, except maybe Pierre, has achieved any stupendous success. Even Pierre’s bold killing on the Chinese wine market ranks far below other successes we read about in the newspaper everyday. His success barely rates the local newspaper. It’s not Google, or Apple, or Craig’s List or even Fred’s List. It’s pretty conventional stuff.

We have all done this without cheating, without despoiling anyone, without doing any damage to anybody. Now think of what we have not done: I have not improved my technical ability; it’s doubtful whether Luis has done anything of the sort. In fact, it would not be absurd to argue that blowing leaves is more skillful than washing dishes. Same for the Quebec farmer. Hans may have augmented his training; he did it on the job if he did it at all, at the expense of his manufacturing employer. Pierre knows more than he did when he was still at his hum-drum government job. He learned what he learned under his own power, on his own dime, at no perceptible cost to anyone else. Here is the main factor that accounts for our joint improved production:

I, Luis, the Quebec farmer, Hans, and Pierre all stopped doing some or all of what we were doing badly and we switched to what we were doing a little, or much better. (“A little better” would be good enough.) All our moves were virtuous by conventional standards because we cut down on wasting our main resource, our time.

Now, what is true for this handful of people can be equally true for all kinds of economic actors, including business organizations. Do you agree? It’s a “Yes” or a “No.”

What’s is true of work time, is equally true of any other resource that goes into the production of goods. Again, it’s a “Yes” or “No,”

I mean by “good,” merchandise, services and anything else you can think of that people produce and that is useful to someone. Resources that go into production include money. The short version is this:

If you stop wasting you will end up richer and no one will, end up poorer. If you are richer you can buy more of what makes other people richer.

Do you agree with this triple statement. Again, it’s a “Yes,” or a “No.”

As you have probably noticed, if some people somewhere switch like I did, and Luis, and Hans, etc… at some point, some degree of what will approximate national specialization in production will emerge. Note the cautious language. (For the technically minded among you – if you are not, skip – “national specialization” is a gross approximation. It will be more a degree of real national specialization and/or (plus/or) natural regional differences. German apprenticeship education is a “national” feature; it’s the result of a narrowly national pedagogical tradition. The inclemency of Quebec ‘s climate to bananas is a regional thing. (It’s shared by the American state of Maine, for example.) I do not refer here to some sweeping movement of rationalization but to gradual, tiny, piece-meal steps in a certain direction.

Here is what will happen, in accordance to my story.

Fewer residents of the US will be washing dishes, and blowing off leaves, both generally low-paid jobs everywhere. As a result Americans together have become more productive and therefore richer. That’s true even if my actions and Luis’ are imperceptible. There is a possibility that some dishes will go unwashed. More on this latter. (I know I keep promising but I can’t risk losing the main thread of my main story.) By the way, Luis is an illegal immigrant. Don’t tell me you did not see that one coming!

The Canadian farmer is making more money growing raspberries than he was dairying. Canadians together are producing more organic raspberries, a high value product, but less milk, a low value product. In good logic, this is true even if a single Canadian makes the move. They have avoided -for the time being – the pitfall of growing bananas in the cold. Canadians collectively are richer than they were before, even if by a speck.

Technical note: Observe that whatever I mean by national specialization can be defined in the negative as validly as in the positive. “No bananas are produced in Canada” is exactly as much a statement about national specializations as “ Many manufactured products are made in Germany.”

Thanks to Hans’ move, more high-value manufactured products come out of German factories. Germans are richer but there may be a mini-shortage of sandwich-makers there. I will take care of this matter later, as I said.

Finally, thanks to Pierre’s ballsy enterprise, the propensity of the French to sell wine has increased, of course. What is more important, even more hot air is coming out of France for a price. Let me be clear, the three main categories of high-value products coming out of France toward other destination in the past thirty years do not include wine as such. They are railroad equipment, aircraft (Airbus, military jets) and hot air (Evian water, Louis Vuitton luggage, much unwearable high fashion, movies that no one understands, etc).

We are not going to worry about the government job Pierre left behind. Do you agree?

The world is definitely richer than before as a result of what I call crudely ”national specialization.” No one is worse off except, possibly as noted above in connection with unwashed dishes in America and a shortage of sandwiches in Germany.

National specialization is a relative term. It’s difficult to discern in large and developed countries. Americans make all kinds of stuff but not, as you know, television sets, flashlights, or much clothing. They turn out stupendous quantities of soybeans and cotton. American movies account for more than half the motion pictures profits in the world. The degree of national specialization of the US ( of American economic actors together) is not very high. (It’s much too low for my taste.)

In smaller or in less developed countries, the level of national specialization can be striking. The economic producers of the Ivory Coast, a small country on the west coast of Africa, produce cocoa and coffee plus some chickens for their pots and not much else. They don’t grow the wheat that goes into the French bread they eat every day, for example.

Should they? (This is a real question, a kind of ungraded quiz.)

[Editor’s note: Part 5 can be found herePart 7 can be found here]

16 thoughts on “National Specialization, the Virtuous Obverse of Protectionism (Part Six of a Series)

    • the day the price of cacao fell, Ghana would go bankrupt . that’s pretty easy. What seems an optimal specialization at moment t0, may turn out to be a locked up configuration at t1.

  1. Sukhov: As you say, extreme national specialization involves risks. Good example with Ghana. It’s still the strategy that maximizes wealth production. That’s all I am arguing. Once you have convinced yourself of this, you find that there are trade-offs. The least risky economic strategy is for a country to produce anything it needs within its borders. It’s the North Korean strategy. It guarantees poverty. My aim is to persuade that any departure from maximum specialization is costly. I don’t always optimize wealth production in my personal strategy. Sometimes, I prefer sleeping in. I must admit that there is a cost attached to this preference, no ifs and buts.

  2. Two observations: 1) optimization of personal wealth in a probabilistic environment does not necessarily imply specialization (take a very simple model with von Neumann Morgenstern utility). 2) nations are collective agents: what does it mean for them to maximize? maximize what?
    I would add another historical consideration. Ricardo’s own example of comparative advantage is the trade which was going on between portugal (exporting wine) and the UK (exporting textiles). significantly enough, in the 18th century, this very trade was considered the sign of the shameful submission of portugal to england. In this case, maybe the laws of economics were satisfied but portugueses were not. How to explain that?

    • First things first. I did not say anything about what is shameful, for a person or for a nation. I have no opinion on this topic.

      I tried to lay flat the classical, conventional argument against trade protectionism. I did it because I think economists have done a bad job of explaining this concept. The concept is at once very important and quite counterintuitive. Hence, my intervention. I see no reason to bring back Ricardo. Relying on Ricardo is one of the ways in which economists have been failing for two hundred years at this task.

      I find that nearly everyone is going too fast for me. Most of my students did. Most of my academic colleagues did. I think it’s important to avoid overestimating oneself, to go slowly.

      My inclination is to not even begin to think about shamefulness (see above) until I have other features of the issue pinned down. I mean by this, that I am not shocked when someone says, “I know what economic rationality requires, however, my pride….” Economics is not supposed to be a religion but a way of thinking about things that are both complicated and important.

      What is maximized when one hundred countries, or when my wife and I, act according to the principle of comparative advantage is the value of the joint production of the actors.

      The underlying reasoning is simple (but people seldom get it when you put it simply):

      1 If I stop doing what I do badly in order to dedicate my resources to what I do well, I will produce more;

      2 My stopping to do what I badly may (may ) require that others do it instead of me.

      The second statement implies roughly that the more actors are involved the more they will all be able to implement the principle in 1 above.

      Go back to my statement above about what’s maximized. I answered your question straightforwardly: adhering to the the principle of comparative advantage does not maximize individual wealth in and of itself.

      What you read is a short version of the answer to the question of what is comparative advantage. I am working on a series of eight or nine essays that does it in greater detail and more slowly. Each of those essays has the word “protectionism” in its title.

      Let me repeat myself: If the principle of comparative advantage said (IF): For wealth maximization, it is important that the US stop all petroleum exploitation on its soil, I would be the first to say, “Screw wealth maximization!” Are you with me?

    • No, I’m not with you. Wealth maximization the way you think of it (and many of the 19th century economists would have thought of) is an unrefined concept. 1)it doesn’t take into consideration even a very simple probabilistic environment: if you maximize lotteries or expected wealth, you will rarely see that specialization is so convenient, andyou could end up finding an ECONOMIC rationale for some protectionist measures. 2)let’s forget about ricardo, and let’s focus on a development argument: a country which maximizes wealth a t0 and wealth level A, by accepting to specialize in good X, may miss an innovation that would allow her to specialize at t1 in good Z at wealth level B>A. variety is more suitable for innovation than “national specialization”.
      That’s why I think that by going slowly you are actually erroneously oversimplifying. The result of your way of conducing the argument is that you end up with a wrong concept of what it means to maximize national wealth.

  3. Sukhov: I am always sensitive to “missed opportunity” arguments such as you seem to be presenting. I don’t know if you are not saying only that one should not put all of one’s eggs in the same basket. It’s an argument against specialization in general, against any form of specialization. If that’s what you are saying, I reply, “Sure thing,” It leads to the following kind of policy formulation: I would like to maximize income now (not “wealth”) but not at the cost of missing on some great opportunity to do even better at some point forward. Therefore, I will follow policies that sacrifice immediate income maximization to the enjoyment of some future hypothetical opportunity. I would not say that’s necessarily irrational. All kinds of departures from strict national specialization can make sense, including some sacrificing future income to survival, pure and simple. I just want those who decide on such departures to know, to recognize that it’s what they are doing. They had better be ready with a reason. In the real world, such recognition is rare. (I am reminded of it forcefully while I spend hours listening to the candidates in the French presidential campaign. There, this consciousness never shows up, NEVER!)

    If you are saying more than what I said about the eggs I would like to hear more of it. I think exploring such things is difficult because you seem to be attacking a doctrine that has stood the test of time, of logical reasoning , and of empirical testing. This does not mean that nothing can be done but that it’s an uphill battle. It requires treasures of didactic inventiveness, not off-the-cuff remarks between coffee and another class. Incidentally, your words seem (seem ) to indicate that you take what I wrote in there as my opinion or opinions. It’s not, not at all. My conceit is that I explain the counterintuitive and useful and very old concept of comparative advantage better than economics professors and their textbooks. When I was teaching MBAs, I used to meet students who had studied comparative advantage three times, in different classes, and still didn’t get it. Since some of them were obviously smart, I decided it had to be someone else’s fault. And I mean that they did not understand, not that they argued. That would have been welcome.

    Under your influence, I find myself sliding toward a discussion that is beyond my intent. I took the trouble to lay flat the doctrine of comparative advantage only because it is, for intellectually demanding people, a strong and principle argument against protectionism. The argument is much needed because trade protectionism is the natural position, the default option, of almost everybody in the world. Of the few who argue for open borders, in my informal observation, most do it for reasons beyond any sort of economic rationality.

    That’s a big enough battle horse for me. I don’t need another.

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