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To me, cutting costs is nothing but the constant process of all businesses to lower the cost of their product through any means available, be it innovation, smarter organization, capital structure or whatever. Call it lean/kaizen or something else. It happens all the time in all companies to maintain their competitiveness. It's not about dismantling industry or introducing third world living standards.

That is because you have a protected domestic market in which the most productive Swedish industries can cannibalise the less productive Swedish industries.

Absent the protected domestic market, there is no guarantee that the dismantled industries are replaced by more productive domestic industries - they may instead be replaced by imports.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Dec 14th, 2011 at 10:15:24 AM EST
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Absent the protected domestic market, there is no guarantee that the dismantled industries are replaced by more productive domestic industries - they may instead be replaced by imports.

Ironically, I once closed a debate with Starvid with just such an example.

Tough competition in the refrigeration and freezing appliances market is forcing Danfoss to move its production of refrigerator and freezer thermostats from Nordborg to Danfoss' factory in Slovakia. The relocation, which is expected to be completed by the end of 2005, will affect around 77 employees.

...

This event cannot be accommodated within Ricardo's theory. Under Ricardo's theory, Danfoss would use its capital and labour in Denmark to produce something else which can be exported to Slovakia, and some Slovak company would export thermostats to Denmark. Instead, what is happening is that Danfoss moves its capital to Slovakia, and its employees have to look for other jobs in Denmark without the benefit of Danfoss' capital also staying in Denmark chasing after labour. I suppose Danfoss' 77 employees could move to Slovakia to work for Danfoss there. I wonder how many of them would relocate to slovakia with a Slovak salary and benefits, if offered the chance. And this is within the European Union. There is no free movement of persons from Europe to China.


tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker
by Migeru (migeru at eurotrib dot com) on Wed Dec 14th, 2011 at 10:26:27 AM EST
[ Parent ]
This is due to the fact that Ricardo's theory requires capital (and other factors of production) to be immobile. Which Ricardo himself knew: "if capital freely flowed towards those countries where it could be most profitably employed, there could be no difference in the rate of profit, and no other difference in the real or labour price of commodities, than the additional quantity of labour required to convey them to the various markets where they were to be sold."

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Wed Dec 14th, 2011 at 10:36:11 AM EST
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Sweden is one of the most forceful supporters of free trade (which is only natural when trade is 50% of your GDP), so claiming we have a protected domestic market is quite rich. Norway, however, has. At least when it comes to agricultural products. The current butter deficit in Norway has resulted in considerable butter smuggling from Sweden, with black market prices of butter topping €150 per kg (yes, really). :)

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Wed Dec 14th, 2011 at 10:33:38 AM EST
[ Parent ]
Sweden is one of the most forceful supporters of free trade (which is only natural when trade is 50% of your GDP), so claiming we have a protected domestic market is quite rich.

Floating currencies is a way to generate a protected domestic market.

Or, to be a bit more technical, by allowing the exchange rate to be the buffer variable that ensures balance of the foreign accounts, you obtain the Keynesian advantages of a closed economy and the Ricardian advantages of an open economy. At the same time.

(This is not a free lunch - it fucks over internationally active banks by subjecting them to exchange rate risk. But Hayek is the only one who cries for internationally active banks.)

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Dec 14th, 2011 at 10:38:20 AM EST
[ Parent ]
Oh come on. You can't argue that having a currency of your own is protectionism. Protectionism is quotas, tariffs, subsidies for domestic suppliers or discriminatory regulations for foreign suppliers, and so on.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Wed Dec 14th, 2011 at 10:45:04 AM EST
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Take a look at China's currency policy and tell me again that currency policy does not create a protected market.

The Chinese case is an extreme one, because they target a surplus rather than balanced foreign accounts. But the basic mechanics are not so different at all.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Dec 14th, 2011 at 11:23:24 AM EST
[ Parent ]
The Chinese have a fixed currency, the opposite of a floating currency. So I don't see how that makes a floating currency protectionism. Rather the opposite.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Wed Dec 14th, 2011 at 11:26:38 AM EST
[ Parent ]

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