One of the most widespread subjects related to economy, and unfortunately, the least understood, is the process through which countries exchange products. Maybe we can learn something from this simple example.
Impossible to deny it! At some point in our lives, we have all resorted to the most popular Ecuadorian tradition…the tasty bread and a soft drink, an eating habit that "doesn't nourish but satisfies", as often said. However this culinary experience, I can assure that we can learn something about international trade based on this simple example.
One of the most widespread subjects related to economy, and unfortunately, the least understood, is the process through which countries exchange products. To try to understand why trade occurs, and how it affects some key elements such as productivity, let us use a very simple example. Let's suppose that you produce and sell 10 units of soft drinks (Pepsi, for example) and I produce and sell 10 slices of bread. We know that a person needs a combination of solids and liquids in order to survive; thus, it is necessary to obtain what I lack, that is, soft drinks, and you need to obtain bread. We decide to exchange these products, and at the end of the negotiation, each person has 5 slices of bread and 5 soft drinks, in other words, we have spared part of our "wealth" in order to purchase what we needed (we have exchanged at a rate of 1 slice of bread for 1 soft drink).
Up to here, everything is very simple and obvious. We are both happy with the result of the negotiation. The next step: let us suppose that you take a course to improve the quality of your soft drinks adding an advantage to the negotiation (because the quality of the bread remains the same). This is expressed by the fact that now, 2 slices of bread are exchanged for 1 soft drink (the price of the soft drink has risen because of it´s, better quality and I have accepted to pay that price because I believe that the satisfaction that the soft drink gives me, with respect to the bread, justifies such price). The final result is that you remain with 7 soft drinks and 6 slices of bread, while I only have 3 soft drinks and 4 slices of bread. Is this an unfair result?
At first sight we may tend to think so, but it is not. The exchange has been free, and each one of us has the number of slices of bread and soft drinks that we consider satisfactory… I could choose not to purchase the soft drinks and only stick to bread (10 in this case) but it seems to me that I am in better conditions with the new combination (3 soft drinks and 4 slices of bread). Naturally, I would be better off if I made an effort to improve the quality of my bread so I could sell them at a more expensive price.
Of course, in real life, things are much more complex, but we can equally apply the results of our small model of "bread and soft drinks" to the domestic activity. We export bananas and we import mobile telephones from the US, a country that is much more productive than Ecuador, element that allows the latter to obtain more revenue as a result of trade. Is this situation unfair? No. But we would be in a better condition if our levels of efficiency and quality were to increase (products become more attractive). Frequently, we tend to blame developed countries because the of terms according to which products are exchanged are not as favorable for the developing countries. This situation can be found in the real world, but in practice, the factor that determines how much countries gain as a result of trade is the level of productivity. Training of human resources, purchasing and streamlining technology, process improvement, the constant search for new markets and products, are some aspects that make a difference between those who loose and those who win. We are not forced to continue trading computers for bananas (raw goods are not precisely the most dynamic and profitable on the mar ket), but while we continue along this line we better do it with higher efficiency levels.
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