Comparative advantage is the economic principle that an individual, firm, or nation faces a unique set of advantages and disadvantages relative to others in its production of particular goods and services. They can be more prosperous by focusing on activities for which they have the greatest comparative advantage and then trading accumulated wealth for other things they need. A brain surgeon might be better at keeping medical records than any potential employee, but hiring a medical records specialist will be more productive, because the surgeon can make far more money performing brain surgeries than could be saved by doing his or her own medical records. Regardless of your absolute advantage, it makes sense to maximize the benefit from the limited time and resources you have rather than being self-sufficient.
The comparative advantage of a nation is determined by climate, labor costs, available capital, and other such things. Any nation can take advantage of or destroy that natural or developed superiority. Chinese leadership, back in the days of the Cultural Revolution, decided that they wanted to grow more rice, so they forced thousands of peasants to build terraces on the sides of mountains for rice paddies. Because the rice required a semi-aquatic environment, dry mountainsides had a distinct disadvantage. Thousands more people were forced to carry water up the slopes by hand to keep the rice paddies flooded. People were thus taken from work that might have been much more productive to do something very inefficient, making society as a whole worse off than they would have otherwise been.
The small island of Hong Kong, on the other hand, has few natural advantages, with natural sea ports and access to open ocean for shipping is the primary one. Another advantage, perhaps as important, is that, for the first decades of its rapid rise, it was a relatively independent British colony that had no Keynesian or socialist economists for advisers. For decades the government did not even keep economic records because the governor feared that bureaucrats would use them to try to manipulate the economy. The government of the island was relatively small and minimized its interference with trade and markets. Hong Kong is still one of the most economically free and prosperous nations. Its comparative advantage is maximized by minimizing political interference.
The Dutch in the sixteenth century were one of the earliest societies to enjoy mass prosperity among ordinary people, giving rise to a bourgeois middle class. In that case also, government was quite limited in size and scope. There was no centralized economic planning, no government industrial policy, and no economists to promote economic manipulation. There was just sound money, protection of property rights, and people investing in things that they thought would benefit them and their families. In contrast, at the same time, there were other nations where people had to bury or hide their wealth for fear of theft or confiscation. They didn’t invest in productive assets, and thus remained poor.
Today, most developed economies have central banks, economic advisers encouraging massive economic interference, and thousands of strangling laws and rules. Many people insist that such things are the cause of advancement. Every prosperous society today, however, developed primarily because, at some point in their histories, ordinary people were free to accumulate property and to invest without fear of confiscation. A nation, once prosperous, is better able to absorb harmful economic policies and hide the negative effects, but the harmful policies don’t in any way create the prosperity. An economy doesn’t need economists to flourish, but economists can help by recognizing the negative consequences that come from manipulating economic principles through politics and strenuously fighting against it.