Page 92 - Global Political Economy_Understanding The International Economic Order

INT ERNAT IONAL POLIT ICAL E CONOM Y
David Ricardo (1772–1823)of the law or principle of comparative
advantage revealed that every nation could gain in absolute terms
from free trade and from an international division of labor based on
territorial specialization. Subsequent modifications of Ricardo’s the-
ory suggested that states were also interested in the relative gains
from trade. Ricardo’s demonstration that international economic ex-
change was not a zero-sum game but rather a positive-sum game from
which everyone could gain led Paul Samuelson to call the law of com-
parative advantage “the most beautiful idea” in economic science.
However, both absolute gains and the distribution of those gains are
important in international economic affairs.
A number of political economists have addressed the issue of abso-
lute versus relative gains in international affairs, and the ensuing de-
bate has largely centered on Joseph Grieco’s argument that states are
more concerned about relative than absolute gains and that this cre-
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ates difficulties in attaining international cooperation. Although I
know of no political economist who dismisses altogether the role of
relative gains in international economic affairs, scholars of IPE do
differ on the weight each gives to relative versus absolute gains.
Whereas many scholars stress the importance of relative gains, liber-
als emphasize the importance of absolute gains and believe that
Grieco has overstated the significance of relative gains. Absolute
gains, they argue, are more important than Grieco’s analysis suggests,
and therefore international cooperation should be easier to attain
than he postulates. While Grieco’s emphasis on the importance of
relative gains is, I believe, basically important, and states do, in gen-
eral, prize relative gains, sometimes even at the expense of absolute
gains, this argument cannot be elevated into a general law of state
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behavior. One can say about this generalization in political economy
no more than Kindleberger has said of most generalizations in eco-
nomics: “It depends!”
The importance of absolute versus relative gains in state calcula-
tions is actually highly dependent upon the circumstances in which a
specific trade-off occurs. While it may be true that states can never be

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Joseph M. Grieco, Cooperation Among Nations: Europe, America, and Non-Tariff
Barriers to Trade (Ithaca: Cornell University Press, 1990). An excellent volume on the
debate over the importance of relative versus absolute gains is David A. Baldwin, ed.,
Neorealism and Neoliberalsim: The Contemporary Debate (New York: Columbia Uni-
versity Press, 1993).
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This point is also made in Robert Powell, The Shadow of Power: States and Strate-
gies in International Politics (Princeton: Princeton University Press, 1999): 80. Also,
Michael Mastanduno,“Do Relative Gains Matter? America’s Response to Japanese In-
dustrial Policy,” International Security 16, no. 1 (summer 1991): 73–113.
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