Wednesday, 16 November 2011

No advantage

A successful business needs a competitive advantage. A successful country is no different.
Or at least this is what "Pure Advantage" want us to believe. As I said earlier, A country is not a company and should not be run like one. I wrote,
As Paul Krugman (yes even he is right about some things!) said A Country Is Not a Company. To see why consider, for example, the basic point that companies compete with each other but New Zealand doesn't compete with other countries. Thinking that countries compete is a just one false analogy that comes from thinking that countries are like companies when they're not. The point is that Coke and Pepsi, for example, do compete, one gains at the others expense, but New Zealand and Australia, for example, don't, their loss is not our gain. International trade is not a zero-sum game. To see this, note that while Coke may wish to put Pepsi out of business, so that Coke can increase their sales and prices and therefore profits, New Zealand would not gain if we put Australia "out of business".

Why? Well in the Coke/Pepsi case, Coke gain a lot, in terms of sales and profits, from not having Pepsi to compete with and lose little since Pepsi doesn't buy much, if anything, from Coke. Or Coke from Pepsi. This is not true of the New Zealand/Australia example. We may gain some sells if Australia stopped producing, but we would lose much more. Australia is our biggest export market and if they "went out of business", they would stop importing, and that would hurt us a lot. Also they are suppliers of much of our useful imports and that would stop too, which would hurt us even more.
So New Zealand does not need a "competitive advantage", it needs, and has, a comparative advantage. We do not compete with other countries like Coke and Pepsi compete with each other, other countries are your friends, they buy our stuff and sell us their stuff. What we need to do is look for the most efficient way of trading with these countries, that is, workout our comparative advantage.

Bill Kaye-Blake writes with regard to a Pure Advantage press release,
The language of this media release is atrocious. The sloppy thinking, the non-sequiturs, the begging the question. The leaders of the group are supposed to be scientists, and this is what they produce? I don’t have time or energy for a Fisking, so I’ll leave it at that.
While rauparaha at TVHE sees
[...] the dangers of management thinking in economics.
So economist-bloggers seem to see no advantage in Pure Advantage. But then again I'm guessing economists are not their target audience. The government and taxpayers money looks a more likely target.As Bill Kaye-Blake points it,
What’s the solution? More money for science! And not just any science — the science that particularly interests the scientists behind the organisation.
Or rent seeking as some would call it.

No comments: