Branding And Specialization

Lynne Kiesling

While we’re in a Smithian place here at KP, Grant McCracken’s post on the paucity of strong Canadian brands is comment-provoking. Grant poses Wealth of Nations as a theme (and indeed as the title of the post), so I will throw out some Smithian ideas.

Specialization. If you have a neighbor who is good at something, you let them specialize, you specialize in what you are good at, and then you trade. If US companies are good at creating popular brands and Canadian companies are not, then this trade is mutually beneficial. Being “good at” creating popular brands also implies that Canadian customers like US brands, which does generally seem to be the case, notwithstanding some of the anti-American sentiment that some of Grant’s commenters mention.

Branding of consumer goods seems to be very important to consumers, and thus profitable to those who specialize in it. Does this contribute to the wealth of nations, and to differences across nations in wealth? Yes. As Smith notes in Wealth of Nations, Introduction and Plan of the Work:

Nations tolerably well advanced as to skill, dexterity, and judgment, in the application of labour, have followed very different plans in the general conduct or direction of it; and those plans have not all been equally favourable to the greatness of its produce.

and Book I, Chapter i, paragraph 10:

It is the great multiplication of the productions of all the different arts, in consequence of the division of labour, which occasions, in a well-governed society, that universal opulence which extends itself to the lowest ranks of the people. Every workman has a great quantity of his own work to dispose of beyond what he himself has occasion for; and every other workman being exactly in the same situation, he is enabled to exchange a great quantity of his own goods for a great quantity, or, what comes to the same thing, for the price of a great quantity of theirs. He supplies them abundantly with what they have occasion for, and they accommodate him as amply with what he has occasion for, and a general plenty diffuses itself through all the different ranks of the society.

Specialization achieved via division of labor leads to productivity and plenty, but achievement of that productivity and plenty varies across nations depending on the policies that they adopt, and how those policies help or hinder the division of labor. In Smith’s system labor is the foundation of all productivity, so another aspect of branding and profit could be the sheer difference in population between the US and Canada. I am not convinced that this aspect of Smith’s model has been particularly robust over the centuries, but I mention it nonetheless.

Note also that Smith’s foundation for specialization and trade is not comparative advantage. Throughout WON he uses examples in which countries should specialize in those activities that they can perform more cheaply. This is an absolute advantage concept. To be a comparative advantage concept (as later provided by David Ricardo), countries should specialize in the activity in which they have the lowest cost disadvantage, even if all other countries can do everything more cheaply than they can. A subtle, but important, difference.

In WON Smith does kick open the door for Ricardo’s articulation of comparative advantage. In Book IV, Chapter ii, paragraph 15:

The natural advantages which one country has over another in producing particular commodities are sometimes so great that it is acknowledged by all the world to be in vain to struggle with them. By means of glasses, hotbeds, and hot walls, very good grapes can be raised in Scotland, and very good wine too can be made of them at about thirty times the expence for which at least equally good can be brought from foreign countries. Would it be a reasonable law to prohibit the importation of all foreign wines merely to encourage the making of claret and burgundy in Scotland? But if there would be a manifest absurdity in turning towards any employment thirty times more of the capital and industry of the country than would be necessary to purchase from foreign countries an equal quantity of the commodities wanted, there must be an absurdity, though not altogether so glaring, yet exactly of the same kind, in turning towards any such employment a thirtieth, or even a three-hundredth part more of either.

I don’t know if that’s the answer Grant seeks, but that’s what jumps out at me. Another important point is that specialization does not imply monolithic uniformity. There are some visible and valued Canadian brands: Canadian Club whiskey (although now owned by a multinational conglomerate), Roots, Club Monaco, etc. These are niche brands that appeal to a more specific customer demographic.