Marxist theories of Trade

[bailey_187]

So what writtings are there on trade? I have read some Marxist critiques of Ricardo's comparative advantage. Other than that all i have seen is the "Unequal exchange" theory. Do any other good writings/theroies by Marxists on trade exist?

[Sendo]

Not too much. But there is much overlap with social democrats and anti-neoliberals in this. Especially for MLs who accept a transition stage with dealing with money and foreign capitalist countries, it can be very valuable. Ha-Joon Chang's book on third world development through protectionism and national enterprises is great and hints at repressed admiration for communism.

Minqi Li, Immanuel Wallerstein are also great.

The common anti-neoliberal thread for the 3rd world is basically thus, build up domestic economy and socialize the risk, stockpile foreign reserves and limit imports.

I think the neoliberal trade model is best criticized by modern writers. Marx and Lenin attacked capitalism for its greed, domestic problems and its expansion and imperialism, and STalin and Mao worked towards developing 3rd world nations in a hostile world. But beyond the nuts and bolts of international trade and especially the neoliberal model, you have to look at more recent thinkers.

[Agnapostate]

Marxist critiques of comparative advantage? I've not come across any, and don't see why I would. Comparative advantage is hardly controversial, even among those circles. Trade liberalization is another matter altogether.

[bailey_187]

Marxist critiques of comparative advantage? I've not come across any, and don't see why I would. Comparative advantage is hardly controversial, even among those circles.

I guess i meant the implications. So that the Third World as it is abundent in Labour and land should concentrate on agriculture etc

[Common_Means]

There have been numerous critiques done on comparative advantage policy - for instance, the "commodity trap" has often been linked to policies justified via comparative advantage.

World Systems Theory and Dependency Theory would be two areas you may be interested in looking into. Both operate on a global scale, integrating "developed", "developing" and "underdeveloped" economies.

[bailey_187]

There have been numerous critiques done on comparative advantage policy - for instance, the "commodity trap" has often been linked to policies justified via comparative advantage..

Any writings on this you can recommend?

[bailey_187]

I found one criticism from Robert Hahnel

He says that the private cost of production is only taken into account in comparative advantage, but not the hidden social costs (negative externalities). So America could seem very efficent at producing one type of good, but is not in reality when the negative externalities of production are taken into account. So America's actual comparative advantage will be false as it will not be more efficent to produce the said good, therefore global efficency will decrease if the international division of labour is restructured for America to produce what is perceived to be its comparative advantage.

[Agnapostate]

I've read Robin Hahnel's Panic Rules. There's no dispute of comparative advantage. There's opposition to the current distribution of the gains from trade.

[Common_Means]

Marxist critiques of comparative advantage? I've not come across any, and don't see why I would. Comparative advantage is hardly controversial, even among those circles. Trade liberalization is another matter altogether.

Not controversial? What!?!?!

Most third world nations occupy their existence with the struggle of attempting to crawl out from their comparative advantage of cheap, unskilled labour.

And there are Marxist critiques - see dependency theory for starters.

[vyborg]

in our epoch, trade is connected to imperialism so you cannot put forward a pure marxist theory of trade without understanding the combined and uneven development on a world scale.

[Sendo]

Any writings on this you can recommend?

Ha-Joon Chang's "The Myth of Free Trade". If South Korea kept comparative advantage it'd still be making nothing but a plarty sum of seafood products and human hair wigs. Everyone laughed when Park wanted to found POSCO, somewhat recently privatized (1997, founded 1968), but an amazing steel manufacturer at the time and today is #2 in the whole damn world. Souht Korea's position was once as laughable as Zimbabwe's.

[Common_Means]

Ha-Joon Chang's "The Myth of Free Trade". If South Korea kept comparative advantage it'd still be making nothing but a plarty sum of seafood products and human hair wigs. Everyone laughed when Park wanted to found POSCO, somewhat recently privatized (1997, founded 1968), but an amazing steel manufacturer at the time and today is #2 in the whole damn world. Souht Korea's position was once as laughable as Zimbabwe's.

I would like to add that the South Korean experience, often cited by neoliberal economists at the IMF and WB as success stories for capitalist development, grew out of specific circumstances dependent on their spatial and temporal context. That is, during the Cold War, South Korea was seen as being on the periphery of the capitalist world. As a result, the government received billions in "free" aid and were given the opportunity to development industries that would have been otherwise crushed via sanctions, tariffs and so on.

My point being that if it were not for their "fortunate" geopolitical situation, they would remain like all other underdeveloped economies - forced to compete with developed nations by way of their comparative advantages (raw material and cheap labour); fostering rentier regimes that do little for their people and intensify the brutal conditions.

[cyu]

The modern pro-capitalist version of comparative advantage would taken poor people in poor countries, and put them to work growing cut flowers, high-end coffee, illegal drugs, making sweatshop clothes, and building assembly line goods for the rich in rich nations.

And who is left to produce clothes and food for the poor in poor countries? Next to nobody. And that is why the poor stay poor when modern pro-capitalist comparative advantage theory is applied.

[RommelDAK]

Actually, a number of approaches outright reject comparative advantage, including Marxism. In general, they argue that absolute advantages actually drive trade. I teach a summer class where I compare different schools of thought on their views of international econ and just finished reviewing Anwar Shaikh's critique. I'm afraid I don't have a citation for it (I can get it from a colleague, if you like--she had him for class at the New School and it was from her that I learned this attack), but the bottom line is that if you don't assume full employment in the comparative advantage model, then there is no reason to expect prices to fall sufficiently in the non-absolute advantage country for them to end up being able to export their comparative advantage good. Rather than prices falling, unemployment rises and the nation finds itself in deeper and deeper debt.

You can also find that same argument here, though it's buried deeper inside a separate discussion:

http://www.levy.org/pubs/wp250.pdf

Starting at the top of page six, he says that orthodox econ makes a mistake by using comparative costs rather than absolute, and he goes on from there.

Post Keynesian economists have also raised serious doubts regarding comparative advantage, siding with Shaikh on thinking that absolute advantage is more important.

[Agnapostate]

I'm admittedly not up on heterodox (specifically radical) trade theory anywhere near as much as heterodox/radical political economy, but I've never heard of an outright rejection of the principle of comparative advantage, because the concept of mutual gains from trade as a result of resource specialization simply seemed so intuitively appealing.

The majority of opposition that I've encountered has been based on the current applications by neoliberal policy makers, but even the infant industries argument is ultimately reliant on the concept of dynamic comparative advantage in that advocates expect trade conditions to evolve over time, at which point mutually beneficial exchange can be facilitated. Thanks for the recommendation; I'll have to take a look.

[RommelDAK]

I'm admittedly not up on heterodox (specifically radical) trade theory anywhere near as much as heterodox/radical political economy, but I've never heard of an outright rejection of the principle of comparative advantage, because the concept of mutual gains from trade as a result of resource specialization simply seemed so intuitively appealing.

I agree, and that's what makes Shaikh's critique so interesting. When I get a minute, I'll type it up post it here. It all depends on what the original argument assumed implicitly.

[RommelDAK]

Okay, let’s see if I can explain this without drawing any graphs! Hmmm, I doubt it, but I think I’m still locked out of posting images and links until I have 25 posts. So, here goes.

To follow Shaikh’s critique, it’s helpful to first see the standard comparative advantage argument. Assume full employment, complete specialization, constant returns to scale, two countries, and two goods. Assume that their autarkic (i.e., before they trade) costs of production are as follows:

STANDARD ARGUMENT

...................Good A Good B
Country A.......$10...........$5

Country B.......$50..........$10

Country A has the absolute advantage in both goods (i.e., it can make both cheaper) and once trade opens between them, it will export both goods and experience a trade surplus and expansion. Meanwhile, Country B will be able to export neither and thus will have a trade deficit and a recession.

But, recall that full employment was assumed. So, the effect of the recession in Country B is simply a fall in prices (picture a supply and demand diagram with a vertical supply curve at the level of output associated with full employment of resources–a leftward shift in demand changes only prices). Meanwhile, the expansion in Country A only affects prices, too, since it can’t produce any more. Imagine the prices on the chart above changing, those in Country A slowly rising (proportionally–for every 1% increase in the price of Good A, there is a corresponding 1% increase in the price of Good B) and those in Country B slowly falling. Eventually, Country B will catch up in Good B since it was only twice as high, while Good B was five times as high. Thus, Country B will suddenly be the low-cost producer of Good B (it will drop a little below the price in Country A, or the recession would continue until it did so) while Country A will continue to be low-cost in Good A–everyone is happy and free trade is shown to be the great equalizer!!!

As an aside, for those of you used to a different explanation of comparative advantage (for those of you unfamiliar, you can safely skip this bit), this is perfectly consistent with those. Note the opportunity cost ratios in both countries:

Opportunity cost of making 1 Good A in Country A: 2 Good B’s
Opportunity cost of making 1 Good A in Country B: 5 Good B’s

So, the opportunity cost of Good A is lower in Country A and that’s where they have the comparative advantage–precisely what the above analysis determined.


ANWAR SHAIKH’S CRITIQUE

Shaikh says hold on just a minute–what had we not simply assumed full employment? Then the consequence of the recession in Country B is far more serious. We end up with falling GDP and unemployment. Furthermore, prices won’t fall as much (picture the supply and demand diagram again, but this time with a positively sloped supply curve–now a leftward shift in demand lowers both prices and output). Meanwhile, employment and prices rise in Country A. However, given that employment takes up some of the impact of the fall in demand, prices may not move sufficiently to ever make Country B the low-cost producer of anything. They wallow in economic misery with high unemployment, a trade deficit, recession, and rising international debt (sound familiar?). At some point, one may argue, things have to give and surely the prices fall enough. But, argues Shaikh, what happens instead is that the rising debt becomes the key burden and Country B finds itself constantly having to renegotiate from a position of weakness. The surplus country keeps the deficit country pinned down.


NICHOLAS KALDOR’S ARGUMENT

From a non-Marxist perspective, Nick Kaldor said this. Say there is a country whose technology is such that the only industries it has which would be competitive in world markets are producers of primary products (agricultural and mining) and they must trade with a nation that exports manufactured goods. How might they be hurt by free trade? If your comparative advantage industry sells primary products then it may experience diminishing returns. As it increases production, so costs/unit rise–and your comparative advantage is whittled away. Meanwhile, if the other country is selling manufactured goods then it probably experiences increases returns and in fact increases its comparative advantage as production rises. This, just as Shaikh’s argument does, sounds very similar to the situation in which developing countries find themselves relative to developed.

[M-26-7]

Ha-Joon Chang's "The Myth of Free Trade". If South Korea kept comparative advantage it'd still be making nothing but a plarty sum of seafood products and human hair wigs. Everyone laughed when Park wanted to found POSCO, somewhat recently privatized (1997, founded 1968), but an amazing steel manufacturer at the time and today is #2 in the whole damn world. Souht Korea's position was once as laughable as Zimbabwe's.

This reminded me of a Marx quote, from his 1848 speech on free trade (http://www.marxists.org/archive/marx/works/1848/01/09ft.htm):


For instance, we are told that free trade would create an international division of labor, and thereby give to each country the production which is most in harmony with its natural advantage.

You believe, perhaps, gentlemen, that the production of coffee and sugar is the natural destiny of the West Indies.

Two centuries ago, nature, which does not trouble herself about commerce, had planted neither sugar-cane nor coffee trees there.

Of course, he then goes on to a rather controversial conclusion:


But, in general, the protective system of our day is conservative, while the free trade system is destructive. It breaks up old nationalities and pushes the antagonism of the proletariat and the bourgeoisie to the extreme point. In a word, the free trade system hastens the social revolution. It is in this revolutionary sense alone, gentlemen, that I vote in favor of free trade.

[KC]

Marxian theories of trade have generally been restricted to a general analysis of underdevelopment. Particularly, this has taken on the form of dependency theory, which IMO has many problems.

[Die Neue Zeit]

Post Keynesian economists have also raised serious doubts regarding comparative advantage, siding with Shaikh on thinking that absolute advantage is more important.

I wonder how Minsky's public employer of last resort for consumer services would boost or nix competitive advantage theory's assumption of full employment.

If such a program were implemented, there would still be the "commodity trap" associated with areas like oil-rich countries, no?