Small countries and large countries face essentially the same economic challenges.
What varies is their scale and proportion.
Obviously, the economy of our country, with a population of 314 million living spread over 3.8 million square miles is larger and more complex than that of Barbados, where we spent a recent vacation, with 285,000 people on a 166-square-mile Caribbean island -- the population of St Paul in an area the size of Ramsey County.
Yet sometimes looking at an extreme case provides insights into more general ones. That is true here.
A country like Barbados could choose to live in what economists call "autarky" -- complete economic isolation with no trade or investment flows whatsoever. But given its extremely narrow resource base, this would mean a perpetual prehistoric standard of living. So no nation, large or small, chooses such isolated poverty although North Korea comes close. Barbados has lived on trade for nearly 400 years.
The necessity to trade is driven by the need to import. Without imports, Bajans, the people of Barbados, not only would be forced to live without cars and computers, they would lack anything containing iron or copper. They could not have electricity or modern medicine. If they want to consume things common in larger countries, they either must import those articles or the raw materials to make them.
If they went the route of importing only raw materials and only manufacturing domestically, they still would face poverty.
That was the conclusion Adam Smith came to in 1776 as he refuted the mercantilist idea that exports are inherently good and imports inherently bad. But just as to consume means that one must produce, so to import means that one must export. How do you do that?
Economist David Ricardo answered that in 1821 with the idea of comparative advantage. Should England produce wool, which it was good at, and wine, at which it was bad? Should Portugal produce both wine, at which it was good and wool at which it was bad? Or should England concentrate on producing wool and Portugal on wine? Then the two countries could trade with each other.
Ricardo demonstrated that England could have more wool and more wine with trade than without. Ditto for Portugal. Both countries could be better off because when each specialized in the area of production in which it had "comparative advantage" resources in each would be used more efficiently
The practical problem is identifying where a nation has such comparative advantage. In the 17th and 18th centuries, it was clear that for Barbados, this was in sugar production. The profitability of sugar was so great that, for a time, Barbados' cane fields were the most valuable real estate anywhere in the world. It exported sugar and imported nearly everything else, including food, simply because sugar was so profitable that it did not pay to grow other food for the island's consumption.
Similarly, in its early years, the United States, with abundant natural resources but scarce labor, had its comparative advantage primarily in products from agriculture, forestry and mining.
Over time however, conditions shifted. Barbados continued to have good resources for sugar, but competing nations such as Cuba and Brazil had more room to expand and thus benefited from economies of scale as technology allowed for larger sugar mills. These competitors also had lower labor costs.
The United States transitioned into an industrial economy. Barbados was not large enough to achieve economies of scale in any kind of manufacturing. If it adjoined other industrial nations the way Switzerland and Luxembourg do, it could have found niches and integrated into those larger economies. But it was too geographically distant for that to occur.
Luckily, it was able to transition to service industries, mostly in tourism, but also as a center of international corporations' regional offices. Tourism not only required beautiful beaches and pleasant weather, but an educated, healthy population, good transportation, water and sewer facilities, low crime rates, stable government and an independent and efficient rule of law. And these factors are the key ones that give Barbados a comparative advantage in luring business operations.
Because its options were starker, the choices were easier for Barbados than for our own country. We also have transitioned from a manufacturing to a service economy, although U.S. manufacturing remains far larger than many believe.
But while the majority of Bajan workers transitioned from cutting cane to working in hotels and restaurants in the space of one generation and to white collar jobs in the next, with significant rises in income, it has been relatively harder for former manufacturing workers in the United States.
At about $20,000 per year, Bajans enjoy less than half of U.S. per-capita incomes. But that is the highest of any black-majority nation in the world and close to that of Portugal or Greece. It faces many challenges, but gross domestic product and average incomes continue to grow faster than in the U.S. and the European Union.
One cannot spend time in such a successful developing country without returning to the question Adam Smith raised in 1776. Why are some countries so much richer than others? Why did Barbados do so well when other rich sugar island nations such as Haiti and the Dominican Republic remain so poor?
But that requires another column.
St. Paul economist and writer Edward Lotterman can be reached at firstname.lastname@example.org.