A Case Against Globalisation and the Multiple Benefits of Localisation
Bioregional Advantage and Comparative Advantage
This is a summary of a chapter in Bioregional Solutions, which was commissioned by The Schumacher Society back in 2003, co-authored by me and Sue Riddlestone, with a foreword by the then HRH Prince Charles. It lays out a case for localisation or Bioregional Advantage, as opposed to Comparative Advantage which underpins conventional economic thinking.
The concept of Comparative Advantage was developed by economist, David Ricardo, in the early nineteenth century. He laid out a hypothetical model of trade in cloth and wine between Portugal and England. He assumed different man-hours for producing each unit of cloth and wine in each country:
Man-hours required per unit of output:
Portugal has an Absolute Advantage in cloth and wine production, it taking fewer man-hours to produce both in Portugal. It therefore might be assumed there is no benefit to Portugal to trade. But what if the countries exchange a unit of English cloth for a unit of Portguese wine? England saves 20 man-hours, but counterintuitively, Portugal also benefits. When Portugal imports English cloth it frees up 90 man-hours of work, and only requires 80 of these to produce the wine, saving the Portuguese 10 man-hours.
Ricardo’s model is a simple but powerful one. However, it does have a number of problems. First, it assumes capital does not flow between countries which it didn’t to any great extent in his day. When capital flows, it massively changes the balance of benefits. Second, it takes no account of the cost of transport and we know now that transport has an environmental cost as well as a financial one. Third, and possibly most importantly, it destroys the chances of creating a sustainable economy. Let me explain.
We’re going to expand Ricardo’s model: let’s assume in both England and Portugal, the grapes used to produce the wine also yield grape skins, which are used for compost in market gardens, also we assume that the sheep yield meat as well as wool, and that in both countries, wine bottles are returned to the wineries and refilled. What happens when we move to international trade and we close the wineries in England and the cloth mills in Portugal? Some of the English wine workers now get jobs in the expanded cloth mills in England and some of the Portuguese cloth workers get jobs in the expanded wineries in Portugal. In both countries, some laid-off workers now also have new jobs as lorry drivers carry the products between England and Portugal. So far so good. But problems are brewing. The Portuguese sheep farmers can’t sell their wool and the market gardeners in England have lost their source of compost, so can’t grow their vegetables. We have disgruntled sheep farmers in Portugal and alienated market gardeners in the UK.
How might this unfold?
The Portuguese government fears losing the sheep farmers’ vote, so they establish a Wool Marketing Board and employ an expensive consultant to seek out new markets, at the same time as increasing taxes to pay for the marketing board. The consultant identifies England as a country with a booming cloth industry but the Portuguese farmers can’t afford the transport costs. The government levies duties on the Portuguese wine industry to subsidise the wool exports and the wine industry whines about the moaning sheep farmers who can’t adapt to progress. Portugal has become dependent on wine exports, wool exports, taxes and subsidies.
To maintain this trade, the government increases taxes to pay for the road infrastructure, raising the investment via a supertax on the rich which the consultant resents. The lorries create pollution and there is a rise in respiratory disease and the health service demands more money to deal with it. There is still more trouble.
The wineries are generating more grape skin waste than the market gardeners can use. The market gardeners have used some of the extra waste and have been growing so much more vegetables that this has resulted in a glut and crash in vegetable prices. The wineries don’t know what to do as the grape skins pile up into a mountain. They secure a grant from the government to engage the consultant to find out how to turn, in the words of the consultant, ‘a waste into a solution’. The wineries have also lost their bottles, which are now exported with the wine and which are too expensive to transport back. Instead, Portugal starts producing more single-use wine bottles, extracting more sand from the rivers, destroying the riverine habitat and incurring the wrath of the local Amigos da Terra (Friends of the Earth).
Things are little better in England. I will leave you to work out what might happen there (or read the book 😉)!
Sue and I finish of the chapter thus:
‘Arguing for a return to local production [and bioregionalism] is not arguing against progress. If combined with a new understanding of its value and more efficient technologies, it is progress. If Ricardo were alive today and knew what we know now, would he still be promoting Comparative Advantage? Probably – but only for a much more limited set of products and services.’