Comment by mitthrowaway2
Comment by mitthrowaway2 2 days ago
The feeling of misunderstanding is mutual! I agree that there was more profit to be made elsewhere. But I'm arguing that those profits were short-term profits which may well have come at long-term expense. If you follow the local gradient of profitability, you'll always find great short-term returns selling off your seed corn. Unlike what Econ 101 asserts about maximizing comparative advantage being the most profitable strategy, there is absolutely no guarantee that following a locally-optimal comparative-advantage strategy is globally optimal over a long-term window, where advantages are path-dependent.
Manufacturing is the core example of path-dependent advantages, because (unlike what any econ 101 textbook teaches), marginal costs decline with increasing production quantity in the manufacturing sector. This means the more you make, the better you are at making more things!
Fun fact: You should sell your seed corn, because the best hybrid seeds, crossed from especially made inbreds that you'd never want to use for yield, are so much better than the second generation crossing that you'll always lose money replanting.
There is never any guarantee that profits are long term or short term, or that your manufacturing specialization is going to remain useful, instead of being a dead end. Retaining specialization on, say, cathod tubes wasn't exactly profitable. See all the camera manufacturers that zigged when they should have zagged, and used their manufacturing strength to unprofitability. All of this is hidden by talking about 'manufacturing' in very large terms, but the real world doesn't work like that. Specifically, semiconductors were a very nice place to keep expertise in, and paid off. Internal combustion engines, and filaments for incandescent lighbulbs probably not.
Even in cases where we are looking at the same kind of manufacturing in multiple places, competitive advantages are lost. There are parts of Europe taht still have metallurgy and never attempted to divest, but lost comparative advantages because better technology came in at the wrong time in the capital depreciation curve: They invested heavily at the slightly wrong time, still had expensive labor, so they became far less competitive, at least for a while. Did they not pray enough to the manufacturing god? Did the Netherlands get lucky, or was sufficient dedication to manufacturing that led them to have ASML in their borders? Is the fact that Novo Nordisk found the most important pharmaceutical in the world a matter of Danish superior industrial policy, or did they just get lucky compared to the many other places with large investments in pharma that didn't get anywhere near that lucky?
The path dependence is not so predictable, and the path that makes you better today can lead you down a cliff. It's all gambles, and whoever claims they can predict what is the right one in the long run is being overconfident