The economic theory of comparative advantage was neatly illustrated in the Olympic Games closing ceremony this week. Comparative advantage, as I understand it, holds that an economy should concentrate on producing what will make it the most money.
Britain whose manufacturing base was decimated in the 1970s by competition with the low labour costs and high productivity of the Asian Tiger economies has transformed itself into a 'knowledge economy'. The source of its economic success is now banking, investment, legal services, innovation and creativity. Be it hedge funds or Harry Potter; Britain's economic prowess now relies on brain power rather than brawn.
China, on the other hand, has an abundance of cheap labour which has attracted investment by foreign companies. This has helped China to lift 400 million out of poverty and build a modern, industrialised economy.
Britain will not be able to spend the amount of money that China has thrown at the olympics, nor does it need to do. An 'intimate', innovative games is far more suited to Britain's place in the world. A grand, regimented, landmark games allowed China to formally announce its much delayed arrival on the world stage. Neither approach is wrong it's just what suits each country best.
2008-08-25 @ 14:36