Trade and geographical advantages

From Baripedia

Previous courses have questioned us on what explains the expansion of circuits, which explains that flows begin to cross borders, which explains what goods, tangible and intangible goods cross greater distances, why we have not remained to micro-local circuits as analyzed by Sahlins and Chaunu. There is a mystery in the phenomenon of expanding economic circuits.

There are different economic circuits, each with its own regulation system corresponding to different space systems, and there is a history of their expansion. The history of economic enlargement, the colonisation of the free trade triangle and a very Eurocentric history. There remains a pending question which is how to explain the expansion of the circuits? What and the factor and engines that pushed these economies to expand. The question is why open the circuits, why look for economic partners who are more and more distant? The question of distance arises with the idea that distance is both material and symbolic and that both distances are costly to travel. Physical distance is costly to travel until the transportation revolution has taken place. To cross the symbolic distance is costly and dangerous because there is no better way to protect one's identity than to refuse to exchange with others. The symbolic risk of trading with the other is risky because there is the risk of realizing that the other and myself, that he is not just another, but different. Another explanation is that the reasons for refusing to make a donation against donation or distribution with the other and for leaving another one otherwise he would no longer be another and we would form a community bound by debt. The market, the anonymity of the market, the instant satisfaction of the market aims that the other remains a stranger. In Sahlins' scheme, we hardly exchange with each other, also at Chaunu.

The material distance as well as the symbolic distance are very good reasons to refuse the distant exchange which is too dangerous, too expensive and too risky. This makes the answer to the question of how to explain the expansion of economic circuits all the more mysterious. Between the Paleolithic man or woman who lived from hunting and gathering and the Breton peasants in the 19th century who lived from agriculture and cattle breeding, the average number of kilometres of the economic circuits were the same.

There is no single answer, answers vary and vary according to three factors. What circuit are we talking about? 1] According to the places, the times, the types of circuits, the scales of the circuits, the reasons for opening these circuits are not the same. Depending on the players in these circuits, namely the producer, the consumers, they may have different but congruent reasons. The answers vary according to the reality of social and historical configurations. The theoretical apparatus[2] is at the same time the discipline, economists, anthropologists, sociologists and geographers do not have the same type of answer depending on the great paradigm of the theory[3] in which one is situated.

The first idea is that we distinguish two levels of explanation, namely what allows the exchange, namely the material component such as logistics and transport, and what motivates it to know why we invent means of transport that allow it to be moved. The hypothesis is that the logic of this motivation is ideological, even cultural. In geography, we not only explain why we are going to exchange with someone further away and why we choose one partner over another.

Non-economic explanations[edit | edit source]

Explanation to the expand circuits is not an economic explanation having nothing to do with profit. These explanations will be borrowed from the orthodox economy, but also from the economy at large.

The social link[edit | edit source]

The idea is that if you widen an economic circuit it is to create a social link with the distant and different partner that you integrate into your economic circuit. To reflect on this hypothesis, we must call upon game theory. Three types of games are considered: zero sum games, positive games and negative games. Most games are zero-sum games. A zero-sum game does not destroy or create wealth. Negative sum games go only at the end of the game, there is less money than at the beginning of the game, but in this case, what matters is the distribution of gains and losses. A positive sum game is a game in which there would be more money at the end on the table than at the beginning of the game. Games create wealth like positive sum games, games destroy wealth like negative sum games and zero sum games like zero sum games. The question is whether international trade is a positive-sum game, zero or negative? Does international trade create wealth, destroy it or change nothing? These three hypotheses can be found.

The problem is when international trade is a negative sum game, because the goal of trade is not profit. In the potlatch, all the wealth exchanged after the exchange is destroyed. This is proof that the purpose of the exchange is not in the exchange, but in the type of link that the exchange created. This explanation of the expansion of the exchange is very effective for redistribution and donation for donation channels that can go further to seek a partner to create social ties with him. Gift for gift implies and maintains primary social ties, the redistribution circuit sets up a community subject to a community. The authority that manages to expand the circuit increases its territory, the number of its subjects and the size of the community. Trade would be one way to continue the war by other means.

This may seem obvious for redistribution and donation for donation, but the market also works that way. The reason for the creation of the ECSC was not an economic reason, but to force the French and German partners to work together, to ensure that they knew each other, that links were created, that interdependencies were established and that a third world war was avoided. The market was instrumentalized, was the first step to create identity, international and diplomatic link.

The power[edit | edit source]

The social is never very far from politics and power. One can have a more negative and suspicious interpretation of this instrumentalisation of exchanges. The extension of the field of exchange has functions that are not economic, but these are no longer social functions aimed at creating bond, peace and symbolic proximity, but rather to consider that international trade is the continuation of war by other means by establishing the power of power and coercion. The gift is always a seizure of power just like the debt since one is debtor of the one who made credit.

The assumption is that the exchange does not produce wealth in a zero-sum game. If the game of international trade is a zero-sum game, if someone breaks this rule, it means there is a loser. If someone is delighted with international exchange, enriches himself through international exchange and promotes international exchange, it is equal and symmetry that someone loses money and power. From this perspective, international exchange is something dangerous because of losses, but since these losses are resolved in debt, the issue may be less in the negative economy of exchange than in the political dependence that exchange creates.

The risk of the exchange is in the situation of dependence in which it will put at least one of the two partners. This dependence is that of the debt and it is also in the fact that if we stop producing something and specialize in another field which is the guarantee of productivity gains, we become dependent on foreign countries. When this dependence is on energy or food, if imports cease to be provided, the very survival of the country risks being called into question.

From the mercantilist's point of view, this has two consequences. We must promote exports and reduce imports as much as possible: as soon as we export, we gain gold; when we import, we lose gold. Any import results in the impoverishment of the country in question. This solution is still optimistic in the sense that we think our country can win. If we think that is not possible, the only solution is protectionism. This idea was theorized by Litz who tried to propose a theory of protectionism. His argument is simple: England was the first nation to industrialize which allowed it to produce at low cost and good quality unlike France and Germany. British products were of better quality and cheaper than its competitors. In terms of competition, German industry had no chance of selling its production and developing. To guard against this risk and political and economic domination, Litz proposed closing borders to allow development in countries that were less advanced. That is the idea that there are times when we have to protect the national economy simply because it is not competitive.

The great promoters of free trade were England and the United States, which are the two countries that have successively dominated international trade. In the economic war that is international trade, it is the strongest that dominate. Countries that do not have the same productivity and do not offer the same products must close themselves off from international trade to avoid impoverishment and to prevent their industry from being locked into a primitive phase. There is always someone who benefits from the exchange, the exchange is always to the detriment of one of the two partners. The question is who imposes the prices and conditions of the exchange. In the exchange one partner is more powerful than the other and is able to impose his conditions. Exchange tends to increase inequality because it will contribute to the enrichment of the richest country and the impoverishment of the poorest country. On several occasions, international trade has been used as a means of exerting pressure. One example is the embargo on Cuba and the embargo on wheat imposed by the United States on the USSR following the invasion of Afghanistan. This mistrust of international trade and the dangers it entails legitimizes withdrawal and protectionism and also legitimizes block effects. This encourages exchanges with countries in which we have some confidence and distrust of those who are hostile. There is a link between political, cultural and social identity and enlargement. There is mistrust in the economic unions of the partners.

The pursuit of profit[edit | edit source]

The neoclassical model of the homo oeconomicus is the one that aims to maximize its profit and utility. International trade theory is one of the few non-trivial and fair economic theories. What Samuelson meant was that either the theories were trivial, but according to him there was an example which was non-trivial and relevant which was Riccardo's comparative advantage theory.

Smith: specialization and absolute advantage[edit | edit source]

The idea is that the more you specialize, the more you increase productivity. Between two countries that do a little bit of everything wrong and consume what it produces[situation A], two countries that specialize in a field and exchange their production[situation B], situation B is better: thanks to the production gains gained by specialization, total gains will increase.

Two countries, North and South, produce only wine and bread. Only bread and wine are produced and only bread and wine are consumed. Resources are fixed in terms of land, capital, labour, machinery.

Smith spécialisation et avantage absolu 1.png

Resources are allocated to produce the quantity 25 of wine and 50 of bread. If we want to produce 100 loaves of bread, we must allocate all resources to bread production and no resources to bread production. Conversely. The green line represents resource allocation opportunities. The "North" country has the choice of using all its production to make bread or wine.

Smith spécialisation et avantage absolu 2.png

The differences between the North and South countries have climate as a difference. The northern country has an absolute advantage in producing bread since by allocating its resources to bread production, it can produce 100, while the southern country has an absolute advantage in producing wine since by allocating its resources to bread production, it can produce 100. Both countries have the same size and the same amount of resources, the ideal solution is for each country to specialize in its absolute advantage. Each country will have to import and export to sell what it cannot consume and import what it cannot produce.

The quantity of 100 is the maximum quantity that maximizes the usefulness of the resources. Whatever other point is chosen, the total will never exceed 100. The maximum amount of wine and bread was produced.

For every production in the world, a country has an absolute advantage. According to Smith, each country should specialize in the field in which it is better than all others and abandon other productions. In this field where he is better than all the others, he will export most of his production, with the money earned, he will import the products he needs. Specialization produces an improvement in productivity. Any country that has an advantage in an area can participate in international trade and make a profit. The fact that one country does not have an absolute advantage and therefore cannot participate in international trade is a problem for that country, but also for other countries that cannot enjoy their absolute advantage because there are markets that are closed to them.

Ricardo: the comparative advantage[edit | edit source]

With Ricardo's theory, one country, the North, is better at producing both productions. The country of the North has two absolute advantages in the field of bread and wine, while the country of the South has nothing. Since the southern country is less good in both areas, it is difficult to see how an exchange could be made between the two. Under Smith's absolute advantage model, it is hard to see how international trade could get off the ground.

When we compare two comparative advantages, it is between two countries and between two activities. Any country has a comparative advantage because it is the area where the difference between productivity and that of the competitor is the best. There is one area where the difference is huge and one area where the difference is less. The comparative advantage compares two producers, two countries and two productions. By definition, every country has a comparative advantage. Any country, even the worst in the world, can participate in international trade because there is a production where it is a little less bad than the others. Every country in the world has the opportunity to participate in international trade.

If one balances the two theories that exchange creates wealth with Smith and Ricardo's theory, all countries can enrich themselves. Every country has a field in which it has an interest, to specialize in stopping other productions and exporting as bad as it is. With the money he will earn, he will be able to import what he has stopped producing, in total, at the end, production and consumption will have increased creating growth. Any country that participates in international trade experiences growth: this is the total increase in production, consumption, income, life expectancy, and everyone can participate. This theoretical idea has not been invalidated.

According to Ricardo's theory, opening trade is a very good idea because it will eradicate poverty in the world. This will produce wealth, because any country that participates in international trade becomes richer. Ricardo does not describe globalisation, does not justify it in retrospect, he is the reason why there is globalisation. It is because we believe in Ricardo's theory that we are implementing globalization. It is very important to say that Ricardo's theory has not been invalidated.

We must reason not as a comparative advantage of countries, but in terms of comparative advantage of firms. If Ricardo is not theoretically invalidated, he is totally empirically invalidated. No country has totally specialised in one sector, all the countries in the world have kept a certain diversity in production. The answer is that diversity is counterproductive and meets other objectives such as the argument of food self-sufficiency. We are in a difference between a realistic epistemology that describes how things are done and a theoretical vision. Recently, another element of criticism has been opposed to Ricardo's theory and to the development of international trade, which is the two-pronged ecological issue of transport [1] that translates into a huge energy cost, but also a cost in terms of ecological borrowing, in ecological terms, a diversified economy is more fragile [2]. Ricardo's theory is not about profit sharing. To the question of how wealth is shared, the answer is not necessarily economic, but it can be political. If we can accept that globalization produces wealth, we must ask ourselves where wealth goes. If one finds an impoverished partner in the exchange, it does not invalidate Ricardo's theory, which would invalidate Ricardo's theory is that three quarters of the partners have not become rich. A distinction must be made between global enrichment and individual enrichment. There is no doubt that global production has increased, there has been growth, but that does not mean that all countries are getting richer.

What comparative advantages[edit | edit source]

As a geographer, we must ask ourselves how wealth is shared, what is the nature of these absolute advantages, which country has what advantage, is there a geographical logic, are there distribution models? We need to look at the nature of flows in order to look at the reality of trade between countries.

The case of exchanges of unavailability[edit | edit source]

Many of the early economic exchanges were for products that one of the two trading partners was unable to produce. An exchange of unavailability is when one of the two countries imports something because it is unable to produce it. An exchange of unavailability involves natural resources because what defines a natural resource is that it cannot be produced. The absolute advantage is very clear: one has the resource or one does not.

Geoeco principaux flux pétroliers 1.png

With oil flows, we either have resources or we don't. The arrows go from countries that have deposits to countries that do not. Yet it is also important to have significant resources and to import them like the United States.

This map reflects a geology of oil basins and consumption areas.

Exchanges of unavailability do not only concern natural resources. There are things you can't produce because you can't or because you can't produce them. For products with very high added value, very technical products, you need very complicated machines, very well trained people and know-how. This highly skilled workforce is not everywhere. Just as there are pools of natural resources, there are pools of skilled labour and skilled labour. Basically, high value-added industries of very high technology cannot leave the grey matter basins. Very high-tech industries will remain in certain basins. Just as the oil well must remain on the oil basin, the very high-tech industries will remain on the grey matter basins. The most profitable productions are those based on these deposits. In a sense, we are faced with unavailability exchanges, because many countries do not have the skilled labour to produce technical goods with high added value. The issue of very high qualifications applies especially to the invention and early life cycle of countries. The problem of grey matter deposits is not about the production of something, but rather about innovation. A third factor of the exchanges of unavailability will intervene which is the question of patents. These are situations where unavailability is maintained by production patents.

For certain products, for always specific reasons, certain places manage to acquire a monopoly. The only country capable of exporting its films all over the world is the United States with Hollywood. Films are governed by an exchange of unavailability. With the question of exchanges of unavailability, there is an explanation for a whole series of flows that are not necessarily raw material flows.

Ricardians and neo-Ricardians: HOS, product cycle, demand[edit | edit source]

Ricardo does not deal with the absolute exchange which is an exchange of unavailability, but deals with comparative advantage. In Ricardo's theory, we export what we specialize in and import what we give up. For Ricardo and for Ricardians, the choice of specialization and therefore of exchange, of a direction of exchange and international flows depends on the countries' predispositions before the exchange. What are these country predispositions?

For Ricardo, the answer is simple, what counts is the unit of work. He reflects on productivity differentials that he calls "labour value". How do we explain the difference in labour productivity between the north and the south? A first set of factors would be natural resources. Another assumption is that comparative advantages are linked to certain particular qualities of the companies in question. Nevertheless, there is a risk of reasoning according to a tautologism. Samuelson, for example, postulated that the advantage of tropical products to produce tropical products and tropicality. We should rather ask ourselves what tropicality is, what is the quality of a society that makes it less disastrous or better than others in a production.

This outstanding issue is the question of explaining comparative advantage. If it has not been asked by Ricardo, economists will try it.

The first model is the Hecksher-Ohlin-Samuelson model. All countries have three types of factors, namely land, capital and labour. In other words, land is linked to the size of the country, capital is linked to its wealth and work is linked to its labour force. Each country has a particular configuration. For each production, these three factors are needed. Just as these three factors are present in all countries of the world, but in varying proportions, these three factors are necessary for all productions, but in varying proportions. For each production, a percentage of these three factors is required. The best thing is for a country that has a certain proportion of factors to choose a production that corresponds to the proportion of factors that it values well. Predisposition is factor endowment. But where does the capital come from?

Théorie de vernon 1.png

Vernon's theory is also called product cycle theory. Vernon is attentive to the link between innovation and industrial development.

Every product goes through three phases: an innovation phase [1] which is the moment when the product has just been created, a trivialization phase of the product [2], an obsolescence phase [3]. For each moment of the product life cycle, there will be a product that will take the initiative. This corresponds to factor allocations. The industry at different times of novelty or commoditization of products has as its natural place in different places of the world. Each of these moments does not produce growth in the same way. Innovation produces a lot of growth and spinoffs, it declines according to the phases.

Linder's theory presents the interest of changing perspectives because for him comparative exchanges are not linked to the quality of production, but he has consumption logics. Comparative advantages are demand-driven.

OMC avril 2003 1.png

Ricardo's theory justifies free trade and globalization. This is a huge challenge for poor countries because it guarantees them access to the international market and the opportunity to enrich themselves. If we compare the map of exchanges with the theory of international exchanges, there is something striking: the major part of exchanges on a world scale are intra-branch exchanges which are configurations where exchanges are symmetrical bearing in both directions on the same products, on the other hand, rare are the specialized countries.

Increasing returns and comparative advantages[edit | edit source]

We will discuss two important challenges to the theory of comparative advantage. The first, which is the increasing returns and comparative advantages, is a challenge within the liberal economy model, but loosening a hypothesis of pure and perfect competition. The second pole of protest is outside the neoclassical economy in ways of working on the economy inspired by Marxist and neo-Marxist models under the name of alterglobalization.

The theory of comparative advantage seems to work very well then for what to look further for challenges or alternative explanations. While Ricardo's model seems theoretically very attractive, empirically and practically it seems to be contradicted by several realities concerning the development of international trade:

  • Most trade is intra-industry trade: it is trade where two countries exchange only comparable goods, which is not compatible with the idea of comparative advantage and speciation as Ricardo predicts. Most exchanges are North - North exchanges and not North - South exchanges. There is more exchange between countries that are similar than between different countries.
  • countries are far from specialising: the fact that large economies with a very liberal view of the market and the economy do not lose this specialisation tends to prove that there is something else.

Krugman's hypotheses, in particular, do not completely call into question the theory of comparative advantages, but allow us to look at it in a different way, whereas on the other hand, anti-globalization critics question the comparative advantage.

The problem of increasing yields[edit | edit source]

Paul Krugman is not a geographer, he is a geographical economist and part of the New Economic Geography movement. It is more a question of geographical economy than economic geography. Krugman is part of a practice of economic geography with figures and hypotheticodeductive models. We are not in a realistic epistemology, but in a normative epistemology. He was advised by the Democratic administration and won the Nobel Prize a few years ago.

Krugman will revisit one of the assumptions of the liberal model which is the assumption of pure and perfect competition. For the law of supply and demand to work to obtain an equilibrium price, a number of conditions must be met, including the condition of pure and perfect competition. States that support the market will implement laws to support this theory of pure and perfect competition. For there to be pure and perfect competition, producers must disagree on price and be equal in the confrontation of supply and demand. For Krugman, it doesn't work that way. It is always interesting after the model is built to introduce other factors to see what impacts they have on the results.

He will ask himself what is happening by reinjecting a factor wondering what is happening for pure and perfect competition when there are increasing returns. Increasing yields is a configuration where productivity is correlated with production. The production cost of marginal units is decreasing. The more you produce, the easier it is to produce the last unit produced. In economics, it is a system which prevails, the productions are generally characterized by increasing returns. This is not to say that increasing returns are infinite. The reason why all the world productions of a product are not concentrated in the same place is because at some point the yields become decreasing, i.e. the production of an additional unit will cost more. The curve is a bell curve with an increase in yields has reached a certain level, yields are decreasing.

As soon as there is a situation of increasing yields, this means that large producers have an advantage over small producers. By spreading the savings produced from the production of marginal units over the whole production, large producers can put goods on the market at lower prices than small producers. So we buy products from large producers, not small producers. The situation of competition between large and small producers is not pure and perfect.

The problem is that you don't become a big producer instantly. The question of increasing returns is that of time. It is a production that will increase until it reaches the threshold where yields become decreasing. Competition is pure and perfect as long as you keep your prices low enough. The conditions for a producer to appear on the market and compete are related to competition, diminishing returns and the cost of market entry. A new producer entering the market will have to invest at a loss for years. There are situations where no one can enter the market because of increasing returns. These are situations conducive to the cartel situation. This mass production advantage is linked to the early market entry of the first producers. Increasing yields lock in comparative advantages over time. According to Krugman, productivity is good in products that produce a lot and for a long time. Because of time lockout, increasing yields are not only an advantage for large producers over small producers, but also for older producers over new producers. Countries that specialized relatively early in a product, that experienced the Industrial Revolution relatively early, that were able to produce en masse and cheaply, flood international markets with cheap products stifle the potential development of countries that later woke up. In addition to a question of speed, there is a question of acceleration since the more you produce, the more formidable you are for the competition.

The countries that will have a comparative advantage are the countries that have started to produce before the others. For Krugman, the comparative advantage is early age. This means that we completely reverse Ricardo's model for which a country had predispositions for this or that production and, depending on the predispositions, it has a comparative advantage that will direct it towards specialization and export. For Krugman, it's the opposite. A country will specialize in a production, it produces massively, has increasing yields and acquires a comparative advantage over its competitors. At Ricardo, comparative advantage is the cause of specialization and international trade, while at Krugman, comparative advantage is the consequence of specialization and international trade.

For Krugman, there is also a lock in the comparative advantage space. Industrial development is contagious by a kind of spatial diffusion around innovation poles. There are phenomena of spatial concentration. The development effects will affect the more or less immediately surrounding space, but will not cross the entire country. The distance brake will spatially lock the comparative advantage. A place where industrial development began before the others will have because of the comparative advantage locked in time an increasing yield and a comparative advantage over the others and spatial locking will induce a tightened development around this place which will become an industrial region.

The locking of comparative advantage[edit | edit source]

There are a lot of problems with this theory. The theory of increasing returns sets up virtuous circles, but also vicious circles. For Krugman, "rich countries are rich because they are rich, and poor countries are poor because they are poor. Rich countries have experienced early development with increasing yields and preventing poor countries that have not yet industrialized from entering the market. It is very difficult for emerging countries to fight against the effects of increasing yields, against the effect of the accumulation of wealth in rich countries.

Krugman sets up a kind of fatality of development: it is in the nature of rich countries to be richer and richer by an accelerating effect and it is in the nature of poor countries to be poorer and poorer by the effect of deceleration and vicious circles. One criticism is that a slight inequality will widen a gap by accelerating. In the 16th century, on a world scale, there was no development differential, there was the same level of GDP for all countries. In the 17th century, a differential began to develop with the countries that experienced the Industrial Revolution. The induced gap was in its nature to widen because of increasing yields and the locking in time of comparative advantages. The wider the gap, the more reason it has to widen. There is a divergence effect. This system contradicts the idea of pure and perfect competition. Perhaps pure and perfect competition existed at the beginning, but if, as time went on, the difference created accelerated over time. Why comes a time when divergence sets in?

The problem with increasing yields is that it promotes a divergence between rich and poor countries. The second problem is that it was relevant to Ricardo's reasoning that there were ante-economic situations that constituted predispositions on which an economy could base itself according to its predispositions. It is a beautiful chain of cause and effect and deterministic, that is, each effect is linked to a cause. For Krugman, whatever the sector in which we specialize, thanks to the increasing yield, we will gain an advantage over the competition. The reason why we have become the best is not related to predispositions, but to early initiative. Whatever the sector in which a country specializes, it will succeed if it specializes faster than others.

History vs. anticipation[edit | edit source]

These two consequences are two problems because it is very unsatisfactory for the mind to arrive at tautologies. On the other hand, it is frustrating not to explain why a country has specialized in a field. Krugman will try to find an explanation. He'll find two explanations:

  • historical explanation;
  • effects of anticipations.

He developed an example through the story of Catherine Evans. In 1895, Catherine Evans Whitener gave her sister-in-law a bedspread. In 1900, she sold a bedspread for $2.50. In 1917, she founded the Evan Manufacturing Company in Dalton. Will create a lock in time and space of comparative advantage. In 2002, 80% of the American carpet market was supplied by spinning mills less than 100 kilometres from Dalton in Georgia, creating a development centre. It's a story with a small cause and bigger and bigger effects. There is a disproportion between effects and causes because there is an effect induced by increasing yields. These explanations are not. These are phenomena that refer to the theory of chaos, i.e. moments when it is difficult to ascend from a present situation through cause-effect links through a triggering element. Without doubt, for all the major industrial regions, it is possible to find an element that made it start. All these elements that are given are necessary, but not sufficient conditions. This is what Krugman calls the historical explanation.

Explanation by expectations would be self-fulfilling prophecies which are an assertion which induces behaviours likely to validate them, i.e. a statement, a description, an assertion which one believes to be true which will induce behaviours which tend to make it true. These are moments when you think you're describing reality while you're making it. In other words, these are times when you think you are describing a situation while producing it. Self-fulfilling prophecies have been much studied in the case of economic crises that are often based on self-fulfilling prophecies. In some cases, prophecy is only fulfilled because it has been announced.

Anticipations have an effect on the future. In a way, the future is the cause of the present, because it is expectations that construct reality. Not all prophecies are self-fulfilling, there are also suicidal prophecies. Without doubt, all our expectations have an effect on the future. Our projections do not describe our future, but help to determine it. Our vision of the future plays a role in what happens to us. Some countries would at times have had a vision of the future and have embarked on a vision that has come true, while in other cases it has not.

The two scandalous explanations proposed by Krugman, the first, which is the historical explanation, is scandalous because there is such a disproportion between causes and effects that we cannot be satisfied with it, and the second, which is also scandalous because of expectations, not really because of a disproportion, but because of the idea that it is basically random. The two explanations are not contradictory. We are not in a configuration where we seek to explain the economic success or failure of predispositions, but seek to explain by the action of the actors. With this approach, we remain within the framework of neoclassical thought and Ricardo's theory.

(Neo)Marxist and Alterglobalist Contestations[edit | edit source]

If international trade is not a positive sum game, then there are reasons to be wary.

Marxist and Neo-Marxist Criticism[edit | edit source]

The theories of imperialism of Luxembourg and Lenin are the idea that the class struggle observed within a society is reproduced on an international scale. Just as in a society there are bourgeois, workers and proletarians, internationally there are bourgeois and proletarian states. The capture of profit by the bourgeoisie against the proletariat is found at the international level between bourgeois and proletarian states. Typically, this dimension of imperialism operates within the framework of colonization. The relationship of the colonists to the colonized is of the same nature as the relationship of the bourgeoisie to the proletariat, which is expressed in dialectical imperialism and in the appropriation of the means of production. This interpretation is in terms of looting resources in international trade.

It makes no sense to talk about a proletarian nation or a bourgeois nation. However, one can imagine that one could explain the enrichment of the European bourgeoisie by the exploitation of slave labour in the colonies as with the great bourgeois women of the coastal ports of France or England who were enriched by the trade in "ebony wood" and plantations. In this case, there would be a European bourgeoisie enriched by the exploitation of the proletarians based on the idea of a different "race". It is important to keep this in mind when thinking about quarrels over offshoring and trying to interpret it in Marxist or "left" terms.

The second theory is the terms of trade deterioration theory. Rather, we need to talk about the hypothetical deterioration of the terms of trade because there is a vast literature that is debated. The terms of trade are the relative prices of exported and imported materials. Manufactured products manufactured by rich and industrial countries tend to be more and more expensive, while raw materials, natural resources and products from southern countries tend to be less and less expensive. In other words, poor countries must export more and more to import the same quantity of products while rich countries exporting the same quantity can import more and more. For poor countries, there is a deterioration in the terms of trade. The imports of some do not make it possible to pay for the exports of others, widening the trade deficit of the countries of the South and reducing their possibility of investing in order to develop.

The theory of terms-of-trade deterioration is interesting in that it suggests that pricing may depend on something other than supply and demand mechanisms and also has power effects. It has another interest because it challenges the idea that there would be a fair price. There is the idea that for natural resources, it is very difficult to establish the price, the cost of exploitation, the demand, but it is very difficult to take into account the cost of their disappearance. It is difficult to account for the fact that future generations are being denied access to them.

The third part of these Marxist and Neo-Marxist theories first put in place by Amin and Wallerstein is that one can revisit the theory of imperialism in terms of relations of dependence. The former colonial powers, the triad countries with North America, Western Europe and East Asia in particular Japan, constitute centres in an economy that polarises flows and monopolises profits to the detriment of a poorer periphery to which productions of lesser economic interest are abandoned or are exclusively areas of resource extraction and between the two trade is unequal. There is a geopolitical and economic interpretation of these relationships that balances the accumulation of wealth in the centres against the peripheries. There is a heavy burden with the idea that independence and then international trade did not put an end to what would be colonial looting, but pursued it under other means.

More recently, the theory of the new international division of labour has emerged. This theory consists in saying that comparative advantages, Krugman's theory, explains the specialization of everyone's participation in international trade, but that not all specializations are equal. There are specialisations that are interesting economically, socially and politically, giving power to generate a lot of profit, to invest more and which have important positive effects in terms of diffusion and employment multiplier. There are other economic choices that are less happy because they provide less power, allow less profit and then their collateral effects are few and limited with little local impact on development opportunities.

Among the activities in the first category, there are activities with high added value and high technicality which have important induced effects, i.e. they are drivers of development. These activities have multiplier effects which mean that a job created in high technology will feed a whole employment chain downstream and upstream with a very positive effect on growth. These are highly qualified, innovative activities that produce added value and growth, and have a low ecological impact, making it possible to maintain a high quality of life. On the other hand, there are heavier activities focused more on material products than on information, which damage and exploit the environment and pollute a lot, calling on a low-skilled labour force engaging in repetitive activities with little effect on innovation, which is fragile and generates little added value, profits and has a low multiplier effect and little effect on development.

The idea is that the distribution of the two types of activities is not by chance, but that the countries of the North and the Triad have confiscated the most lucrative and developmental activities and have abandoned to poor countries and countries of the South the least economically interesting and most environmentally damaging activities. The West and the triad would have abandoned manufacturing and heavy industry, the big chemical and steel industry, which are polluting industries without much growth, while universities, research centres and higher tertiary activities are developing in the North, which will pay well for skilled work and in a "pleasant" living environment because they have been cleaned of the negative effects of heavy industrialisation.

The theory of the new international division of labour will distribute comparative advantages to each other not really according to local predispositions, not really according to historical conditions or expectations, but simply on power effects that make the most powerful and richest monopolize the most interesting activities. We are in a Marxist and imperialist theory because we see the international division of labour as reproducing what exists within a country with confiscation effects. Globalisation is no longer a positive sum game, but rather something from which we must protect ourselves. We will fall back on Litz's theories with the temptation of protectionist retreats which consider that there is an offensive in international trade and consider that it is necessary to defend the territory and establish protections against the commercial aggressiveness coming from the countries of the triad.

Alterglobalization Criticism[edit | edit source]

The idea is that globalisation results not only in an extension of the geographical market area, but also in an extension of the economic market area in the sense that new countries are entering the field of international trade, but also in each of the countries concerned, new areas of social, economic and cultural life entering the field of the economy. We see it at the scale of the late twentieth century and early nineteenth century, a lot of sectors were privatized, absorbed by the market, more and more institutions that are not market domain will start to reproduce the functioning of the market, starting with universities, museums and hospitals. The problem is to transform goods that can hardly be considered as such into economic goods. A good example is the issue of natural resources and the environment. In the idea that the capitalist market and production system is the most efficient, one can understand that one prefers to entrust the exploitation of a coal mine or an oil exploitation to a private enterprise rather than to do so to a state enterprise because productivity and economic efficiency would be better in a private enterprise than in a state enterprise. This is what the recent economic history of the 20th century tends to demonstrate. The problem is who owns these natural resources.

They came out of the ground by a company, so they are production costs linked to exploitation and it is normal that production costs are reflected in the price of the raw material. It is hard to understand why a private company would have the right to exploit a deposit that it does not own without somehow paying for that resource. If we reason in purely mathematical terms, the cost of exhaustion is infinite. It is difficult to imagine the cost of depleting a resource for future generations. This is something that is very difficult to count in the economy. It is also very complicated to take into account the issue of pollution in the market. The clearest and most normal situation is that the cost of the population is outsourced, paid for by society and rarely by the manager. When we are faced with natural resources that are goods that are not produced by their operator but captured by their operator, economic reasoning and the market present operating difficulties and shortcomings. To put it another way, if you discover a natural resource, economically speaking, the logic is to get out of that resource as quickly as possible. What is at stake for society is essential. These are goods for which abandonment to the market poses a whole host of problems, but with solutions such as the polluter pays or the annuity system, but they are non-market solutions. Another example is human rights. Labour is a market with a supply that is that of workers and a demand that is that of their employers. We could abandon the functioning of the market to the laws of the market, but this is not acceptable because we cannot separate the worker from the worker. Human rights contradict the labour market at one time or another because the body, the person and the work they do cannot be separated. Once we consider that a certain number of human rights are inalienable, this will weigh on the labour market. We cannot let work be regulated by market rules. This leads to the fact that we will end up confusing work and the worker and that we will sell not labour, but labour power. Typically, allowing work to be regulated by the market would caricaturally lead to slavery. In many countries, work is a sector that we will try to protect from market rules. This would be a superior rule that could not be regulated by the supply of law and demand.

In our societies, there is the idea that the market is suitable for some economic goods, but not for others. The problem of globalization is not simply the entry of new countries into the economic circuit of international trade, but also the fact that the market is eating more and more into economies. There is the temptation to defend borders, but also to say that certain areas of the economy do not want to participate in international trade. What can be presented as a form of Marxist archaism and as an "old leftist" reflex against globalization can have more sophisticated forms and is not alien to current practices. The first to refuse that the market saturates the economic space are the great liberal powers. We find the idea advanced by anthropologists of the gradient of exchange with qualities of exchange that degrade with gift for gift, redistribution and the market.

There was a rather caricatured dimension to this representation. Obviously, in reality, this is more complicated because these economic circuits presented as being truly independent of each other, either the redistribution, or the market, or the gift of which well, there are areas that are somewhat blurred. Among the alternatives that are offered to the market, it is not necessarily Soviet redistribution or donation against it, but there are also solutions that are found in the market, in a certain market, at the limit of the market, in accommodations vis-à-vis the market.

How long is a share currently held by its owner on average? 14 seconds. On average, a share is held for 14 seconds, and it is clear that something does not go round because the shares are normally directly taken into account in the real economy. Behind, there are offices, a factory, a boss, a CEO, a board of directors, workers, customers, machines, but also stocks. We feel that 14 seconds makes no sense if we are in two completely immeasurable orders of magnitude. These movements are purely speculative and have no direct connection with the real economy. This means that, as many natural persons keep their action for years, there are automatic systems of actions where they are kept a few hundredths of a second. There is a measure of this disconnection between the real economy and a form of visualisation of financial economics that seems very worrying. We understand how destabilizing it is for the economy not to be able to count on investments longer than 14 seconds. We also understand how disastrous floating capital is for the real economy. This is capital that is invested only very temporarily in a place in a country and which, as soon as the slightest hint of a crisis emerges, this capital leaves. This has a self-acting character of these financial revisions. We say to ourselves that in all this, we should put all friction. Any transaction tax would stabilize capital. If there are taxes that hinder repatriation and the floating of capital, perhaps when a small temporary difficulty occurs, the capital will remain and these difficulties will be well digested. It takes friction to match the temporality of the real economy with the temporality of the financial or virtual economy to prevent people from selling their shares every 14 seconds. A tax operates this brake. A tax is like a brake in space and time. It is a solution that both stabilizes the system and then punctures a little in the market to feed a redistribution circuit.

Another alternative intermediate solution is fair trade. Small parts of fair trade are not really managed by the market. It's roughly market-driven. It is "me" who spontaneously agrees to pay 5%. This may sound like a gift. It is a sort of irruption of giving versus giving in the market so the two systems can also coexist.

The end of the story is also the idea that we have emerged a bit from ideologies with the Marxists on one side and the Liberals on the other, and that there is a certain pragmatism in behaviour with a certain hybridization in behaviour and that we can find solutions within the market to warn ourselves about the market. The conclusion is that the market is something that everyone wants to regulate.

Galaxie altermondialiste.jpg

The galaxy of the alterglobalization, that is, there are dozens of different organizations that intervene with different ideologies such as, for example, against the WTO, against the World Bank, against the G7. What is interesting in this diagram with the idea of the galaxy is that the contestation of the model of globalization is done in many different planes with many different logics and then different actors.

Conclusion[edit | edit source]

When we think about the geography of trade and globalization, there are far too many markets while there are other economic channels such as redistribution and giving for giving. If we look much too much at international trade when most trade is done locally in quantity, there is a presbyopia that prevents us from seeing what is essential and what is happening over very small distances and that does what is done over thousands of kilometres between borders and that is in fact a small part of economic exchanges.

The second important note is that Ricardian theory and comparative advantage theory is at the heart of all this. It is an incredible ideological force in the sense that this theory justifies liberal ideology. The essential argument and aspect of this theory of comparative advantage is that all countries can participate in international trade and that international trade is a positive sum game. This does not address the issue of profit distribution.

The third point is the idea of the effects of increasing returns on the spatial and temporal locking of comparative advantage with the idea of reversing things and not thinking that comparative advantage and predisposition to international trade specialization thinking that comparative advantage and result. The fourth is of importance, an empirical denial, is the question of North-South relations. The geography of international trade which is marked by this North-South divide is inexplicable in the case of comparative advantage theory.

The fifth point is that all these debates on international trade are very old debates. As early as the 19th century, there were many debates about free trade, particularly Litz's theory. The debates today on globalization are not new because globalization is not a new phenomenon and the arguments are always the same.

Ricardo's theory of comparative advantage promises the specialization of international trade, but also promises development, that is, that all countries that participate in international trade will experience development and become richer. One of the denials to this theory is that there are still poor countries that have been involved in international trade for years.

Annexes[edit | edit source]

References[edit | edit source]