Are We Mobile Capital?

 Have you ever heard the term, competitive advantage? How about, comparative advantage? Mobile capital? What about the IMF or the World Bank? I am sure some of these terms light up in your minds, like candles seen off in the distance. Unfortunately for a large population of Earth’s human species these terms contain no meaning. Now, not everyone has had the opportunity to study the concepts that relate to these terms, however these terms (besides the IMF and World Bank) play integral roles in the operation of our spaceship Earth. So let’s begin this discussion by defining these key terms listed above and the how and why they relate to your lives.

Absolute Advantage: A country has an absolute advantage if it can produce the good in question at a lower absolute cost than its trading partners.

Comparative Advantage: If it can produce the good in question more cheaply relative to other goods it produces than can its trading partners, regardless of absolute costs.

David Ricardo: Was a British political economist and stock trader. He was often credited with systematising economics, and was one of the most influential of the classical economists, along with Thomas Malthus, Adam Smith, and John Stuart Mill.

International Monetary Fund (IMF): An international financial institution composed of member nations and created at Bretton Woods, New Hampshire, in 1945. Originally designed to focus on short-term balance of payments financing to promote international economic stability, in recent decades it has strayed from its charter.

World Bank: An international financial institution composed of member nations and created at Bretton Woods, New Hampshire, in 1945. Originally designed to focus on long-term lending to promote the development of underdeveloped countries, in recent decades it has strayed from its charter.

 Now that we have defined these key terms we will be able to continue our discussion. When we discuss comparative advantage between countries, we never seem to consider the capital that is invested. This capital is usually considered mobile capital, but with comparative advantage between individuals capital mobility is detrimental to this perceived advantage. This is because as an individual who holds a comparative advantage over another can complete whatever tasks more efficiently than the other, mobile capital suggests that the productive energy and capacity of the less efficient individual can be transferred to the absolutely more efficient individual. This is not the case in situations of comparative advantage, where capital must be immobile for advantages to be expressed. An example of a productive resource that is not mobile would be, human capital in the form of labor without the skills. With just the labor aspect human capital cannot become mobile capital seeing that different jobs require different skills, which require trainings and education. The example of human capital being immobile does not prove the last statement wrong in relation to comparative advantage and capital immobility, because if you look at it, one nation that produces sugar more efficiently than another nation which produces coffee more efficiently than the last, the two nations cannot have capital mobility with their human capital seeing that only a limited number of workers can produce both coffee and sugar, the capital becomes immobile as long as comparative advantage is in effect.

 Continuing along with the concepts of comparative and absolute advantage, we can now see a pattern growing within global trade and expansion. There are two terms that are used to discuss global trade, one is globalization the other is internationalization. Internationalization refers to the increasing importance of relations between nations: international trade, international treaties, alliances, protocols, and so on.The basic unit of community and policy remains the nation, even as relations between nations, and between  individuals in different nations, become increasingly necessary and important. Globalization refers to global economic integration of many formerly national economies into one global economy, by free trade, especially by free capital mobility, and also, as a distant but increasingly important third, by easy or uncontrolled migration. Globalization is the effective erasure of national boundaries for economic purposes. National boundaries become totally porous with respect to goods and capital and increasingly porous with respect to people, viewed in this context as cheap labor or in some cases cheap human capital. The importance of these two separate concepts is, with internationalization we simply trade across borders but continue a strong national protection, whereas globalization calls for complete unity and transparency of all borders. This leads to economic unity, governmental unity, and ecological capital unity, and example of this is the E.U.

 With all the global trade, advantages, mobile and immobile capital, and continuing diversification of national borders, it is becoming relevant that we must decide what is best for a prosperous society and planet, internationalization or globalization?

Thank you for your interest, please comment and subscribe.

Onward,

Hayden van Andel