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Beating up on Ricardian comparative advantage

April 22, 2010

I’m currently reading Erik Reinert’s How Rich Countries Got Rich and Why Poor Countries Stay Poor. Immediate digression: part of why this book is notable is because the likes of Martin Wolf (Financial Times) said in the incredibly condescending manner typical of such pundits when speaking of critics of the neoliberal model, “Unlike much of the writing produced by opponents of contemporary globalization, [this is] a serious book, by a serious person.”

Anyway, after reading about 80 pages, my impression is that this is basically Ha-Joon Chang’s Kicking Away the Ladder (arguing that today’s developed countries are telling today’s developing countries not to do exactly what those rich countries did themselves to develop) but written with a keen eye towards the history of the discipline of economics. Reinert makes the argument that an entire alternate canon of economics, grounded in the German historical school, Schumpeter, List, etc, has been crowded out by neoclassical economics derived from Smith and Ricardo. This is nothing new if you’ve studied sociology, which in many ways carries on the traditions of the German historical school with a slightly different analytical perspective.

What’s fun is that Reinert is absolutely merciless when it comes to trashing Smith and Ricardo. I often find myself defending so-called global justice activists by saying things like, “we’re not anti-trade; it’s not like we’re saying ‘go to hell David Ricardo’ all the time.” The first part is true. Perhaps I should rephrase the second; after reading a bit of this book, maybe “Go to hell David Ricardo” is exactly what I should be saying. Right there in the introduction, Reinert says: “…historically the most important contribution of Ricardo’s trade theory was that, for the first time, it made colonialism morally defensible.”

Bang!

He elaborates later:

That a nation specializes according to its “comparative advantage” means that it specializes where it is relatively most efficient compared to another nation…. this theory creates the possibility for a nation to achieve a “comparative advantage” in being poor and ignorant. This happens beacuse the trade theory that forms the basis of today’s world economic order is based on nations exchanging identical labour hours – devoid of any qualitative features – against other such labour hours, in a system where production is absent. Ricardian trade theory sees a Stone Age labour hour on a par with a Silicon Valley labour hour, and therefore predicts that economic integration between these two types of economies will produce economic harmony and equalization of wages.

More later.

Flying Whale

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