The Choice by Russell Roberts - Assignment Example

The Choice by Russell Roberts Introduction Through Russell Roberts The Choice (2000), one can understand the case of free trade and protectionism, and why many countries of the world go for it. Roberts, through his fictional characters Ed Johnson (a businessman) and David Ricardo (the famous economist) presents to the reader that free trade is better than protectionism. Roberts ideas reflect those of Ricardo, who had made this claim a century earlier which is being practiced today. The Roundabout Way to Wealth (Comparative Advantage) Roberts begins his book by introducing the theory of comparative advantage which he terms as the Roundabout Way of Wealth creation. He claims that as a nation, America can specialize in producing televisions but it is much better for them to concentrate their resources on producing goods or services which they are really good at and leave the production of goods, like television, to other countries (Japan). This way they (Americans) better utilize their time and resources for making more money than as compared to Japan (Roberts 10). The reverse is also true for Japan, which may or may not be good at making drugs, which Americans are good at. Roberts provides a convincing argument on the theory of comparative advantage. I agree with Roberts that instead of protecting ones own industries and businesses, trade should be shared to even the weaknesses and strengths of the worlds economies. If, America is good at making drugs and can fetch a higher price for them then it would be better to concentrate resources to market drugs to other countries. It should create a niche by developing drugs, (or any other products) to maximize its resources. Since time and labor are scarce resources in economic terms, it is logical that a countrys authority makes the right choice to free trade regulations to help its industries to "swap" products. The real deal is the ability of the country to find the products that should be sold to other countries and chooses products which are cheaper in comparison. This is necessary for the theory of comparative advantage to work for an economy to earn profit from the "swap". Roberts makes this claim based on Ricardos theory, assuming that other countries of the world are willing to trade as well and that all economies of the world are stable in their production and resources. However, what happens when an economy, A, is not stable? What will happen if the other country, B, is not willing to trade due to lack of "money" or lack of product to sell to A? In such a scenario, I believe the theory of comparative advantage will not work well. This is because not all nations of the world are well equipped with comparative advantage. There are countries of the world that specializes in the majority of products and services for trade such as Japan, America, United Kingdom or the European Union. They are well within their capacity to protect their wealth by limiting external trade because they are in the position to be independent. Poorer countries such as Ethiopia, Iceland or Mongolia which face adverse conditions for trade do not actually have the resources for production, less trade them. In such a scenario, these poorer countries would have to pay “extra” for the products they need or starve. Hence, the assumption that all economies of the world have some form of comparative advantage is not holistically true. The Real Choice (Protectionism) Roberts also makes the following claims: “If a group of Americans do not compete well in the global marketplace because their skills are readily available around the globe, how should America respond? By protecting them and insulating them from the competition they face, or by encouraging them that the choice America faces is not between more jobs or fewer jobs. The real choice is between a dynamic world and a static world--a world of encouraging people to dream and acquire the skills to make those dreams come true and a world of encouraging people to be content with what they have and to dream less” (Roberts 101). It would seem that Roberts assumes that the global marketplace is ready to accept the skills or resources that America (or any comparative advantage country) has to offer. This is difficult to accept especially in the current economic conditions. In times of crisis, not everyone is ready to impart their resources when those resources are their ticket to independence. For example, the European Union protects member countries because it is more feasible for them to trade with partners who they can trust not to undermine their industries. They would not be interested in trading with countries which have too much to offer and less willing to purchase products produced by the EU. In such a case it is necessary for the economies of the world to protect their interests. The real choice is not about more or fewer jobs, or even about a dynamic or static world but how to protect ones wealth in the face of adverse economic conditions. Moreover, Roberts believes that by sharing skills countries of the world can benefit from free trade. The marginal utility of this activity is limited to the extent of sharing skills between a country which has the skills and the country which does not have them. Once both countries have similar skills to produce products or services, then there is no need to share. Instead, they both become direct competitors. This may have a negative impact on the country because there is only one market for products and services, while there will be more producers in the market vying for the same buyers. In such a scenario, I believe, protectionism is lucrative and helps to protect the wealth of the country. Conclusion Therefore, I believe that the real choice is not between protectionism and free trade but how to decide what is important for the country. A government should be able to determine the weaknesses or strengths of its own country, and make decision accordingly. It should be able to decide which resources it can forego and which to retain to remain independent from other countries. If this requires protecting its industry, then it should do so. Reference Roberts, Russell. The Choice: A Fable of Free Trade and Protectionism. Prentice Hall, 2000. Read More