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Unread 11 Oct 2005, 10:38   #1
wu_trax
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i also have a basic economics question

about globalisation and economical development.
Every economist will tell you that economies develop from being agricultural to industrial and then to service orientated. The first step is fine with me: You buy coffee from some african country and then sell some mashines or whatever to that african country, so that they can produce more coffee the next year. Both win.
I don't see how that is possible if the economy is more based on services. You can hardly export a hair cut to China, because some chinese guy sold you a dvd player. Yes, i know you can export some services, but as i see it, most you can not.
If this is true, I don't understand how such a situation can be stable on the long term. Let's assume you are a country and buy goods for 1,000€ from China. you got your stuff, chinese guy gets 1,000€. Now chinese guy has 3 options:

a) use the 1,000€ to buy stuff or services from you or someone else who accepts € (no problem)

b) sell the 1,000€ to someone else who then has to pick between option a) or c)

c) invest the 1,000€ in your country.

If you have no goods or services to export option c) is the only one possible, so let's say chinese guy does just that; he finds some investment that will make him 10% a year.

The next year you again buy stuff for 1,000€ from the chinese guy, so that he now has 1,100€ to invest (1,000€ for the goods + 100€ because of his investment). A year later it's 1,210€ and so on until one day chinese guy tells you to **** off because he doesnt want your euros anymore.

How can this work out?
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Last edited by wu_trax; 11 Oct 2005 at 11:02.
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Unread 11 Oct 2005, 10:46   #2
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Re: i also have a basic economics question

dude, PLEASE , use some paragraphs.

I'd love to read your post but there's no way im doing it till its readable
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Unread 11 Oct 2005, 11:02   #3
wu_trax
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Re: i also have a basic economics question

better?
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Unread 11 Oct 2005, 11:07   #4
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Re: i also have a basic economics question

No economic system is sustainable in the very long term (after all, we're all dead eventually). But that doesn't really matter to a lot of people.

Anyway, I think you're overestimating how much of the economy is made up of non-exportable services. The US still exports a fair amount via intellectual property related stuff, and I know a lot of London's wealth comes from financial services. Yes, an economy which is 100% based on non-exportable services (e.g. hair-cuts) won't do very well in the long term. But who is advocating that?
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Unread 11 Oct 2005, 11:09   #5
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Re: i also have a basic economics question

Much, thank you

Unfortunately, I know bugger all about economics.
However I would say that the services themselves don't matter, only the money generated from them do.

This is why countries are concerned with imports + exports, they don't want too much of either, as it leaves their economy either dependant on foreign trade, or lacking in it and not having money in it to spend.
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Unread 11 Oct 2005, 11:20   #6
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Re: i also have a basic economics question

Quote:
Originally Posted by Dante Hicks
No economic system is sustainable in the very long term (after all, we're all dead eventually). But that doesn't really matter to a lot of people.

Anyway, I think you're overestimating how much of the economy is made up of non-exportable services. The US still exports a fair amount via intellectual property related stuff, and I know a lot of London's wealth comes from financial services. Yes, an economy which is 100% based on non-exportable services (e.g. hair-cuts) won't do very well in the long term. But who is advocating that?
As long as the volume of trade in services is so much lower that the trade in goods it doesnt change much of what i said. In 2002 the total volume of trade in services within the OECD was 1.25 trillion USD exports and 1.21 trillion USD imports, compared to 4.48 trillion USD exports and 4.70 trillion USD imports in goods. I didn't find any per country statisitcs.
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Unread 11 Oct 2005, 12:42   #7
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Re: i also have a basic economics question

Quote:
Originally Posted by Flavius
I don't understand your question. Can countries trade services? Yes. Can they make money out of it? Yes.
Where are you trying to get to?
but can they make enough money with it to pay for the stuff they outsourced to china? i dont think so.
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Unread 11 Oct 2005, 13:18   #8
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Re: i also have a basic economics question

Just because some company outsourced their production to China they don´t stop earning money, do they?
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Unread 11 Oct 2005, 13:53   #9
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Re: i also have a basic economics question

Services can be a lot more useful than haircuts dude.

What about teaching, health services, plumbing and sewage work, transport? They're all services. The Chinese person can spend this 1,000€ on any of them (and more).
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Unread 11 Oct 2005, 14:05   #10
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Re: i also have a basic economics question

Quote:
Originally Posted by Tomkat
Services can be a lot more useful than haircuts dude.

What about teaching, health services, plumbing and sewage work, transport? They're all services. The Chinese person can spend this 1,000€ on any of them (and more).
oh, i think a haircut is quite usefull, however, its difficult to ship to China (that also applies to your examples)
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Unread 11 Oct 2005, 14:32   #11
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Re: i also have a basic economics question

Quote:
Originally Posted by wu_trax
oh, i think a haircut is quite usefull, however, its difficult to ship to China (that also applies to your examples)
Haircut services is not where the big money is. Research, pharmacy, banking and financing sectors to name a few, are the true global tertiary sectors which, e.g. in Switzland can easily match the output of the second or first sector and can gain you a comparative advantage.

Other than that, services which have to be carried out locally can be standardised and sold via patents, franchises or fees.
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Unread 11 Oct 2005, 14:33   #12
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Re: i also have a basic economics question

Quote:
Originally Posted by wu_trax
a) use the 1,000€ to buy stuff or services from you or someone else who accepts € (no problem)

b) sell the 1,000€ to someone else who then has to pick between option a) or c)

c) invest the 1,000€ in your country.
You missed option d:

d) Sell the euros to the local bank. Your neighbour, decides to go on holiday to europe the next day. He goes to his local bank, buys euros, and spends them in europe.
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Unread 11 Oct 2005, 14:37   #13
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Re: i also have a basic economics question

It's not hard for a country to compete in the global market, even if they do produce nothing but haircuts (i.e., local services).

Let's say country A produces coffee (agriculture/natural resources). They send coffee to country B and C in exchange for money. Country B produces washing machines (developed products). They send washing machines to countries A and C in exchange for money. Country C produces haircuts. They cut each other's hair, and exchange money for the service. Obviously none of this money crosses international borders.

So how can this be sustainable? Well, if in country C the barbers own the coffee company in country A and the washing machine company in country B, then the profits will cross the border back into country and can balance a trade deficit.

Obviously this situation isn't realistic, every country has some blend of service/developed goods/raw materials, but it is also true that some countries have enough foreign investment that a significant permanent trade deficit can be sustainable. I just think it's important to get over the discrete economies fallacy.
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Unread 11 Oct 2005, 17:19   #14
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Re: i also have a basic economics question

Quote:
Originally Posted by wu_trax
oh, i think a haircut is quite usefull, however, its difficult to ship to China (that also applies to your examples)
They are?

Teachers
Doctors
Plumbers
Sewage worker sanitary people things
Transport companies/workers

Obviously, yeah, for 1000 euros you wouldn't get much. We're talking quite a bit more than that though.
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