Sometimes a particular product requires such huge investment in machinery and in
developing a skilled labor force that the resulting output can be sold at a low enough
price to be competitive only when some enormous amount of output is produced, because
of what economists call “economies of scale.”
If General Motors produced only a hundred Chevrolets, the cost per car would be
astronomical, since all the expensive machinery and all the engineering research and
development that went into creating the automobile would have to be recovered from the
sale of just 100 vehicles.
It has been estimated that the minimum output of automobiles needed to achieve an
efficient cost per car is somewhere between 200,00 to 400,000 automobiles per year.
Producing in such huge quantities is not a serious problem in a country of the size and
wealth of the United States. But, in a country with a much smaller
population—Australia, for example—there is no way to sell enough cars within the
country to be able to develop and produce automobiles from scratch to sell at prices that
would compete with automobiles produced in much larger quantities overseas.
If you take small countries like South Korea and Taiwan, they have to depend on
international trade to be able to produce on a scale far exceeding what can be sold
domestically.
International trade is necessary for many countries to achieve economies of scale that will
enable them to sell at competitive prices. For some products requiring huge investments
in machinery and research, only a very few large and prosperous countries could reach
the levels of output needed to repay all these costs from domestic sales alone.
International trade creates greater efficiency by allowing more economies of scale, as
well as by taking advantage of each country’s absolute or comparative advantages.
Genuine plunder of one nation or people by another has been all too common throughout human history. During the era before the First World War, when Germany had colonies in Africa, only 4 of its 22 enterprises with cocoa plantations there paid dividends, as did only 8 of 58 rubber plantations and only 3 out of 49 diamond mining companies. At the height of the British Empire in the early twentieth century, the British invested more in the United States than in all of Asia and Africa put together. Quite simply, there was more wealth to be made from rich countries than from poor countries. For similar reasons, throughout most of the twentieth century the United States invested more in Canada than in Asia and Africa put together. Only the rise of prosperous Asian industrial nations in the latter part of the twentieth century attracted more American investors in that part of the world. Perhaps the strongest evidence against the economic significance of colonies in the modern world is tha
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