An Argument Against Trade
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by Nave Saikiliah
Anyone with a sense of economics knows that trade is good. It allows countries to specialize in certain goods, making everyone better off.
This is because of something called comparative advantage -- some countries are simply more efficient at producing one good than another nation. For example, because of how cheap their labor is, Third World nations can make simple goods (such as clothes) much more cheaply than, say, Japan. Meanwhile, Japan can produce higher end electronics more cheaply than Third World countries. When they trade with each other, they both have more of both items than if no trade ever occurred.
Some of you might be surprised to hear that comparative advantage simply doesn't exist in erepublik -- trade isn't necessarily good. Because production in erepublik is based off of formulas, it takes the same skill and labor to produce Hospitals in one country as it does the next. There is no benefit of trade, especially when imports exceed exports.
Right now, from our three trade agreements, we run a trade deficit of 25 gold a week, meaning that 25 American gold transfers to foreign countries from trade every seven days. Normally, I cringe when I hear someone thinking of trade in this way, because there are unseen benefits that almost always outweigh the deficit. In erepublik, there isn't.
In V1, there will be Raw Material industries. Hopefully, this will somehow implement comparative advantage, to make this game more realistic. Until then, however, we must change the way we view trade.
NOTE: I don't mean to come off as pedantic, it's just that there are some basic assumptions 'educated' erepublik players make that are wrong. I became president because of my economic views; the three terms I served helped me develop a unique viewpoint which could certainly help others.
Next article will cover why a planned economy might work better than a free market, despite what every economic intuition tells you.
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interesting article, I was not aware eRep\'s system was so different.
I don\'t think the trade idea is a bad thing, I simply think its not necessary due to simplicity.
Interesting. Things will change in V1, but i\'m looking forward for your next article.
COMPARATIVE ADVANTAGE IS AWESOME
A country specializing in certain goods? Why not? Why not a country with everyone having Hospital Skill and no other? Plus that probably adds in an incredible employee count factor that can\'t be gotten with mixed goods production.
And there\'s real examples of it, too. Japan, for instance, has never had more than a dozen Hospital Employees. (We all work in Q1 Company. 😑) So it benefits largely from importing Hospitals from countries that specalize more toward Hospitals, while at the same time it has spare Employees to specialize at other stuff.
@Inferno: If a country is so small that they can only really produce one or two goods, it\'s a different story. However, the employee count factor is small and under a free market, there would be so many companies vying for the same employee pool. It would make virtually no difference if everyone was all the same -- just more dependence on foreigners.
Eh, This is all True.
In few words, you cant compare RL to Erepublik world just yet.
Good point. There is truth in the fact that an import economy means trouble.
A good point and a very true one. My one main gripe with the market system established in erepublik is that we have no comparative advantage and we dont have any differentiation of products on the market. Thus all business owners the world over have AT MOST 3 factors to think and compete with, amount of employees, employee pay, and selling price. Sure we have made this more complex, but overall it comes down to the pennies, which bugs me in a lot of ways.
Speaking of our trade agreements and speaking as the current VP (lol). I\'d hope that if we began to run a large deficit we would quickly change our trade policies. The current trend we have established with trade agreements is that our markets are bloated, in nearly every single quality and industry we have an excess of companies. One way we have established to get more gold coming into the US and to save some of our businesses is to encourage exporting. So far I am reimbursing those companies who purchase an export license so that it makes it much more affordable to export. (in USD of course) So as long as we continue to export and sell in foreign companies more than they try for us, we shoudl come out on top 😁
I miss economic discussions. It seems to have fallen to the wayside recently.
Very impressive conclusion... I like your approach to the dilemma, your article screams logic.
It\'s interesting for me to note that on my first attempt to learn something about you (by way of mention in an LiB press release comment), that I actually learn something, FROM, you.
I\'m eagerly awaiting your next article.
I hope to god we can discredit your claim that a planned economy would be more efficient than a free market economy. Perhaps just informing citizens how to best handle their finances is the simple solution.
@Nave: Granted, it might take some degree of planning to hold the Company count low, but I guarantee the employee count could make a significant difference. (In Japan\'s and many other small countries\' cases, Hospital Company counts naturally remain low because they\'re so difficult to profit off of.)
A planned economy is still ideal in my mind. I could see two countries in perfect symbiosis, one producing only Manufacturing and one producing only Construction. But then it would just be easier to merge them, anyway.
Hey...
Do you know Iranian people have internal war !!!
They fighting with each other,and ther are 2 group !!!
What\'s your opinion?
Voted
@ Nave:
Without the natural comparative advantage (like that of RL), it comes down to pure formulaic efficiency of a company. Thus there is--or at the very least can be--an advantage by a company in one country over a company in another country.
The difference in the efficiencies can thus provide for a trade advantage. With this being said, the differences are often too small to make a tangible difference in eRepublik.
Nevertheless, in my opinion, the pursuit of trade should go forward undeterred.
just to clear something up, what you are talking about it absolute advantage, ie when you are better at producing something than others, comparitive advantage is when you comparitively lose less by produces something (lookup opportunity cost)
and as jack shockney pointed out, we arent exporting goods to trade we are exporting gold which is deflating all the time, also it is something that eUSA is rather good at producing, with all the new accounts, multi\'ers etc
and with regards to your statement that absolute advantage isnt possible, thats simply not true, just because everyones skill system is the same doesnt mean its equal, look at currency fluctuations, inflation rates, wages quality of products etc
my rant
@ Dragonknight
I think what Nave was trying to say is that in the eRepublic economy, comparative advantage and absolute advantage are the same thing because the resources needed for production in each industry are almost unlimited (labor is the only one). As a result, production possibilities are limited only by the skills we have. And since these skills rise on a fixed scale (eUSA\'s does not rise faster than any other country\'s), the marginal benefit to producing more of any one sector is relatively small and does not support the idea of comparative advantage. Even if eUSA did specialize in making weapons, it\'s no promise that our weapons companies could undercut EVERY other weapons-producing country. And guess what happens if we can\'t?
Sorry for the economic jargon.
Right now I think this game is in the economic sense a closed model. There is no need for foreign investments. So lets close the borders and start hoarding cash. Subsidize companies for exporting to other companies and get as much gold into our little country as possible. Lets bleed em dry🙂
@Dragonknight and Chaucer: Yeah, I meant what Chaucer said. I didn\'t want to explore it that deeply because it would alienate the average reader. The point is the same: there\'s no benefit of trade.
I too hope that the raw materials will mean there\'s more advantage to trade. Good article.
@ Nave, as always it\'s good to hear from ya, but i would have to say a few things on this... first off you should have seen it when the USA had a trade agreement with Romania, we (Benn and I were responsible for a good majority of the exprts we made to there in weapons which would bring us about 70-90 gold income a week, even with Sweden and the UK importing. Also, you have to take amount of stocks into account. GNS has over 450 Q4 weapons and will need some place to sell them, as does our Q2 company. we\'re facing massive overproduction on many levels, and while it brings market prices down for us. only that\'s going to make our companies suffer, and without proper funding i believe many will fail, as not everyone has the capital that Benn and I have... but there are always a lot of things to consider when dealing with erep economics, and it would take a long time to explain them.
ALSO! you also forget (although i doubt that you do) that USA citizens work on manipulating foreign monetary markets, such as Benn and I, and that also brings income from them, only more like stealing it from them since they don\'t get a product in return
@Uncle Sam: Since I kind of invented that (and taught it to Benn), I didn\'t forget that. However, that would happen with or without trade. Also, you are adding something to the economy: a more balanced monetary market.