Page 224 - Global Political Economy_Understanding The International Economic Order

THE TRADI NG SYS TEM
emphasizing “comparative” to emphasizing “competitive” advan-
tage, especially in high-tech sectors. International competitiveness and
trade patterns frequently result from arbitrary specialization based
on increasing returns rather than from efforts to take advantage of
fundamental national differences in resources or factor endowment. 20
This new thinking about the arbitrary or accidental nature ofinterna-
tional specialization and competitiveness emphasizes the increasing
importance oftechnology in determining trade patterns. 21 The in-
creasing importance oftechnology and of economies ofscale has be-
come an important factor in corporate and national economic strate-
gies.
In 1966, Raymond Vernon’s product cycle theory offoreign direct
investment incorporated technology into trade theory; his work fore-
shadowed later writings on the importance oftechnological innova-
22
tion for trade and investment patterns. According to Vernon, Ameri-
can FDI in the 1960s could be explained primarily as a result of
America’s competitive advantage in product innovation and ofthe
desire ofAmerican firms to deter or forestall the rise offoreign com-
petitors.
Additional influential work on the broad subject of the shift from
comparative to competitive advantage has been produced by Michael
Porter, a professor at Harvard University’s Business School. Through
his extensive research, Porter has attempted to explain why the firms
ofsome countries have been more competitive in specific industrial
23
sectors than the firms ofother countries. The United States, for ex-
ample, has been very strong in aircraft, while Japan has had an ad-
vantage in consumer electronics and automobiles. Through his de-
tailed and extensive empirical studies ofthe trading patterns of
several countries, Porter found determinants of such patterns, at least
among industrialized countries.
The central finding ofPorter’s research was that the internal char-
acteristics ofa national economy (including what I have identified as
the national system of political economy) affect the environment of

20
Krugman, Geography and Trade (Cambridge: MIT Press, 1991), 7.
21
Robert M. Solow, “Growth Theory,” in David Greenaway, Michael Bleaney, and
Ian Stewart, eds., Companion to Contemporary Economic Thought (London:
Routledge, 1991), 407.
22
Raymond Vernon, Sovereignty at Bay (New York: Basic Books, 1971); and Ver-
non, “International Investment and International Trade in the Product Cycle,” Quar-
terly Journal of Economics 80, no. 2 (May 1966): 190–207.
23
Michael E. Porter, The Competitive Advantage of Nations (New York: Free Press,
1990).
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