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PRESENTER:
- A big welcome to all you listeners tuning into Talking economics for the slot covering your questions. Let's have some input from young people – they deserve it, after all we have kept our social economics student hanging on the line. Are you still with us Pauline? Go ahead and ask your question...
PAULINE:
- Yes, it's about trade globalisation. Since it sometimes seems so complicated, why doesn't a country like France, for instance, just go ahead and produce everything it needs?
PRESENTER:
- Sarah, a quick reminder to listeners that you work for the European Institute for the Invincible Economy, what's your answer to that?…
SARAH SMART:
- As regards trade between nations, which greatly accelerated during the industrial revolution of the 19th century, work by the English economist David Ricardo during this period provides a partial answer to Pauline's question…
PRESENTER:
- I imagine that you're going to tell us about "comparative advantage" since Ricardo was the first to develop this theory, right? That's all a bit complex. Do you have an example to give us?
SARAH SMART:
- If you like. Well, imagine that you're a Nobel Prize winning economist and that one day you realise that you can type faster than your secretary. Would it be in your interest to change profession or for your secretary to compete in your field?! No, because you would both end up losers when it comes to comparative advantage.
PRESENTER:
- And the same is true for each country?
SARAH SMART:
- Yes, according to David Ricardo, it is in the interest of every country – even ones with the capacity to produce everything they need – to specialise in fields where their comparative advantage is the greatest.
PAULINE:
- But is it in a country's interest to specialise depending on natural advantages? Such as the climate and natural resources… ?
PRESENTER:
- Sarah Smart?
SARAH SMART:
- Yes and no. Of course, to begin with, it is in a country's interest to use its most obvious assets to its own advantage. But to develop its economy, it can also decide to specialise in new activities. This is the case for countries with a massive labour force such as China and India which, despite everything, are increasingly becoming specialised in high tech, like Japan and South Korea before them! The 2008 Nobel Prize winner for economics, Paul Krugmann, explains this development superbly…
PAULINE:
- But how do they manage faced with competition that is already stiff?
PRESENTER:
- Good question, Pauline, thanks for bringing that up…
SMART SARAH:
- Well these countries can use the good old strategy developed by the German economist Friedrich List in the 19th century, namely that of "educational protectionism". Some emerging nations have embraced it.
PRESENTER:
- So what's that all about then?…
SMART SARAH:
- Basically, while waiting to be in a position to take on the competition, the country develops a new activity while protecting it from external competition through taxes on foreign products for instance.
- But the country can also try to come up with different products. Competition also plays on the variety and quality, etc. not just prices.
PRESENTER:
- That all seems quite clear…Pauline, goodbye, other listeners are waiting…
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