What the Olympics Teach Us about International Trade
With the games of the 31st Olympiad winding down at the end of this week, the medal standings tell an interesting story about the results of government investment programs. As many have pointed out, the Chinese government has heavily invested in its sportsmen since the 2008 Beijing Olympics—with the largest mass recruitment program of about 400,000 children in special Olympic schools. This, however, has translated only into a frustrating third place in Olympic medal standings. The UK has also subsidized Olympic sports after London 2012, but although its medal standing has significantly improved in Rio, studies show a decrease in sports participation overall, suggesting a probable drop in their results by Tokyo 2020. By comparison, the USA leads the current and all-time table, although its Olympic program is one almost entirely privately funded—with the exception of small sums offered in support of Paralympic athletes—with the USA being one of the few countries in the world without a department or a ministry of sports as such.
Sports excellence is a matter of both natural and acquired aptitudes, which benefits from well-directed capital investment in training people with a comparative advantage in the field. That is why there are some useful parallels to be drawn between the Olympic programs and the management of international trade. International trade is based on comparative advantage, which is discovered and developed in the market by entrepreneurs directing their capital investment to the most productive activities. There is no need for departments of international trade, Chambers of Commerce, Export-Import Banks, complicated trade partnerships, or world organizations to encourage or manage trade.
In fact, government schemes are powerless in gauging where comparative advantage lies at any particular point in time, whether we are talking about trade or sports. This is a question for the entrepreneurs, concerning how to employ and direct their resources. Being future oriented and thus speculative, as well as requiring time to be brought to fruition, specialization is a process permeated with uncertainty, tributary to human error, and subject to frequent modifications. Therefore, the concrete pattern of specialization, whether it be in international trade or Olympic events, cannot be ascertained outside the market nexus: it is through the profit and loss system that consumers can sanction the relevance of specialization decisions which are contingent on the incessant change of their preferences. With government intervention coming from outside the market nexus, and as government policymakers are not entrepreneurs, trade (and sports) policies aiming to interfere with this pattern of comparative advantage are doomed to fail.
Even if occasionally, and for a short while, government programs can accidentally stumble upon ‘correct’ decisions, both trade and sports can counterfactually perform much better if left to their own devices. The best thing the government can do is not only not to actively interfere, but also to abstain from taxing performers. Simone Biles and Michael Phelps deserve the freedom to pursue their vocation and reap the full fruits of their efforts as much as every lesser known, but equally hard working entrepreneur.
Carmen Dorobăț has a PhD in economics from the University of Angers, and is assistant professor in International Business at Coventry University. Contact: email