Friday, September 03, 2004

Misinterpreting Ricardo

Attended a roundtable on Indonesian investment and industrial policy yesterday. One speaker, a professor from Keio University offered a disturbing claim: comparative advantage and factor proportions paradigm are "old theories", "static", and therefore irrelevant for today's world. He went on offering "the new" approaches: fragmentation and agglomeration. I was wondering, where he had been so far? Fragmentation is another word for division of labor! And it all goes back to 1776 Adam Smith. And, urgh, agglomeration is "new"? Even worse, is his misunderstanding of Ricardo's comparative advantage. He basically said CA is old and static, so change it to networking based on fragmentation and agglomeration. As a discussant pointed out, there was nothing new in his talk. He was simply applying Ricardo's CA from country-level aggregates into (networks of) firms. He surely had not updated. Or, he simply didn't understand what Ricardo meant.

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