Trade as a form of Exchange
Exchange is one basis for human
interaction. It includes the economics
of trading goods, services or things
perceived to have value.
It is also the basis for the attitude and
practice of inter-dependence as a means
of human survival.
Trading is based on Attitude:
The choice matters

Independence
 Dependence
 Inter-Dependence
Interdependence as an
attitude
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Existing attitudes towards exchange came from
18th Century ideas. These mostly come from a
dichotomy between independence or dependence.
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Recent evidence of ecological, sociological and
technological interdependence illustrates the
limitations of this false attitude choice.
Beyond the Proactive: Rising
above technological images
Reactive – go to good old days
 Inactive – just stay in place
 Proactive – finding waves of the future
 Interactive – creating normative worlds
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Evolution of the Trading
Stage-set: From Barter to
Banking
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Barter (mercantilism) has evolved into
sophisticated forms of currency exchange.
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Sophistication is now evolving into counter-trade
(back to Barter) and transcending the limits of
money. Is this form of Barter mercantilism?
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Local evolves into regional, the national, the
international, then global, and then back to local.
Question – is this local the same or different?
From ideas, to businesses,
objects of worship
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Finding an idea
Developing it
Creating a market
Moving overseas
Creating a religion
A means to see, then avoid
the limitations of business
 Egocentric
 Ethnocentric
 Polycentric
 Region-centric
 Geocentric
 Non-centric
1776 – Adam Smith and
Absolute Advantage
Division of labor – evolution of worker
skills and production methods, via
technologies . “Analysis at the center.”
 Invisible hand of markets – Where relations
between parts gets resolved. Consequences
are paraded as a “system;” it is not.
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Consequences of analysis
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Reductionism
Cause-effect thinking
Life as a machine
Loss of meaning
Loss of intent
Loss of intentions
Reversion of Order
The Challenges of Synthesis
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How to put pieces
back together?
Where to begin?
Who to believe?
Relations transcending
things?
Meaning through
meaningfulness…
Beyond criticisms of two
centuries of Western
Trade Theory
18th Century – Adam
Smith
 19th Century – David
Ricardo
 20th Century – HeckscherOhlin
 20th Century – Leontief
Paradox
 20th Century – Buren Stan
Linder
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19th Century Comparative
Advantage: Ricardo
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Commodities are produced, traded and consumed
in a world where goods should flow between
countries without restrictions.
 The result is a trading world where advantage lies
with skill in production and trading.
 Ricardo took Smith’s absolute advantage to the
extreme, where only one product with an absolute
advantage can have a “comparative” advantage.
The 4 corners of 18th and 19th
Century Western Production

Capital
 Labor
 Raw materials
 Land
Notes on the Historical
Foundations

This was known as neoclassical economics of
trading theory.
 Smith and Ricardo suggest that nations with
abundant supplies of one, or more, factors of
production should concentrate in sectors that
emphasize the advantages of its factors.
 Now, all that was needed was an accounting
method.
 This was supplied in the 1980s by Porter.
A Swedish interpretation: the
1933- 1949 Heckscher-Ohlin
factor endowment
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Comparative
advantage relies on
only labor and capital,
thus raising the
importance of capital
 Swedish firms thus
shifted emphasis from
land and materials to
capital.
1950 – The Leontief Paradox
Via “input-output”
analysis he showed the
relationship between
labor and capital.
 He then proposed that
the U.S. produced
“labor-rich”, not
capital-rich export
products.
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Dilemmas for Neo-classical
theories of trade, Why:
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Autos/steel in Japan?
 Mobile phones in Finland?
 Jet fighters in Sweden?
 Construction in France?
 Hi-tech in Singapore and Hong
Kong?
 Sugar in Germany and U.S.?
 Refrigerators in S. Carolina?
 Production in China?
1961 – Linder’s Proposal:
Overlapping Product Ranges

Linder instead looked
at the demand-side of
the equation
(consumers)
 Factor approaches are
no longer relevant in
manufacturing
industries
 Here, success depends
on traits of consumers.
1966 – Raymond Vernon
Product Cycle Theory

Herein the focus moves to
the product, and away from
the country of origin,
destination, technology of
production or other factors.
 Important is the role of
information and knowledge
about products.
Product Cycle Theory
Assumes

A new product is introduced at home
 The product matures in its home market
 Product becomes standardized
 Product as a cash cow begins to level or
decline in home market
 Product is internationalized
1970 – Technology Gap
Theory
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A country can make effective
use of gaps in products via
technical innovations for
specific foreign markets.
 Useful theory, but leaves out
from where gaps and
innovations arise.
 This theory relies on use of
patent application data.
Picture – The new Nokia
communicator in 1997.
1980 – Alternative Theories
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Governmental roles
Intra-industry trade
Imperfect competition
Market imperfections
Porter’s competitive
advantages/diamonds
Resources for Governmental
Management of Trade
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Exchange rates
Interest rates
Corporate taxation
Wage costs
Subsidizing capital for exports
Export promotions
R & D funding for exports
Governmental purchases of export products
Foreign aid combined with export sales
1990s – Management Theory
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Here the importance of
non-factor endowments is
the focus.
 Why do certain structures,
cultures, and social
environments lead to
success and failure?
 Emergence of Structure
follows Strategy Paradigm.
Conclusion of Part One
*

To where should we turn, as we turn, and
are turned?
 What theory(s) are now most helpful?
 Whom should we trust?
Part II – Terminology of Trade
Where to go, Where to be, What to
rely on, What to do?
Local to global, and then back to the
local.
Terminology about Trade
From the local to the
global, and back once
again to where all
sales are made and all
consequences reside.
Picture – Tallin, Estonia
International Trade levels
Local – with those you know, and have known
 National – within a nation
 International – between nations
 Multinational – many nations
 Transnational – transcending nation-states
 Global – one world
 Virtual – transcending worlds
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Theory of Globalization of
Business
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An introduction to the
non-national, nonrational world of
business.
 I.e., how to survive IB
with your enthusiasm
and ethics left intact
 The point of it all, for
those who require
points.
Going International: An
unfortunate progression

In the beginning there was much hope
(freedom to move and innovate)
 Then came the accountants (to keep track of
innovation in new areas)
 Then came the CFO’s (to restrict it)
 Then came the strategies (to encourage the
amoral)
 Then came the lawyers (to litigate blame)
And on…..
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Then there was hopelessness in the land
 Then there was an abundance of fertilizer
 And, then there was a chance for new
beginnings
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What is this new beginnings stuff?
From fertilizer arises hope
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Things, like flowers
 In fact, some very nice
things with many
possibilities for good
 Shifting from hierarchies
of control of global over
local, to symmetrical
relations of thinking
globally, acting locally.
Picture – Iowa flowers
Therefore what is meaningful –
differences that make a difference
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Understanding difference
 Seeking differences that
make a difference
 Assume difference over
time is change (planning).
 Assume difference in time
is reality (designing).
 How can we best select
the most real to manage
the changing?
 How to integrate planning
into design.
Picture – Japanese house
Design, planning, production
and distribution of goods and
services that are:
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Appreciative of nature
 Appreciated by others
 Accepting of the
irreversible
 Avoiding the recyclable
 An enhancement to living
systems
Picture – Swedish Lapland