Will the World Become More Isolationist? – 07/16/11

Dear Ladies and gentlemen,

For Your Entertainment (FYE)


“The policy or doctrine of trying to isolate one’s country from the affairs of other nations by declining to enter into alliances, foreign economic commitments, international agreements, and generally attempting to make one’s economy entirely self-reliant; seeking to devote the entire efforts of one’s country to its own advancement, both diplomatically and economically, while remaining in a state of peace by avoiding foreign entanglements and responsibilities.”

“All the First World countries (the UK, United States, etc.) trade in a world economy, and experienced an expansion of the division of labor, which generally raised living standards. However, some characterize this as “a wage race to the bottom” in the manufacturing industries that should be curtailed by protectionism. Some argue that isolating a country from a global division of labor—i.e. employing protectionist trading policies—could be potentially helpful.”

“The theory of comparative advantage, and the corollary that nations should specialize, is criticized on pragmatic grounds within the import substitution industrialization theory of development economics, on empirical grounds by the Singer–Prebisch thesis which states that terms of trade between primary producers and manufactured goods deteriorate over time, and on theoretical grounds of infant industry and Keynesian economics. In older economic terms, comparative advantage has been opposed by mercantilism and economic nationalism. These argue instead that while a country may initially be comparatively disadvantaged in a given industry (such as Japanese cars in the 1950s), countries should shelter and invest in industries until they become globally competitive. Further, they argue that comparative advantage, as stated, is a static theory – it does not account for the possibility of advantage changing through investment or economic development, and thus does not provide guidance for long-term economic development.”

“Economist Ha-Joon Chang criticized the comparative advantage principle, contending that it may have helped developed countries maintain relatively advanced technology and industry compared to developing countries. In his book Kicking Away the Ladder, Chang argued that all major developed countries, including the United States and United Kingdom, used interventionist, protectionist economic policies in order to get rich and then tried to forbid other countries from doing the same. For example, according to the comparative advantage principle, developing countries with a comparative advantage in agriculture should continue to specialize in agriculture and import high-technology widgits from developed countries with a comparative advantage in high technology. In the long run, developing countries would lag behind developed countries, and polarization of wealth would set in. Chang asserts that premature free trade has been one of the fundamental obstacles to the alleviation of poverty in the developing world. Recently, Asian countries such as South Korea, Japan and China have utilized protectionist economic policies in their economic development.”

Big Hugs and Kisses to All! ;+)


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