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PAUL Samuelson, the Nobel prize-winning economist, was once challenged by the mathematician Stanislaw Ulam to name “one proposition in all of the social sciences which is both true and non-trivial”.
As the story goes, it took him several years to come up with the correct response: comparative advantage.
Put simply, this is the notion — first advanced by Samuelson’s illustrious predecessor David Ricardo in the early nineteenth century — that countries should stick to what they do best.
If England produces textiles at a lower cost than Portugal, and Portugal produces wine at a lower cost than England, then common sense dictates that England should specialise in textiles, Portugal should specialise in wine, and the two countries trade their surplus.
Here’s the counter-intuitive bit; even if one country has absolute advantage in the production of both commodities, the world would still be better off in aggregate if each concentrated on delivering the goods at which it is least worst.
Although French president Nicolas Sarkozy famously flunked grad school because his English wasn’t up to scratch, one would hope that he is aware of such basic “economics 101” ideas. Maybe the evident happiness he has found with his new bride is understandably responsible for some form of temporary amnesia.
If so, his advisers really ought to make clear that his idea of artificially propping up Fincantieri through de facto state ownership, while preventing STX getting control of Aker Yards, is economic illiteracy with knobs on.
This is not the 1970s; comparative advantage in metal-bashing industries has definitively moved eastwards. STX should be warmly thanked for their willingness to inject capital and management know-how into European shipbuilding, while Fincantieri should be forced to prove its viability in the market place, or face the inevitable consequences.
Comments (1)
Comment by
Captain Doctor Ivica Tijardovic, PhD
- Tuesday 1 April 2008
I agree when you say that STX should be warmly thanked for their willingness to inject capital and management know-how into European shipbuilding, while Fincantieri should be forced to prove its viability in the market place, or face the inevitable consequences. Your opinion is logical and fair. Euro isn’t so good because of European economy, but because of US $ weaknesses. Europe can try to prevent STX getting control of let’s say Aker Yards, but South Korean shipbuilding technology and capital will find the way to reach Europe, maybe, through possible privatization of Croatian shipyards who had experience in building passenger ships. I was working in Shipyard Split in time when two cruise-ferries (Amorella, Isabella) were built for SF Line. Better cooperation between Adriatic and European shipyards would be one of solutions for European shipbuilding industry.
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