Commerce has acquired lately a bad reputation in the Romanian society. This was probably the result of a deeply rooted human condition that nothing can be gained by exchange alone. The "kiosk war" in Bucharest gave satisfaction to those who think that way.
"The labourer" is often understood to be only the farmer or the industrialist. They and they alone carry out "a productive activity." In these sectors, wealth apparently grows. Grow a sack of wheat and get two.
A growth of material substance is visible. Something extra was created. Often the blame for high prices was sought in retailers' backyard.
Those dominated by this belief are persuaded that in commerce one thing is replaced by the other. Many think the retailer who takes profit out of commerce should be subjected to some kind of tax for the community.
Eminescu said that "all commerce is a kind of bargaining between consumer and producer, a sort of manipulation that makes articles expensive." So thinks the Bucharest man.
The thousands of kiosk owners are growing fat on the back of rising prices. The poet economist or, rather, the economist poet thought that an article that changes ten hands grows price artificially.
Ten hands are five mouths who must be fed on the exchange, and the price grows permanently. Starting with these thoughts, we naturally ask the question:
1. Does commerce create wealth?
The gain of the peasant or industrialist can be obtained from their efforts: therefore they are somewhat entitled to their revenue. In other words, they reap what they sowed.
But traders seem to be reaping without sowing. Their activity does not seem to create anything, and, on top of it, they earn "stashes."
If the industrialist posts several hundred lei of net profit (see the wheat or milk producer), the retailer pockets several thousand per sold article. If a peasant makes 500 lei net gain per litre of milk, the retailer can make ten times as much. You call this fair?
This string of arguments strikes a very sensitive chord in many people in the Romanian society, who still retain an ancient hatred against retailers in the form of mistrust for "middlemen." Therefore Eminescu's "bargaining" is flourishing.
Everyone wants to avoid middlemen, pictured as some type of "legal bandits" on the highways of commerce, authorised to levy a percentage from anyone fool enough or unable to make do on his own. As the saying goes: "Fool is not who asks but who gives."
Often, our finance liars point a finger at the retailers. A fuel or electricity price increase "does not justify a generalised growth of prices practised by retailers," they say. Their behaviour in the Romanian society is atypical.
However old and deeply rooted, this conviction that commerce lacks productivity is completely mistaken. There is no proper sense of the word "productive," which should apply to industry and should not apply to commerce. Therefore, commerce is productive! It promotes greater efficiency and improved use of resources.
Many have taken an inevitably wrong turn since the beginning when, by constraint, exchange is always one between equal values. The truth, however, is the exact opposite. Exchange never involves equal values.
If exchange were to be based on equal values, it would never take place.
In a voluntary and knowledgeable exchange, both sides stand to gain, as they give up something of lesser value for something of larger value.
When Romanians exchange wheat for Russian natural gas, they value gas more than they value wheat, and Russians value wheat more than they value gas. From one vantage point, the exchange is unequal.
And this is certainty the source of its productivity. Romanians now have a bigger wealth than before, and so do the Russians. The exchange has been productive because it has enhanced the wealth of both sides.
"Not true," would say the opposition. There is no real increase of wealth. Russians and Romanians are more content, happier, but that's it.
All there is are a few hundred tonnes of wheat and a few thousand cubic metres of gas. The material substance has not increased. Our suspicion of this particular exchange is proof of our material prejudice. Both the Russians and Romanians indeed have a bigger wealth after the exchange.
For either side, the result of the productive process (exchange) was an output with a greater value than the value of resources. Nothing else is needed for an activity to be productive. Exchange increases real output.
2. Advantages in international commerce
One of the multipliers of economic growth is foreign trade. Prime Minister Isarescu recently said that Romanians would see their standards of living improve. We recall that the Government and the National Statistics Commission have "reported" an unprecedented growth of exports.
Of course, an analysis of the exports structure would reveal that mildly processed or cheap-labour products still dominate our exports.
If salaries in Romania and Russia are lower than in the USA, could Romanian and Russian manufacturers produce almost anything more cheaply than US manufacturers can?
How can the US compete with countries that tolerate salary levels (even for qualified personnel) below our average salary? But all Romanian and Russian workers will say they cannot compete with the cheap American series-production techniques.
Consequently, the justified suspicion appears that something is wrong in this dispute of arguments. The overall flaw is that they ignore the cost of chance (that is, the value being paid to produce a given commodity).
Logically, it is almost impossible for a country to be more efficient than another in any output. This appears obvious if we evaluate the efficiency of manufacturing a Romanian commodity for export by relating what is being manufactured to what is not. Calculations in dollars, lei or roubles easily conceal these real production costs.
Suppose that the USA and Romania make three major categories of commodities: wheat, fabric and furniture. Due to competition, prices have shifted in both countries to reflect the cost of chances for each commodity. Assuming the quantity and quality are identical, unit prices per product are:
ProductRomania(lei)USA (dollars)
Wheat90,00030
Fabric45,00020
Furniture13,500,00050
Which country is more efficient? Before answering the question, we should find a way to compare costs. Obviously, lei and dollars won't do.
It would be inconclusive to say that the Americans are more efficient simply because dollar prices are lower than lei prices. What we can do is establish whether Romania or the USA is a more efficient producer for a certain commodity compared to another good one.
This is where economists try to appraise comparative advantages. A nation can be an inefficient furniture manufacturer but an excellent wheat producer. When we become extraordinarily good at something, it is costly for us to do something else.
People bid for a resource after estimating the potential of that resource, compared to other resources. Comparative advantage - the advantage resources have on other resources (in some uses) compared to other uses is what establishes most efficiently the manner of engaging one's resources.
The truth is that no one save the economists ever performs such calculations. Retailers usually make simpler evaluations.
If you sell a cubic metre of timber for $100, but it comes back as furniture for $2,000, where to get the remaining $1,900? Necessarily from other products, such as wheat.
But wheat is obtained with a lot of effort and little profit. To buy the furniture, many tonnes of wheat must be sold. A farmer works day by day and barely makes something by autumn.
Of course, there are differences between occupations. One works easily and pleasantly and makes a lot, the other toils hard and makes little. Is there any resemblance between the two?
Can a wheat grower, whose work (by its quality) is worth so little ever measure up to furniture manufacturers?
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