By: Arthur Hall
Submitted: 2010-04-30 11:12:57 | Word Count: 460
The idea of globalization is closely related to the notion of trade without borders, or trade when all participating countries enjoy equal benefits stemming from the process. As a rule of thumb, the cost of labor is lower in the East than in the West, which provides motivation for large multinational corporations to move the production of their goods to these developing nations. The concept of free trade also closely relates to the idea of comparative advantage and relative cost. Combination of the last features forms the price ratio that allows comparison of various factors across countries to be made. On the one hand, comparative advantage implies double comparison, dealing with both goods and states. It is crucial to understand how this assessment works. On the other hand, every country has a natural advantage in producing certain set of goods. For instance, a state rich in oil resources has perfect chances of producing high-quality and low-cost petroleum. Russell Roberts (1994) notes the importance of the concept of comparative advantage. It was originally discovered in the eighteenth century by David Ricardo, a notable scholar in the field of political economy. This paper, by referring to the books by Russell Roberts, “The Choice” and Pietra Rivoli, “The Travels of a T-Shirt”, and other scholarly sources, discusses the issues of environment and globalization as portrayed by these authors in their works.
Ricardo outlined a number of laws that explain and delineate the existence of comparative advantage concept. Roberts (1994), when referring to Ricardo, argues that the first law foresees what actions countries will take if they are given the opportunity, and the second law illustrates the correct set of actions that countries should take:
1. The first law implies: If allowed to trade, a state will sell the goods in which it has a clear comparative advantage compared to other countries.
2. The second law states: If allowed to trade, a country will generate profit, which is measured by the amount of revenues exceeding costs.
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Roberts (1994) notes that the law number two does not necessarily mean that all parties involved in the process make a positive gain from the trade. The law merely implies that a country will incur costs and will receive certain benefits from its trade practices. Yet, there is no guarantee of the profit. If the costs exceed revenues, then a loss is made. Roberts (opposing the popular notion promoted by modern politicians) is quick to point out that free trade is a zero-sum game, when one firm gains and the other inevitably looses in the process. Hence, if individuals believe in free trade, they should also believe in elementary economic laws, not expecting to only gain from the trade.
