Maintaining Open Markets in the Global Economy
Chapter 2: The Principles of Trade and Competition Policies
I INTRODUCTION Considering how long the principle of comparative advantage has been known it is remarkable how little it is understood in popular discussion. In their widely read text on international trade Krugman and Obstfeld cite the example of an internationally famous historian lamenting the fate of a country unable to produce anything more cheaply or efficiently than anyone else, except by constantly cutting labour costs (Krugman and Obstfeld, 2003: 23). Elsewhere Krugman has criticised some of his professional colleagues for adding to the confusion by taking an essentially mercantilist stance on international trade and portraying it in zero-sum terms (Krugman, 1996). By giving comfort to those who view the objectives of trade as building up and maintaining an export surplus and getting the better of other countries, Krugman argues that the perception of trade as a necessary evil and as commercial warfare is reinforced. The mutual benefits of trade as an engine of improved international efficiency and growth are obscured or denied. Nobel laureate Paul Samuelson was once challenged by a distinguished mathematician to name one proposition in the social sciences which was both true and non-trivial. Although he did not reply immediately he later realised that what he should have said was comparative advantage and the gains from trade: ‘That it is logically true need not be argued with a mathematician; that it is not trivial is attested by the thousands of important and intelligent men who have never been able to grasp the doctrine for themselves or...
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