Trade and Money
In the numerical examples, one country has higher productivity in producing both goods. The surprise is that -- despite that -- the country with lower labor productivity has a comparative advantage in one of the two goods and can gain from trade. But, nevertheless, the poorer country remains poorer! In the example of Britain and Portugal, even if labor is fully employed, Britain remains a poorer country than Portugal. This is because a worker's income will never buy more than the worker's productivity. Thus, British workers will be able to buy no more than one tenth of a bale of wool or one quarter of a barrel of wine. Portuguese workers, by contrast, might be able to buy as much as 1 barrel of wine or 40% of a bale of wool.
Some critics of neoclassical economics regard this as a form of exploitation. Trade between countries with higher and lower labor productivity, they say, is inherently "unequal exchange" and is exploitative.
On the other hand, the comparative advantage theory may be too pessimistic, here. Labor productivity is not static. In the example of Britain and Portugal, Britain's low labor productivity is a result of her poor climate. In the real world, many other things influence labor productivity besides climate, and by 1800-1820 (when Ricardo was writing), Britain was in fact the more productive country, despite the superiority of the Portuguese climate. In the real world, also, countries that have made the transition from less-developed to newly industrializing countries (like Japan in the first half of the century and South Korea in the second) have relied very much on trade to help them do it.
Both of these issues -- unequal exchange and increasing labor productivity -- are simply outside the theory of comparative advantage. They may limit its applicability or strengthen it, but, either way, they are based on other principles, not on comparative advantage. This does not mean that the principle of comparative advantage is wrong -- it is correct -- but that economics includes other principles as well, and these other principles may (sometimes) complicate our applications of the comparative advantage principle.
Trade and Money
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