3. International trade theory
There is a profound tension at the heart of the dispute between environmentalists and trade pro-
moters that has received insufficient attention. The tension concerns the central underlying as-
sumption of modern trade theory and, indeed, of the modern system of production, exchange, and
consumption. The nature of this conflict can be grasped most clearly by contrasting the ecosystem
approach with classical and neoclassical theories of trade.
While there are a number of competing theories on why trade takes place between enterprises in
different countries Ellsworth and Leith, 1984; Lipsey et al., 1988; Caves, 1996, the central theo-
retical economic justification for trade, which also explains a considerable portion of what happens
in practice, can be traced back to David Ricardo and the subsequent development and elaboration
of the ‘law’ of comparative advantage. The Ricar- dian theory of comparative advantage states that
trade is both possible and beneficial between countries, even if some of them have an absolute
advantage in the production of all goods and services. According to classical theory, the basis
for trade occurs because of differences in the relative productiveness of labour in the domestic
manufacture of goods and services within a coun- try. Although Portugal may be able to produce
both wine and cloth at a lower labour cost than England, it still makes sense for England to trade
with Portugal. This is so because — under a set of assumptions that are not particularly onerous
— if Portugal switches additional units of labour from cloth to wine production i.e. to the product
that requires the least input of labour per unit of output and England does the converse, the total
volume of wine and cloth can be shown to in- crease. Consumers in England and Portugal can
benefit from this net increase in production through international trade, with England pro-
ducers exporting cloth to Portugal and Portuguese producers exporting wine to England for a de-
tailed ecological critique of this free-trade argu- ment, see Gale, 1999.
The practical consequences of the operation of comparative advantage are increased specializa-
tion in the production of goods and service in both countries. That is, if producers in Portugal
switch a portion of their resources out of cloth production and into wine production, the country
becomes less specialized in producing the former and more specialized in producing the latter. At
the extreme, producers in Portugal will cease to produce cloth, and produce only wine, and pro-
ducers in England will cease to produce wine and produce only cloth. While the operation of the
‘law’ of comparative advantage does not mandate that producers in different countries achieve com-
plete specialization and there are good theoretical reasons to believe that in many cases complete
specialization would not occur, it is clear that the gains from trade that are consequent on the oper-
ation of the law of comparative advantage occur through the process of increased specialization.
Nor is this merely a theoretical corollary: special- ization at the national level in the production of
certain goods and services to the virtual exclu- sion of others is clearly observable in practice. In
many Third World countries, for example, such as Cuba, Senegal, and Guyana, there is a very high
export dependence on the production of sugar, groundnuts and timber for sale in developed-
country markets. Specialization in the production of tradable goods takes place in developed coun-
tries as well, though: in Canada, for example, a highly capitalized forest industry specializes in the
production of commodity forest products such as softwood lumber, pulp and paper production for
export to the USA, Europe and Japan Burda and Gale, 1998.
4. Conflicting principles: ecosystem diversification versus trade theory specialization
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