How Does Trade Make Us Better Off?

We are going to start this module with a video by Matt Ridley called, “when ideas have sex.” While the title doesn’t sound much like it would have anything to do with this module, it really does. Take the next 16 minutes to view the video and then we will resume the module. Pay attention to the importance of “specialization” and the trading of ideas.

Figure 9-1: Matt Ridley - When ideas have sex. Source: Permission: This material has been reproduced in accordance with the University of Saskatchewan interpretation of Sec.30.04 of the Copyright Act.

Matt Ridley starts off by discussing all kinds of bad things that were happening in the 70s and 80s, some of which we still face today. These include the ballooning human population, the expanse and severity of environmental problems, and the increasing scarcity of resources. However, society has managed to continue to grow, to live longer, and to increase overall wellbeing. How were we able to do so? Matt Ridley suggests that it’s only because we as humans can specialize and trade.

Consider what you’ve done today already. You likely got out of bed and had breakfast that included Columbian coffee or tea from China, or juice from Florida. You popped open your tablet or laptop, the idea of which was conceived in the Silicon Valley, and made from parts originating from all over Asia, and likely metals and rare earths from Canada. It might even have been assembled in yet another country. The rest of your breakfast could have been grown here in Saskatchewan (wheat and other grains), sent by rail to eastern Canada, processed in Ontario, and trucked or flown back as a final good. The clothes you are wearing most likely came from India, China or Bangladesh. And so on… You could not get through the day without trade.

How does trade make you personally better off?

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Here is another question: How could you function without trade? Ridley says that we, as individuals, don’t know anything in total. It is our collective, social knowledge that permits us to live well and function so highly. What would you have to know to conduct your life on a daily basis at the level of well being you currently have? It’s really quite mind-boggling.

Think back to the economic principles in Module 1 and recall, “trade can make everyone better off.” We have come full circle and we can now talk about why this is true and how trade in agricultural products is important, but also contentious sometimes from a political perspective. We will begin by looking at what happens when regions specialize and how goods and services can be traded to promote economic gains to both parties. Ridley talked about Adam and Oz making axes and spears. Let’s start with a similar example using specialization in agriculture at an industrial level between two different regions.