[Review] Heiner Flassbeck - Fundamentals of Relevant Economics

Siehe auch:
[Rezension] Heiner Flassbeck - Grundlagen einer relevanten Ökonomik - Vorurteile über Vorteile

Heiner Flassbeck is an economist from Germany. The economist born on December 12, 1950 was among other things State Secretary in the Federal Ministry of Finance under Oskar Lafontaine (SPD) from 1998 to 1999. And from January 2003 to the end of 2012 he was Chief Economist (Chief of Macroeconomics and Development) at the United Nations Conference on Trade and Development (UNCTAD). Flassbeck publishes among other things on Makroskop and Relevante Ökonomik in German and on Flassbeck Economic in English.

The book "Fundamentals of Relevant Economics (Grundlagen einer relevanten Ökonomik)" was written together with co-authors Friederike Spiecker, Patrick Kaczmarczyk and Alexander Mosca Spatz. The book is clearly specialist literature in nature but not a pure textbook. Although connections are discussed in detail at the level of specialist articles no absolute fundamentals are conveyed. The quality of the derivations is very high as the arguments are based on empiricism and logic rather than made in a vacuum. This sets the author apart from any ideology despite the topic. The book gains additional importance due to the current recession.

Theoretical Advantages

International trade is determined by the advantages and disadvantages of each country. If there are no trade barriers or if the costs are taken into account, then companies from different countries compete with each other. This assumes that goods from different countries are substitutable.

An absolute advantage exists when several countries produce several substitutable goods but different countries produce them most cheaply or with the highest productivity. For this to happen it is not necessary for one of the countries to have no free production capacity or to be at full employment. For example country A could produce good X more cheaply than country B and conversely country B could produce good Y more cheaply than country A. In this case it is desirable if country A also focuses on the production of good X and country B on the production of good Y. And it is not desirable if the countries cover their needs entirely through their own production.
If according to the example below both countries consume and produce both goods both would have costs of 150. If both countries consume both goods but only produce the cheaper one both would have costs of only 100.

Country	A	B
Price for X	50	100
Price for Y	100	50

A comparative advantage exists when several countries produce several substitutable goods but one country can produce them most cheaply or with the highest productivity and the cheapest goods in each case are different. It is absolutely necessary for both countries to have no free production capacity or to have full employment. Otherwise no division of labor takes place, but imbalances in foreign trade arise since the country with the absolute advantage produces both goods. In this case it is also considered desirable if country A also focuses on the production of good X and country B on the production of good Y. And it is not considered desirable if the countries cover their needs entirely through their own production.
According to the example below if both countries consume and produce both goods they would have costs of 15 and 150. If both countries consume both goods but only produce the cheaper one they would both have costs of 60 and 105.

Country	A	B
Price for X	5	10
Price for Y	100	50

Real Advantages

According to Flassbeck countries with high costs and low productivity fall behind in free trade and have no advantage. The division of labor between countries which the theory of comparative advantage assumes only occurs under conditions of full employment or when there is no more free production capacity. If full employment prevails or when there is no more free production capacity then, according to Flassbeck companies with absolute advantages could further expand their capacities abroad and further undermine a perceived comparative advantage of competitors. If this condition is not met imbalances in foreign trade arise since the country with the absolute advantage produces both goods. According to Flassbeck the theory of comparative advantage is a suitable excuse for free trade and deliberate mercantilism thus deliberate foreign trade surpluses. [1, p332-343]

Competition of Nations

Since the foreign trade balances of all countries in the world balance each other out not all countries can have an import or export surplus. And both import and export surpluses harm the countries concerned and especially their populations. Countries with export surpluses live below their means and those with import surpluses live beyond their means. If nations compete for export surpluses they do so at the expense of their own populations. [1, p.327-331]

Developing countries must be able to catch up

If productivity in a developing country increases faster than in an industrialized country and if productivity in the developing country increases at the same rate as foreign trade competitiveness, then the developing country can catch up. If foreign trade competitiveness increases faster than productivity however then foreign trade imbalances arise. Flassbeck also advocates the return of a monetary system like the Bretton Woods System to regulate this.

Just as there is no substitution of capital and labor, labor and capital are not equalized in absolute advantages. When productive corporations from industrialized countries invest in developing countries capital-intensive production is not replaced by labor-intensive production due to low wages. Corporations do not give up their absolute productivity advantage when they establish production in developing countries with low wages. In this way the absolute advantages of corporations can become the absolute advantages of countries. [1, p.344-349]

Src:
[1] Heiner Flassbeck - Grundlagen einer relevanten Ökonomik - ISBN 978-3-86489-414-5
[2] Makroskop
https://makroskop.eu/
[3] Relevante Ökonomik
https://www.relevante-oekonomik.com/
[4] Flassbeck Economics
https://www.flassbeck-economics.com/
[5] AMECO - annual macroeconomic database / jährliche makroökonomische Datenbank
https://economy-finance.ec.europa.eu/economic-research-and-databases/economic-databases/ameco-database_en

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