On our way to the airport on the island of Bali (in Indonesia) we passed a McDonald’s restaurant. To some, McDonald’s represents the evil of corporations and their homogenization of the world, and its cultures, into one giant strip mall—McDonaldization. To me, McDonald’s represents what one writer calls “Ricardo’s Magic Trick.”
We were returning home from attending my son’s wedding. He and his now wife live in Bali at the moment. They are both Americans who met in Uganda, moved to Ubud, Bali so she could get a yoga teacher certification, and then got married there. (I know, it’s so typical it’s a cliché.) An artsy town, Ubud is Carmel or Mendocino without the sea, and pretends not to be upscale by keeping its village atmosphere façade. This is often done by not allowing in fast food franchises.
My wife and I stayed in a Bed & Breakfast (“home stay”) in Ubud not far from where Elizabeth Gilbert’s character in the movie Eat, Pray, Love had stayed. In the book—and the movie—after Eating (indulging herself in Italy) and Praying (asceticism in India), Gilbert tries to find balance in her life by staying in Bali. Instead of Balance, she finds Love. I also don’t know if she found Ubud’s one franchise, a tastefully decorated Starbucks (because even Dr. Evil’s island hideout had a Starbucks).
McDonald’s is a company that is good at one thing: delivering consistent, cooked food quickly at a reasonable price. They had tried to put one of their franchises in Ubud, but the outcry by white expatriates wanting an authentic Balinese experience kept the franchise out. Doing one thing well was what 18th century British economist, David Ricardo, called “comparative advantage.” Ricardo said that a person (or region or state) does not need to be able to do everything, but needs to do one thing only and then trade for the rest. The result saved labor and thus saved time to do other more profitable things.
Since ancient times, people have been on the go with little time available to make their own meals. Before the era of Christ, the people of Pompeii, like many in the Roman Empire, stopped at cauponae, sort of an early version of a McDonald’s restaurant that was loved by the ancient Romans. Caupone were frequented by the lower and middle classes for grabbing a bite before hurrying off to work elsewhere. They paid others to make their meals so that they didn’t have to worry about shopping, storing, cooking, and cleaning. The upper classes had their meals prepared at their homes. (Does this sound familiar?)
Of course, by doing only one thing, we must rely on others to provide those other things we need. Matt Ridley, in his book, The Rational Optimist, argues that such a requirement is a good thing: “Interdependence of the world through trade is the very thing that makes modern life as sustainable as it is.” He writes, “[S]uppose your local wheat farmer tells you that last year’s rains means he will have to cut his flour delivery in half. You will have to go hungry.” Today, you benefit from a global marketplace “in which somebody somewhere has something to sell you so there are rarely shortages, only modest price fluctuations.”
When we trade, we no longer have to do lots of tasks to keep going; we can trade our labor in one thing for others’ labors in other things.
Trading means that we weigh the costs (not just the price but also the social implications) against the benefits (the need for the thing and its cost to our bank account and its result to our reputation) and do the one that outweighs the other.
In the case of McDonald’s, the expats felt that it would diminish their authentic Ubud experience. Many of the locals felt they were authentic enough and were willing to make the trade, thus freeing up time to do something else besides preparing food: “Cheap fast food? Sign me up; I’ve got to get to work!”
In Praise of Fast Food
Pompeii exhibition: the food and drink of the ancient Roman cities
Nullius in Verba 
Bali? Very cool.
But on the food preparation: exactly! I remember reading about medieval fast food recently. Let me find that link. Here it is:
http://www.engr.psu.edu/mtah/articles/fast_food.htm
This pisses me off to no end when Michael Pollan talks about food your grandmother ate. Yeah–my grandmother was lucky to eat at all in the small tenements with 9 siblings–no marble countertops, you know?. And her grandmother left Ireland because there wasn’t anything to eat. No thanks. The reeking privilege of the foodies is about the most irritating thing. Well, that and they think they know which technology others shouldn’t be allowed to use.
Thank you so much for the comment Mem, and the link to medieval fast food. You are so right. The foodies forget those inconvenient truths. They also forget that trade and commerce made the lives that gives them the time to complain about food possible, otherwise they would be toiling to get enough to eat. My parents, children of the Great Depression, sure did not take food for granted.
Wow. According to Medieval Technology and American History – Fast Food in Medieval Europe, “cooks and pasty makers apparently warmed up pasties that were several days old and spoiling.” Yuck! So much for vendors not wanting to kill their clientele.
Oh, and Mem, stay away from “Dutch Butter.” https://twitter.com/rebeccaonion/status/432295184366186497/photo/1
RT @mem_somerville: “Eat, Pray, Lovin’ It” on a glimpse of McDonalds in Bali. http://t.co/gEJKaToDaw
“Comparative advantage” is a kind of dubious theory. It’s obvious that countries can benefit from trade and that complex social organization where people can specialize is great for prosperity, but “comparative advantage” as used in economics has a lot of additional baggage. The production and distribution of the polio vaccine by governments and NGOs added enormously to prosperity but was the result of nations with comparative advantage giving it away – contrary to the dogma of economists. Also “comparative advantage” is not static – although Ricardo and Smith and their followers think otherwise. There is no reason why some Indonesian venture could not replicate the economies of scale and rationalized food production methods used by McDonalds and provide low cost perhaps more nutritious food even locally sourced (which would mean that consumer purchases would recirculate in the local economy instead of being diverted out to whatever tax dodge owns the McD franchise). In fact, every nation that has successfully industrialized, including the US, has ignored the doctrine of comparative advantage in order to jump start its own industry and technology. Instead of buying lower cost manufactured goods from the UK, the US subsidized local manufacture until it could stand on its own feet. According to Ricardo that’s not possible, but according to reality it happened. Ricardo’s notion of comparative advantage is strongly tied to his theory that profits can only increase if wages decrease – which is also not something that has empirical support.
Thanks for the reply. You make some interesting/valid points. I’m sure this is my lack of economics background and knowledge, but I don’t know why you say that “Ricardo and Smith and their followers think” comparative advantage is static. Static in what way? Certainly products and services change, otherwise we would still be using Acheulean hand axes; trade was the reason these changed, someone came up with a better idea: what if we make the axe-head out of metal? Could you point me to some articles of this static and unchanging tendency?
You said that “…every nation that has successfully industrialized, including the US, has ignored the doctrine of comparative advantage…” by not trading with other nations? No one in the US traded for anything outside of the US during this build up? Sources? (We did steal much of the industrial knowledge from Great Britain during the industrial revolution)
I’ve read the Wikipedia entry and am not convinced that, according to Wikipedia:
On the contrary, comparative advantage is what allows capital (essentially stored labor) to accrue. In Ridley’s example each individual gains time through trade to do more of the same thing or use the time to learn something new. Without comparative advantage, which allows everyone to work for everyone else, we would have to be self sufficient. Would we not?
“Ricardo’s notion of comparative advantage is strongly tied to his theory that profits can only increase if wages decrease…” Again, I wasn’t aware of this. Sources (written for a general audience)?
Again, thank you for a reasonable argument without ad hominem. I enjoy learning and discussing how our world works (and thus how we might make it a better place).
Every nation that has successfully industrialized has engaged in a large scale government investment in industrial development. Funds are spent on education and training. And favored new industries are protected by tariff and nurtured with government subsidies. This is a historical fact – from the UK to China and including the USA. The argument for comparative advantage is often incorrectly framed as trade versus autarky, but that doesn’t get anywhere. The US government in the early 1800s was pro-trade, but still acted to protect infant industries and to encourage internal development of manufacturing even though British products were better and cheaper.
Where Ridley’s examples break down is that governments and nations exist. When Indonesia relies on McDonalds to provide low cost food, consumer spending is diverted off-shore. Not only does McD get franchising fees, but it also provides materials from its world materials sourcing, and probably provides equipment from its sourcing. All that means Indonesian producers of food and cooking equipment are shut out of the market. Which might or might not be ok, but if you want your people to be designing and manufacturing cooking equipment as well as cleaning it or organizing logistics as well as opening boxes minimum wage, it might not be the deal you want long term. This is the huge difference between domestic and international trade. When I buy from McD in the US, I know that the high value part of the operation is (for the moment) in the USA. McD is hiring US engineers and food scientists, logistics experts and so on. Those people pay taxes in the US which help pay for Universities, roads, bridges, and so on and they create value that increases domestic wealth. The Indonesian customer of McD, on the other hand, is helping depress the income of Indonesian farmers and reduce national wealth. McDonalds hires this person http://www.linkedin.com/jobs2/view/5729367 in the USA and only dishwashers in Indonesia. This doesn’t mean countries should try to avoid international trade, it just means that they have to be conscious of the effects and try to develop high value work domestically instead of just being providers of e.g. raw materials and cheap labor.
As for Ricardo: in his chapter on foreign trade, he writes: “It has been my endeavour to shew throughout this work, that the rate of profits can never be increased but by a fall in wages, and that there can be no permanent fall of wages but in consequence of a fall of the necessaries on which wages are expended.”(7.7 http://www.econlib.org/library/Ricardo/ricP2a.html#Ch.7,%20On%20Foreign%20Trade) That is, Ricardo’s model (which influenced Marx too much) is one in which working people do not share any increase in prosperity – because of immutable economic law.
I try to explain some of this in more depth here: http://krebscycle.tumblr.com/post/32171844531/economics-on-the-slant