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Comparative Advantage or Autonomy?

First published May-2010
last update 5-June-2010

Comparative Advantage

For believers in modern economics, the principle of Comparative Advantage is often viewed as the most important thing, the basis of specialization, free trade and globalization. The principle is used to “prove”, or at least imply that a proof exists somewhere, that trade is beneficial in all circumstances.

To accomplish this “proof” the principle is allowed one aspect of reality: time. It takes time to do things, so even if you could do everything better than me you couldn’t do everything simultaneously. So, even if you were superior in all things, you would end up with more stuff if you concentrated on what you did the best and then traded for other things. If you have ever delegated some work to less well trained individuals because you had to many things to do, you’ve implemented the principle of Comparative Advantage.

Unfortunately, comparative advantage cannot be taken to the extreme, and any attempt to do so must result in catastrophe. If other aspects of reality were allowed in the economics classroom this would be obvious even to the economic initiate.

Transportation and organization

Reality does have the aspect of time, but also aspects such as space and energy. For a trade to occur things must travel through space and this takes energy and organization. At some point the gain in the “efficiency of production” by specialization is surpassed by the cost of transportation and organization.

For instance, you could have a slight comparative advantage in a service like getting dressed, and I could have a slight comparative advantage in a service like brushing teeth. According to the principle of comparative advantage, a trade should be mutually beneficial. However, it’s obvious to most people that a trade would be ridiculous, no matter how close we lived. Even a trained economist would immediately point out that the transportation and organization costs, in energy, time and effort, for you to come to my place everyday and get me dressed, then I brush your teeth, would be far higher than whatever gain in producing these services in themselves would exist.

Though we could always imagine some strange circumstances that would lead to such a trade being reasonable, the principle of comparative advantage is meant to prove specialization and trade is mutually beneficial always, which would mean that even if you could do both, getting dressed and brushing teeth, better than me it would still be beneficial for us to trade, but obviously you would never do so: even if for some reason you had to get me dressed, you would still probably get dressed and brush your teeth yourself.

And indeed, any time we do anything for ourselves we are providing an example of the limitation of comparative advantage. For, if the principle was true in all circumstances, then in a large globalized economy, there would be people only brushing teeth and others only dressing people, and it would be obvious to most people that purchasing their services saves time for their own specialized work. [1]

This has been pointed out since the principle of comparative advantage was proposed, possibly long before then. Adam Smith, writing a hundred years earlier, noted that high degrees of specialization only occurred where transportation was easy, specifically close to bodies of water, the easy mode of transportation of his time.

So comparative advantage is hemmed in by other principles arising from physics such as the energy it costs to transport something.

New trade theories such as the “gravity model” which correlates trade to distance are based on precisely these sorts of obvious things

Comparative Autonomy

However, there is also an almost completely unknown, or at least little used, principle in main stream economics, which is the advantage of independence, let’s call it Comparative Autonomy, which was touched on in Vol 2, but let us revisit it hear to bring a complete understanding of the limits of comparative autonomy.

Though it has been often noted that high specialization gives rise to interdependence and complexity, and that both these things are inherently unstable, few to my knowledge (at least economists) have tried to model this in terms of the benefit of independence. Comparative

Autonomy is not with respect to someone else, but with respect to one’s own situation.

In its simplest form it can be measured in the days one could survive if cut off from the rest of the society. For instance, a bureaucrat might have a comparative autonomy of 2 or 3 weeks, someone with a bit of outdoors experience several months, maybe years, and a hunter gather or organic tree gardener a few decades, maybe a life time. This simple model gives us the idea that in the event of an unlikely catastrophe the organic farmer is better off – has a comparative advantage in autonomy compared to depending entirely on the system through trading a single specialized skill.

The practical application is that anyone likely to actually be cut off from the rest of society – perhaps because they live on an island or mountain – should have a very high Comparative Autonomy. And indeed, people who live in isolated places often have far more plans and supplies than people who live in cities.

Though this simple model gets the idea across, it does not tell us the use of comparative autonomy in places unlikely to be isolated. For instance in a town or city, regardless of the catastrophe, society will probably continue to exist in some form so it may be difficult to see the benefits of being comparatively autonomous.

For a more sophisticated model we have to look deeper into what gives rise to survival: adaptation. In this general model we can measure comparative autonomy in how easy it is for someone to adapt.

Since we don’t know what might happen, one might say no one can be more able to adapt than another; however, in the real world it seems obvious some people adapt more easily than others. Precisely because we don’t know what might happen, the more we know and can do, and the less dependent we are, the more able we are to adapt. When measured in this way, we can see that the benefit of a high comparative autonomy is not just in the event of extreme catastrophe, but also in mundane changes such as losing a job or having to move (for instance outside the city where it’s nicer).

Comparative autonomy also protects from, allows one to adapt to, price gouging, limited supply and coercion. Price gouging is the practice of rising the price of an essential service far above its real cost. Anyone dependent on the service will be forced to pay whatever price, and huge profits can be made. Likewise, if suddenly there is huge demand or a crunch in supply, the same price hikes occur. Though free marketeers will claim this rarely occurs in a free market, the opposite tends to be true in the real world, and most people have experienced price gouging or “market driven price rises” to a point where if they had the basic knowledge and tools to go without the service they would choose to, though they may not be aware of this due a comparative autonomy below the first level, see below.

Now, though the above arguments show that trade is not always beneficial, they do so only when the costs of transportation and organization or risk of dependence outweighs the benefit of a potential trade.

When this is not the case trades can of course make perfect sense.

Balance to monopolies

On the macro economic scale, comparative Autonomy is a balance to monopolies. If one isn’t dependent on the service, then one isn’t forced to pay regardless of the price, so if enough people aren’t dependent on the service then there is intrinsic limit to the price a monopoly can set. And when a monopoly exists the more people who can act independently the more likely for a monopoly to be broken. [2]

Levels of comparative autonomy

We can usually break down Comparative Autonomy into different levels.

The first level is simply having knowledge that an autonomous alternative to the market exists.

The second is experience in this alternative.

The third is the actual tools and materials ready to implement the alternative.

And the last degree is actually using this alternative.

In general the first degree of Comparative Autonomy, knowledge, is always desirable since without knowing if and how autonomy would be possible it’s impossible to decide when it would be reasonable to actually become more autonomous or not.

And the most important thing to be comparatively autonomous in is making decisions.

Community

Though on face value some may see the principle of Comparative Autonomy as support for individualism, the contrary is the case. Not only does the Comparative Autonomy of one’s community affect one’s own Comparative Autonomy (its usually far easier to adapt with a community also able and willing to adapt), but a lack of Comparative Autonomy at a community level will diminish one’s own.

The simplest example is water. An entire community willing to depend on water supplies from far away, or filtering installation they do not control and could not maintain independently, and furthermore willing to let local supplies poison or deplete, will lower the potential of Comparative Autonomy for all the people in that community. Whereas with access to clean local water supplies, an individual could manage if need be, with poisoned local water supplies this comes far more difficult.

Likewise, regions with a low Comparative Autonomy will lower the autonomy potential for all the communities within them, and likewise for provinces, states and so on.

So the individual must participate in the organization of their society to ensure that the conditions for potential autonomy exist.

Coercion

Though Comparative Autonomy is with respect to any and all possible events, of special note is coercion. Dependence can be easily used to manipulate. Comparative Autonomy is of course the only defence against such manipulation.

Though price hiking and marketing is the likely form of manipulating the individual in society, communities and governments are much more susceptible to other forms of coercions.

For instance, a community might be coerced to accept some nefarious law by the central government threatening, explicitly or implicitly, to cut off services like energy or transportation, which the central government controls. The central government in turn might be coerced into implementing such nefarious laws by a multinational corporation threatening to cut off some financial or military service. The multinational corporation could be in turn coerced by other central governments and multinational corporations, and so on.

What is interesting is that though the layers of coercion can be built up indefinitely, they can be broken at the lowest level: communities, small or large, capable of some degree of self sufficiency are capable of resisting nefarious laws or markets, and the whole house of manipulation comes crashing down.

Even a few months of resistance could be a high enough price for the central government to prefer resisting their own sources of coercion. Comparative autonomy for communities, provinces etc. can be measured in the same way as for individuals. However, where individuals are limited in comparative autonomy to individual capability, communities can extend their comparative autonomy to things requiring team work. Again, in some instances, comparative autonomy may only be sought in theory, while in others instances a community may find autonomy far cheaper.

The benefit of trade

As mentioned in the beginning of this article, comparative autonomy is the potential to be autonomous, not the actual act of doing something autonomously. One could have relatively high comparative autonomy in growing organic vegetables, but choose to trade for organic vegetables because it makes sense in the circumstances. But, if ever vegetables became more expensive or unavailable one could not only start growing organic vegetables oneself, but given the real, or perceived, lack of vegetables grow more and trade the excess. Indeed, we can’t imagine the free marketeers ideal world without comparative autonomy.

So trade may or may not be mutually beneficial. The only certainty is that trading away one’s own or one’s communities ability to survive independently is virtually always not beneficial.

International example

The principle of comparative autonomy is of course applied in most peoples daily lives, but also at the international level.

If we look at the nations which fiercely defend the globalization of the free market, we notice that they defend just as fiercely protecting their own essential services. For example the US and EU subsidize their own agriculture, but in the name of free trade and comparative advantage, through the IMF, World Bank or their own machinations, always trying to force smaller countries into becoming agriculturally dependent, either through simply destroying their local market through cheaper subsidized imports or through technology dependence by destroying local foods adapted to the region.

Not sufficient for sustainability

Though the principle of comparative autonomy is useful, it should be noted it is not sufficient to derive a sustainable society from this and self interest. For, though each individual may recognize the value of their own comparative autonomy, to value the ability for future generations to survive requires a fundamental ethical decision and effort.

Footnotes

[1And even the people that do brush a lot of teeth, usually do other things as well, which is another counterexample.

[2A simple example is that it may be worth it to buy fresh organic bread at 2 Chiplooz (currency units) the loaf, maybe 3, but not 5 Chiplooz. If the ingredients for making organic bread – high quality organic ancient grains, organic yeast, salt, and water – is about a Chiplooz, and the time it takes is about 20 minutes of effort, and there is an “added value” of super freshness, satisfaction, and increase in comparative bread making autonomy – later breads will become even more advantageous and could even be offered to others – then depending on the circumstances one can quickly calculate whether it’s worth it to make bread or buy it. Without any comparative autonomy, bread could become 6, 7 or even 15 Chiplooz due to an organic bread cabal or other reasons and still you may be forced to buy.
And if one could grow the grains, grind the flower, and culture the yeast oneself one would be even more comparatively autonomous.

Written by Eerik Wissenz.
Contact:
decent@nym.hush.com

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*Chapters in grey are in progress.


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