Tuesday, May 15, 2007

Comparative Advantage

So I’ve been reading a lot lately on trade topics - especially fair trade. Many people buy these products hoping to make this world a better place, while lifting a weight off their own backs (which are covered in sweatshop-produced garments colored with animal-tested dyes, no doubt). As much as I enjoy my fair trade cup of tea every morning (mmm…taste like justice), it would taste much sweeter if I had a strong understanding of the real economics behind it. The fair trade movement surely has its detractors. Why are they so angry about this seemingly philanthropic new business endeavor. Are they afraid more socially conscious consumers may begin unearthing the true evils that are inherent in many of todays consumer products and corporations? Maybe these “market interventions” will “decrease efficiency” (decrease profits?) or restrict the “invisible hand” from most efficiently allocating goods and services among rational consumers. I’m starting to sound like an economics textbook. Somebody please stop me…

During my research, I naturally stumbled across the topic of comparative advantage, most famously espoused by David Ricardo. This got me thinking about sweatshops and how comparative advantage played into that. I came to the conclusion that the comparative advantage of third world workers in sweatshops is their cheaper labor! Now, that is no illuminating discovery, for I think many people would agree that that is exactly what their comparative advantage is. But by restating that assertion in a different light will clarify my problem with this conclusion. What we are truly saying is that these people have a comparative advantage in being less productive. They have a comparative advantage in being poor, thus commanding lower wages. Is this really a comparative advantage? They are so desperate and undernourished that they will work for next to nothing and that is their comparative advantage against us? I don’t see how this would hold up. Maybe one day if I am a real economist (a.k.a. lose my soul) I will understand, but until then, I will continue to question.

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