Since ancient times, people have been trading. At first between separate settlements, and later - entire regions. With the development of the manufacturing industry and technological revolutions, the production of goods has been greatly simplified. There was a need for the development of new foreign sales markets, the international division of labor and capital. Many philosophers and economists tried to reflect on these problems, but Adam Smith was the first to clearly articulate his concept. He was the first to define the concept of absolute advantage. This gave impetus to the development of other concepts. For example, such as comparative advantage. Later, it formed the basis of the famous Heckscher-Olin theory and Porter's theory of competitive advantages. A. Smith's new theory laid the foundations for the study of international trade and gave the key to understanding the principles of international competition.
The concept of absolute advantage
The term is used in the analysis of the causes of international trade and the principles of economic interaction between countries. In economics, an absolute advantage is the ability of one organization, entrepreneur or country to produce public goods (goods or services) in large quantities compared to others. At the same time spending the same amount of production resources. The effectiveness of the absolute advantage with the help of commodity benefits is evaluated. Each subject of trade, whether an enterprise or a country, seeks to develop its advantages - this is one of the fundamental principles of the economy.
Factors
Any advantage is based on the possession by the subject of trade of certain advantages. Such as:
- climate uniqueness;
- large reserves of natural resources;
- wide labor resources.
The presence of one single absolute advantage is the opportunity for the subject of trade to become actually a monopolist of his industry in a certain region. If it is “in the hands” of one country, it automatically gives the right to receive international specialization in the global market in one of the trading areas.
Theory of A. Smith
The “pioneer” in the study of absolute benefits is Adam Smith. In one of his works on economics, “A Study of the Nature and Causes of the Wealth of Nations, ” he was one of the first to make the assumption that the real wealth of each country lies in goods and services that are available to citizens. He suggested that a country has an advantage over other countries if it has sufficient human resources, special environmental conditions and raw materials for the production of goods. This allows her to release cheaper goods on the international market compared to competing countries.
Smith believed that in a global market, it would be advantageous for countries to purchase goods from other countries with an advantage. At the same time, develop their advantages over other countries. For example, it is beneficial for Russia to sell gas, and to buy coffee from Brazil. Since our country has an absolute advantage in the trade in raw materials, it is beneficial for all other countries to purchase gas from Russia. But growing coffee in Russia is almost impossible. But Brazil's climatic conditions allow it to use its absolute advantage when exporting coffee beans. It follows that it is more profitable for our country to buy coffee in Brazil.
Ways to take advantage of countries
In the theory of A. Smith, two methods are distinguished:
- Labor input - cheap production of products. For measurement, take the time cost per unit of manufactured goods.
- High performance demonstrated when creating a product in one country compared to another. It is taken into account as the quantity of goods produced per unit of time.
Ricardo's Theory of Comparative Advantage
The main flaw in Smith's theory of absolute advantages is the lack of explanation on the issue of participation in global trade of countries that do not have any "advantages". This condition was taken into account in his theory by David Ricardo.
In his work “The Beginning of Political Economy and Taxation”, the author considers the situation in which a certain country A has absolute advantages in the production of all goods, and compared it with country B, which does not have absolute advantages.
As a result, Ricardo concluded that country B should analyze all its advantages and choose a specific product to participate in international trade. Which has the least lag in production efficiency from goods produced in country A. This is called the smallest relative (comparative) advantage, and from the absolute it differs in the degree of cost of producing the goods.
In addition, Ricardo identifies the second category of comparative "dignity." If country A has an absolute advantage in the production of a certain product T due to speed (2 times higher than in country B), and 3 times faster produces goods T2 than country B. Then country B should produce goods A, since the gap in production efficiency between goods between countries is lower. This phenomenon is called the greatest relative advantage, and from the absolute it is distinguished by the smallest difference in the speed of production of goods.
"Advantages" of Russia
As of 2017-2018, Russia ranks 11th in the global ranking of exporters. High performance allows you to achieve a number of absolute advantages that the country has.
- Gas. Russia is the largest international supplier of blue fuel, ahead of Qatar and Norway in terms of production and sales.
- Oil and oil products. The Russian Federation is the largest producer and supplier of oil throughout Europe for a relatively low cost. This provides her with an absolute advantage over other countries.
- Diamonds Our country is the world's largest supplier of rough diamonds.
- Heavy and non-ferrous metals. A number of Russian metal mining companies are the largest global suppliers of raw materials.
- Wood. Russia is the leader in the supply of cheap timber (business roundwood) in the Northern Belt, ahead of New Zealand, the USA and Canada in these indicators.
- Armament. It cannot be said that Russia supplies the most weapons in the world. This is not so, but Russia has a distinct advantage in certain types of weapons.
- Power plants and nuclear fuel. In this market, Russia is close to monopoly. Therefore, some economists argue about whether the advantage in this industry is absolute or relative to the lack of competition.
Porter Theory
The concept of the country's absolute advantages laid the foundation for the development of other economic theories of international trade. One of these is the theory of competitive advantages proposed by M. Porter. In the 20th century, there was a technological boom that provided countries that did not have any absolute advantages the opportunity to receive them thanks to their economic strategy. As an object for study, he proposed not to take the whole country, but to focus on industries.
In his theory, Porter proposed the following methods for countries to gain competitive advantage:
- factor conditions - labor and natural resources, professionalism of employees and infrastructure of the enterprise;
- level of demand for certain products;
- condition of supporting industries - availability of suppliers;
- level of competition in the industry.
