Hi Arthur, At 08:40 01/02/02 -0500, you wrote: (AC) >Somewhat correct with the following assumptions: > >That countries produce according to their resource endowment (the wine and >cloth argument from Ricardo vis a vis Portugal and England)
Yes. This would have a direct relationship with high efficiency, or "low opportunity costs" or at "purchasing parity" as economists are wont to say. (AC) >But in the networked knowledge age we find that resource endowment is also >intelligence and knowhow and economies can develop in ways that wouldn't >have been guessed, given their natural resource endowment. Consider >Singapore or South Korea. The latter doing very well in ranges of >technoology intensive products. Or India with its software industry. Yes, indeed. A very good point. 'Clustering' (or the 'Silicon Valley' effect). I thought of mentioning this in my original message but decided not to for reasons of brevity. (Purely as an aside, it's going to be interesting whether China is going to be as good at software development as India has been in Bangalore. I was reading some weeks ago in the FT that several delegations of Chinese politicians and academics have been to visit some of the large software firms in India [and aparently being welcomed!] -- obviously seeing whether they could transplant these sorts of operations in China. Also, I've read that Microsoft is setting up a research outfit in China.) (AC) >And >what would Keith's outline tell China: do what you have always done, play to >your resource strengths and leave high tech to the west? Well, if they're going to do what they've done so far (say, since 1850 or thereabouts when they had a well-developed, though small, steel industry) then I doubt whether they'd improve on the standard of living of the west, no matter how well they lifted themselves up by their bootstraps. But I imagine that they aspire to improving on our standards. So I'd guess that they'd want to take PC and software production (for example) as far as they could take it (which they are doing, of course) in case they prove themselves superior to, say, Silicon Valley or Singapore. Besides any number of innovative sideshoots could possibly spring up from the PC which we can hardly guess at at the moment, and they wouldn't want to be left behind if there are significant developments here. Also, China isn't terribly well-endowed with oil or coal resources. Altogether, I think we can expect startling developments in China. It has had a respect for scholarship going back 2,500 years to Confucius and an amazing capacity for innovation. Since Mao's Cultural Revolution has died a death China's universities have become transformed. I think we can see it scooping up Nobel prizes and innovating in a way that other Asian countries have not been able to do so far. (AC) >Also resource rich >countries can do quite poorly given internal commercial and cultural >considerations, viz., Argentina. Yes, the lack of an entrepreneurial culture is the thing that's held Argentina back ever since it entered the developed world economy with a whoosh on the back of meat and grain products. From 1850 to 1914 it became the fourth largest economy in the world, but once the meat trade took a bashing because of WWI its economy has declined ever since because it had nothing else to take up the slack. When one thinks of the length of time it took for all the necessary cultural and conceptual strands to come together before the Industrial Revolution took off in England (a couple of centuries at least) then implanting modern economic development in many countries is a great deal more difficult than envisaged until very recent years. Large World Bank projects can't succeed unless there's a cultural preparedness. This is the mistake that the WB and IMF has made hitherto. (I suppose it means that, more than anything else, education must be accelerated in many countries, before other scehems have a chance of success.) (AC) >The outline below offered by Keith is appropriate for a relatively fixed >pattern of natural resource endowment. Somewhat as the early British >writers saw things and appropriate too for their view of England vis a vis >the rest of the trading world. This is a fascinating point because it's possible that what we presently consider to be the natural resource endowment may change considerably in the next decade or two. Solar technology could transform the prospects of many barren countries. Keith >-----Original Message----- >From: Keith Hudson [mailto:[EMAIL PROTECTED]] >Sent: Friday, February 01, 2002 4:21 AM >To: Harry Pollard >Cc: [EMAIL PROTECTED]; Cordell, Arthur: ECOM >Subject: Economics as a science (was Re: Double-stranded Economics) > > >Hi Harry and Arthur, > >For the time being, let me take just one strand from your (HP's) latest >mail and attempt to show how economics can be used as a science. This will >never make the whole story at all times as we (HP and KH) both agree -- >human nature is also involved -- but the overall structure over the longer >term ought to be scientifically analysable *and* predictions made with a >high degree of confidence: > >At 12:48 31/01/02 -0800, you wrote: >(HP) ><<<< >You are right to separate the two strands. >However, my separation would be different. >The "science" you speak of I think is mostly mathematics. Mathematics is a >great tool, but is never better than its premises. And they are often >highly suspect. >These scientists have drawn around themselves a self consistent world which >is not part of the real world. (As is said, Arthur, to an economist, >reality is a special case!) >This is why they are completely unable to predict. >>>>> > >I will attempt to prove that the composition of world trade will be largely >predictable over the long term (that is, subject to temporary wayward >swings of, what Greenspan calls "irrational exuberance") . > >----- > >My five basic premisses are as follows -- the first two contributed by you >(with which I obviously agree). I think these premisses are reasonable but >I'm not going to attempt to justify these here: > >1. Man's desires are unlimited; > >2. Man seeks to satisfy his desires with the least exertion; > >3. Ricardo's Law of Comparative Advantage holds; > >4. As world-wide competitiveness increases, all national currencies (or a >single world currency in due course) will increasingly represent the >economic (that is, energy) efficiency of operations of supply of goods and >services in any country, region, city, whatever; > >5. As world-wide competitiveness increases, then the pattern of spending of >all customers on staple goods and services will become increasingly similar. > >-------- > >Proof: > >Let the world consists of two countries only -- X and Y. > >Let X and Y have similar standards of living and similar patterns of >consumer spending at a given instant. > >Let each country produce goods and services A,B,C,D,E,F,G,H. > >Let the efficiency of production of country X is in the order: >A,B,C,D,E,F,G,H; and that the efficiency of production of country Y is >E,F,G,H,A,B,C,D. > >Then, clearly, the standard of living of both countries can be maximised >when country X makes and exports A,B,C,D only to country Y, and country Y >makes and exports E,F,G,H only to country X. > >This can now be generalised to all goods and services and to all countries, >regions, cities and, indeed individual producers and consumers. > >Therefore: > >Given enough computing power, then the overall pattern of world trade can >be predicted. > >------ > >Now the above can't account for new discoveries and innovative goods and >services. But, given that important new ones come along now and again, >then, as soon as they become incorporated in one statistically valid region >(that is, one with enough consumers to give a sensible sample), then a >reformulation of future world trade can be arrived at. > >------ > >This has some important consequences: > >1. Maximising world trade is desirable for all; > >2. However, the shunting of production or service operations around the >world (say, on the basis of the cost of labour only) by individual >corporations with a narrow range of products is not desirable, nor stable, >over the long term. > >This is the valid core of the argument of the anti-globalisation protesters >and if they were to confine themselves to this point only then I would >agree wholeheartedly with them. > >3. Ideally, each country, region, city, of individual (any entity with >aspirations) should not copy the staple operations of others but should >maximise those operations which are unique to it/he/she (or to which >it/he/she is especially benefited by location, climate, etc.). > >Very good examples of the dangers of not doing this are those of the >'copycat countries' of Asia which tried to replicate the production of >consumer goods of other more established countries. They may succeed very >well for a while with temporary increases in efficiency, particularly if >they have a large domestic market, but unless they can show clear >efficiency advantages over the longer term then they're in trouble as >regards exports. Today, for example, Japan is not able to invest profitably >at the present time because its present production mix is too similar to >America's and doesn't seem to be developing anything which gives it a clear >comparative advantage. > >The lesson is that all entities should specialise in what they are already >particularly good at, or in the unique benefits which their region >possesses. (As the pattern of consumer spending becomes increasingly >similar, or aspired to, in all countries, this explains why tourism is >becoming increasingly important to all countries, developed and undeveloped >-- and speciality holidays even more so.) This isn't to say that they >shouldn't also produce what other countries are able to but this won't >increase their standard of living because they could import quite as easily >-- this would only be 'make-work'. > >Keith Hudson > > > > >__________________________________________________________ >"Writers used to write because they had something to say; now they write in >order to discover if they have something to say." John D. Barrow >_________________________________________________ >Keith Hudson, Bath, England; e-mail: [EMAIL PROTECTED] >_________________________________________________ > > > __________________________________________________________ “Writers used to write because they had something to say; now they write in order to discover if they have something to say.” John D. Barrow _________________________________________________ Keith Hudson, Bath, England; e-mail: [EMAIL PROTECTED] _________________________________________________
