## Friday, March 23, 2007

### Problems with Relative Economic Advantage

Andre Willers
23 March 2007

Synopsis :

Discussion :

A . First , What is Relative Advantage ?
An example will best illustrate the principle .

1. Countries England and Germany both need 100 spanners and 100 nuts per year .
2. England can make spanners at \$10 a unit and nuts at \$100 a unit .
3. Germany can make spanners at \$100 a unit and nuts at \$10 a unit .
4 .Costs of 100 units per country if each makes its own spanners and nuts :
England : \$10 x 100 + \$100 x 100 = \$ 11 000
Germany : \$100 x 100 + \$10 x 100 = \$ 11 000

5. Now let the countries trade .
This means that England makes 200 spanners only and that Germany makes 200 nuts only . They then trade : a 100 English spanners for a 100 German nuts .

6. Costs per country with trade :
England : \$10 x 200 = \$ 2 000
Germany : \$10 x 100 = \$ 2 000

7. Both countries end up with 100 spanners and a 100 nuts each , but the cost is drastically reduced because of the Relative Advantage
The both get rich by trading , even though England spends as much as Germany . Each need only spend \$2 000 instead of \$11 000 for the same things .

B . The Problems .
The devil lies in the details when applying this principle .

EG
Germany learns to make a spanner for \$1 . Now it does not need to trade . England can demand that it puts up a tariff of \$9 a spanner , otherwise all it’s spanner makers are unemployed .
Germany refuses , so they go to war .
Or it agrees to put up a tariff of \$5 , and England outsources its spanners to Germany , calling it a victory for globalization . The capital owners shift capital to Germany and make a much higher return than they would have at home .
Or England refuses to accept the destruction of its spanner industry and applies force .

The tariff adjustments by force are called wars of Empire .
Empires can be seen as mini-globalizations .

The outflow of capital from center to the high-return peripheries continues until some blip occurs . The owners of the capital ( who are the state or major movers in the state) then uses the state’s armed forces to iron out the blip . Sometimes this works , but sufficient reverses crashes the state .

These are typical wars of Empire . Bronze age , Babylon , Persia , Rome , Maya, Spain , Portugal , England , USA

In the process , the Empire’s workers are first impoverished , then driven below the breadline as capital flows to the peripheries . This translates that they cannot find a job , or if they can , it is a MacJob . A corrollary is an aristocracy of some kind . (The owners or controllers of the capital :apparatchiks ) .

A general illusion is that they never had it so good .

A more reliable indicator is physical health of conscripts . About a third of British Empire conscripts in WWI were simply incapable of physical combat due to malnutrition . The USA is in a worse situation today . Remember , combat capable these days means some measure of good nutrition in childhood and education . A far cry from the obese cripples a call-up in the US would get . The all-volunteer army would work about as well as Kitchener’s in WWI : in wars where you have to hold ground , numbers count . Hence the little problem the US has in Iraq , Afghanistan , Korea , Sudan , Germany , Japan ,etc .

In other countries it is even worse . RSA can scarcely field 10 000 troops . The rest of Africa is worse . Why do you think they use child soldiers ? This is the only capable pool still available.

But not only are the state’s proletariat in poor shape , they are politically unreliable as well . (The USSR collapsed so quickly because the conscript army refused orders to fire on the crowds : a political failure ) . Even professional armies (cf Roman Civil Wars) cannot be trusted .

If push came to shove , I doubt whether US National Guard would fire on their own citizens . Most of the mid-western states are already in a mild revolt . And they are all het up about blue helmets and black helicopters (ie mercs) .

Hence the Mercenary (Contractor) . At this stage of the political process , the relevant area is usually awash with highly skilled military contractors , who shift roles between soldier , mercenary and bandit . Condottieri , in other words .

They are the remnants of broken states and broken dreams . The rulers employ them instead of their own soldiers because they are more reliable if they are paid . ( by this time only the aristocracy has any money left .) Tells you a lot .

The difference between the Bronze Age collapse ( c 1400 BC) and the Roman Empire collapse (c 500 AD) is religion : These Dogs of War are pack animals and only want to belong . Their leaders have failed and betrayed them . Christianity and Islam gave them a structure to belong to , under reasonable control . The 99% depopulation of the Bronze Age collapse was ameliorated .

You can see the problem that is shaping up now .

And so it goes .

Marxism .
An interesting attempt to escape this trap . By abolishing private ownership of capital and , furthermore , controlling the movement of capital by central planning , the USSR hoped to escape the impoverishment of the center/proletariat .

In one of those ironies of history , the Gulags did them in .

The smartest and most creative elements of USSR society ended up in the Gulags , especially the techs . Here I include the closed cities , which were Gulags in all but name (ie isolated and segregated from the general population : the proletariat) . These Gulags acted like peripheries , where much greater bang for a buck could be obtained.

Hence , the capital of the USSR flowed to them , for exactly the same reasons as US capital is in a microchip plant in Korea or China . This impoverished the proletariat until they fell below the breadline and rebelled . It is immaterial whether the Gulags were defense related or not . As long as the benefits of the wealth created in them did not flow back to the proletariat , a revolution or mass genocide was inevitable .

The only out was the historical avenue of wars of acquisition , but the rickety shebang collapsed because they waited too long . The USSR would still be around if they had attacked Europe during the Carter administration .

The Gulag survivors naturally took over the new administration . (Mafiya and all)

Another irony is that the US fell into the same trap .
The Gulag equivalent is the military-industrial establishment . The remainder of private capital bribed a corrupt political establishment and promptly fled to shores with a higher return and fewer restrictions . Never mind that they belonged to their present and future enemies .

So both major powers are under the control of military-industrial systems (note , not their political systems) .

Sigh .

Does this remind you of something?

The later stages of the Roman Empire , that’s what . An Army with a state .

The military historically make notoriously bad rulers of states .
The military-industrial are worse , since they also incorporate short-term values with military inflexibility , paranoia and over-control .

The army can tell you to do it , the merchants can pay you to do it , but only the politicians ( and priests ) can make you want to do it .

The system is unstable , especially when their children start to starve .

China .

Mao tried to mimic Stalin’s success with the Gulags with the Great Leap Forward . It failed due to lack of capital and knowledge . But if you don’t succeed , try and try again .

The present system is another version of the Great Leap Forward .
Capital concentration was generated by restricting the birthrate . This capital was used for education and industrial processes . Note that this was a political process .

The only comparable processes I know of was the Black Death (1348) and the depopulation in the 1650’s that formed the basis of the pulse of wealth in the Age of Reason (1700 – 1800)

An unforeseen bonus was the capital influx from the West into the Eastern seaboard . But the system was already designed to channel domestic capital concentrations to the high-growth areas .

The acceptance of Western capital is a poisoned chalice .

The forced relaxation of emigration controls means that Chinese couples wanting more than one child , emigrate to places like SA . This is really happening . Even small towns in the platteland have one Chinese shop , then selected elements of the same family and other families in the village move in . They bring some of their families’ capital. This capital has a higher return than at home . This results in the the usual positive-feedback system . Multiply by millions .

This sort of diaspora has happened ad nauseam in history . None of the descendants retained any deep loyalty to the Old Country .

So , the capital outflow from China is small per capita , but there are a lot of capita’s . This is also free capital , not entailed to some short-term obligations . A collapse means that the proletariat at home will have really tough time , with commensurate civil unrest and emigration .

Factoring in environmental degradation , my estimate is that China as a state is extremely unstable , but that the Chinese will survive if any humans survive .

Is there any way out of this trap ?
Yes , but is it a trap ?
The roiling is uncomfortable for some , but everybody dies sometime .

Must unborn civilizations be sacrificed so the present ones can loll at ease ?

I see no reason to interfere in this process.

Wars.
From the above , you can see that globalization always precedes a period of major warfare and social unrest .

Some examples are the collapse of the Bronze Age civilization (a classic) , The Mayan Collapse (see Mel Gibsons’s “Apocalypto” for what it is like when everybody kills everybody else until only about 0.05% of traumatized survivors remain . )

See any Empire .

This is so common that humans have evolved institutions to speed up recovery from collapses : they are called organized religions , museums , etc .

See Pournelle and Niven’s Moties .

The principle is that altruism is necessary to kick-start the new civilization . Buddhism , Confucius , Christianity , Islam , etc , etc .

Our universe can be seen as a simulation in some super-advanced computer or the mind of God . At this level it is indistinguishable .

But we can say one thing about it : it is not supposed to be boring . (Else why bother?)
Whether God can be surprised is arguable , but any simulation , no matter how advanced , can give surprises .

Why this is so , see http://andreswhy.blogspot.com/ , search for “Bounded Universum”

If the simulation no longer gives the required degree of variety , it will be switched off or seriously scrambled .

I don’t want to say this ,but I have no particular choice . I am just a simulation .
As you might have noticed , the Author/Programmer is not satisfied . He wants more variety . You have 35 seconds .

Don’t you just love a God with a sense of humour ?

Andre