The law of comparative advantage is a law of relative maximum. Countries can choose the best production combinations among all available possible production combinations. But such a combination must not be rudimentary in the sense of a best single combination of two commodities. The best combination must be at a point where production possibilities curve cross. Such a combination represents an interesting portfolio combination point.
In introductory economic courses, only one production curve is drawn and shown. However, policy makers see many possible economies coexisting at different levels. Such a view is not a blue-sky contemplation since these curves are forcefully nonlinear. Multiplicity and non-linearity are due to variation of different orders.
A first order variation gives rise to an exposed economy. Not because nature is first-order, but because our perception limits our view, understanding, and action. Such an economy is rudimentary with curves best represented by vertical lines crossing horizontal lines. I guess before the industrialization era, economies around the globe were not leveraging on uncertainty, risk, and the unknown. These economies produced simple production combinations that possibly could be moved along an horizontal line.
A combination of the first order and a second order variation gives rise to a satisfactory economy in a world where human being is excused for extreme events. The 18th, the 19th and the first part of the 20th century were dominated by the view that the economic structure is both first and second order. Tools and institutions were introduced and developed to set up and to manage new economic structures. Unfortunately, many countries in Africa kept the first-order view as a benchmark in dealing with economic and political affairs. Worst people in these countries are afraid of leveraging on uncertainty, the unknown, and the hidden. Since beliefs are important vehicles of thoughts, these countries lost the comparative advantages they had prior to the emergence of the first and the second view elsewhere in the world.
In fact, we have already moved away from a paternalistic view of the economy. Policy makers became aware of the existence of a third and a fourth order of economic variation. We are almost there in modelling a world economy that is resilient to the first, second, third and fourth orders of economic variation. Clearly, we do not excuse ourselves for extreme events. We do not say is not our fault. We know now that extreme events can be prevented. We know we have to be prepared to face extreme events when they arrive. We take full responsibility in what may happen.
The point of what was said, is that a country that ignores the management of risk is in trouble. The country has no a comparative advantage. It will produce at higher costs. Importing is cheaper than producing. This may explain why African countries are getting poorer. They have lost the comparative advantage of pushing themselves into the future.
In introductory economic courses, only one production curve is drawn and shown. However, policy makers see many possible economies coexisting at different levels. Such a view is not a blue-sky contemplation since these curves are forcefully nonlinear. Multiplicity and non-linearity are due to variation of different orders.
A first order variation gives rise to an exposed economy. Not because nature is first-order, but because our perception limits our view, understanding, and action. Such an economy is rudimentary with curves best represented by vertical lines crossing horizontal lines. I guess before the industrialization era, economies around the globe were not leveraging on uncertainty, risk, and the unknown. These economies produced simple production combinations that possibly could be moved along an horizontal line.
A combination of the first order and a second order variation gives rise to a satisfactory economy in a world where human being is excused for extreme events. The 18th, the 19th and the first part of the 20th century were dominated by the view that the economic structure is both first and second order. Tools and institutions were introduced and developed to set up and to manage new economic structures. Unfortunately, many countries in Africa kept the first-order view as a benchmark in dealing with economic and political affairs. Worst people in these countries are afraid of leveraging on uncertainty, the unknown, and the hidden. Since beliefs are important vehicles of thoughts, these countries lost the comparative advantages they had prior to the emergence of the first and the second view elsewhere in the world.
In fact, we have already moved away from a paternalistic view of the economy. Policy makers became aware of the existence of a third and a fourth order of economic variation. We are almost there in modelling a world economy that is resilient to the first, second, third and fourth orders of economic variation. Clearly, we do not excuse ourselves for extreme events. We do not say is not our fault. We know now that extreme events can be prevented. We know we have to be prepared to face extreme events when they arrive. We take full responsibility in what may happen.
The point of what was said, is that a country that ignores the management of risk is in trouble. The country has no a comparative advantage. It will produce at higher costs. Importing is cheaper than producing. This may explain why African countries are getting poorer. They have lost the comparative advantage of pushing themselves into the future.
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