Adam Smith’s “Invisible Hand”, The Missing “Port” in Modelling Trade Deficits/Gains

In 1776, Scottish economist and philosopher, Adam Smith, wrote the masterpiece, ‘The Wealth of Nations’- actually ‘An Inquiry into the Nature and Causes of the Wealth of Nations”. By coincidence, the United States Declaration of Independence was adopted the same year, making the American colonies independent.

America has since evolved to dominate the old British Empire. The Yankees figuratively were discipled by Dr. Smith who believed in the free market, and made his argument that ‘capitalism’ will benefit mankind than any other economic structure. He laid this foundation at the onset of industrial revolution and provided the basic mechanics for modern economics.

Smith made his case about the ‘invisible hand’ and why monopoly, and undue and unfettered government regulations, or interference, in market and industry must be discouraged. He believed that prudent allocation of resources cannot happen when states dominate and over interfere.

In that old time, America farmers could grow cotton but would not process it. It must be sent to England where it would later be imported into the U.S. as a finished product (Africa, sounds familiar?). Understanding that this decision was not due to lack of processing ability, you will appreciate Smith’s argument that the market must be free.

His theses were clear and were very influential; they provided the same level of fulcrum to Economics as Isaac Newton’s Mathematica Prinicipia did for Physics. While reading Smith’s book and understanding the time frame it was written, one cannot but appreciate the intellectual rigour in that piece. Before technology penetrated at scale across the regions of the world, he noted that all nations could compete at par in agricultural productivity.  The reason was absence of division of labor in any subsistence farming system in the world. A farmer does everything on the farm and is not an expert in most. Discounting fertile land, rain and other factors that could help farmers, all the farmers, from Africa to plantations in Alabama, the level of productivity was similar.  Why? No specialization was employed in the farming business at the time.

Fast track forward when the industrial revolution set forth. The British Empire became an engine of wealth creation through automation. It was a quintessential period of unrivalled human productivity which resulted in enormous wealth created. Technology not only helped to speed up process execution, it also helped to create a framework for division of labor.

Interestingly, Smith had noted that except for agriculture where productivity was flat because of lack of division of labor, other industries were doing just fine. And in those industries, there were organized structures which enabled division of labor. For instance, in the construction industry, there were bricklayers, carpenters, painters, and so on; but a farmer was a farmer.

As you read through Wealth of Nations and observe the 21st century, you will see the impacts of technology. Technology has changed economic structures and created new market adaptation rules with new species like artificial intelligence promising large scale disruption in industries.

Simply, it will be difficult to separate the health of any modern economy from its technology. It goes beyond the wealth of that nation to its survivability. The most advanced nations are the technology juggernauts while the least developing economics barely record any technology penetration impact at the productivity quotient. For the latter, it is like still living in the pre-industrial age Smith discussed on agriculture and division of labor where processes were inefficient.

Perhaps this explains the efficiency of the developed world in both the public and private arenas. The more technologies they diffuse, the more productive they become. In other words, show me the technology and I will tell you where the nation stands in the league of countries. The invention of steam engine changed the world and powered the industrial revolution, and the invention of transistor transformed the 20th century, and is fueling the new innovation century.

Yes, major scientific and mathematical breakthroughs seed great countries. From the old Babylon, Roman Empire, and Pharaoh’s Egypt to the modern America, knowledge has always ruled the world. You cannot separate better harvest at the banks of River Nile from the mastery of geometry which Egyptians played significant roles. Some old wars had been won by developing constructs that enabled efficient transportation of soldiers to battleground.  In short, knowledge won for nations even when everything was about physical goods. But what happens in the digitizing world?

Adding Internet Port to Seaport, Landport, Airport in Modelling Trade Deficits/Gains

In the realm of global trade measurement, a paradigm shift is underway as traditional frameworks grapple with the transformative impact of digitalization on economies worldwide. Historically centered on physical goods, international trade is now increasingly shaped by intangible services and software in the 21st century. This evolution necessitates a reevaluation of how we measure trade balances, moving beyond conventional metrics to encompass the full spectrum of economic activities in today’s interconnected world.  That Adam Smith did not include this digital construct does not mean we cannot redesign the measurement system.

Recent events, such as trade negotiations between the US and the world, underscore the urgency for updated methodologies that accurately capture the complexities of modern trade relationships. When we posit that Nigeria enjoys a trade surplus with the United States, we fail to understand that even though within the physical business space, measured at airports, seaports and landports, where Nigeria could be exporting more through our crude oil to record a trade surplus with the almighty America when we rarely import much, we could be flatly wrong. Why? If you include “internet ports” besides those seaports, landports and airports, Nigeria records significant deficits since from software to movies, from global banking services to social media and data services, Nigeria exports nothing but “imports” most from the US.

Largely, as countries navigate this new landscape, key themes emerge around the significance of services, data, cloud computing and software in shaping global trade balances. The rise of digital products has not only blurred traditional boundaries but also posed challenges in accurately assessing trade dynamics. With technology continuing to drive change at an unprecedented pace, nations must recalibrate so that trade deficits and surplus must be done in a comprehensive way to avoid distortions which could severely affect already beaten down economics which are recording TRADE DEFICITS via the internet ports with leading economies.

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