1. "A Splendid Exchange" a Splendid Read
Ben Black
9/06/10
I recently read William Bernstein's (not to be confused with another adroit
financial author Peter Bernstein) "A Splendid Exchange: How Trade Shaped the World."
The book basically spans the whole of human history, and comments on the changing
human condition through the context of commercial enterprise and trade. Apart from the
many historical lessons to remember, I learned some economic and financial theses
which may serve to enlighten on the current economic situation we find ourselves mired
in:
(1) Those with abundance in supply of land, labor, or capital in one nation are benefited
by freer global trade, whereas those in possession of regionally scarce land, labor, or
capital are adversely affected by it. Pricing power and competitive advantage keep
industries afloat, but are the very factors that ensure their demise at some point in the
future (because of the inevitability that these factors will shift to benefit others). The
"saturation point," as I have termed it, is the moment when pricing power reaches a
precipice from which hit invariably falls due to increased global competition, and
competitive advantage eventually erodes.
(2) Global trade benefits the general populace by providing increasingly affordable goods
and services, but is often very detrimental to minority groups (producers) being squeezed
by global competition. Social assistance and "safety nets" are important aspects of a
globalizing economy where large groups of societies become economically marginalized,
particularly in the developed world, where the capital markets and governmental
institutions are sufficient to support such programs.
(3) Competitive advantage lies in innovation, efficiency, and cost. Maximize the first two
and the latter is thereby minimized. Due to the constant flux of the "competitive
advantages" any nation enjoys, geographical diversification and flexibility is key to
maintaining corporate and financial superiority.
Also of note from Bernstein's musings on economic history: general trends, once spotted
provide fantastic opportunities of wealth creation, whereupon overall value should be
sought rather than relative returns, where the relative risk is not accompanied by
commensurate profits. Any additional risk premium is nominal. That said, the overall
margin for error, particularly when spotting the early stages of a trend, is higher than
average, and should be capitalized on wherever possible. Some trends to note as of this
writing include:
- The aging of the U.S. population
- Per capita GDP growth to increase significantly in China in the coming years

2. - Overall GDP to continue growing at an accelerated rate in Latin America, particularly
Brazil, though most likely Mexico and Panama as well (the latter due largely to the
widening of the canal).
- Market-share of trade and corporate capitalization to diminish for the U.S. indefinitely,
due mainly to slower growth rates domestically, combined with the spike in GDP growth
for emerging markets, fostered by lower trade barriers, technological advances, and
burgeoning capital markets.
- The U.S. economy is becoming increasingly service-oriented, and the disparity between
income-levels is widening. The class divergence is growing which must be accompanied
by a growing safety net to protect the economically disenfranchised from financial
calamity. This is necessary to preserve the integrity and strength of the nation and "keep
the peace" domestically. Our relative power and dominance of the political and economic
forces shaping modern society naturally decrease with globalization as the developing
world benefits from higher growth rates, while other developed nations enjoy greater
hegemony.
- There should be a happy medium between remaining competitive in a global economy
as well as politically significant, and making necessary concessions to and compromises
with the rising powers in the Americas and Asia, all while protecting workers
marginalized by corporate largess and cheaper foreign goods.
- The U.S. now shares the head of the table but will only relinquish its seat with an
inability to adapt, both politically and economically. Cooperation, not domination, is the
key to future American stability and wealth.