By Alexandros Sainidis
When I was little somebody told me: a child that has sold lemonade on the street knows far more than an economist. While this statement isn’t exactly true, Nassim Taleb, the author of “The Black Swan” would probably agree; but this is a conversation for another time. What I would like to point out is how the lemonade stand has become a symbol of exposure to American Capitalism from a young age. Never have I seen a Greek child (with the exception of Roma children) sell products on the street. Other than slightly older girl scouts selling biscuits door to door or students selling calendars to fund a high school trip (which frankly is more akin to charity) I cannot personally recall any other examples.
As a consequence of this culture, the lemonade stand has become a reader friendly example. Books like “The Accounting Game” have become quite popular.
After all, the language used in academic books can be quite demoralising and bureaucratic, as Max Weber would characterise it. Some books are quite difficult for the average reader to understand – sometimes on purpose. This is what makes simplifications, such as the lemonade stand here, appealing to the casual reader. Therefore, I thought: why not make a similar post about the lemonade stand of international economics? After all, it is a subject far more interesting that accounting.
Mlem according to the Urban Dictionary: the sound effect of a tongue exiting and re-entering the mouth.
Let’s assume you build your new lemonade stand. In fact it is so yummy that you brand it as ‘Mlemonade’. Let us also assume that you have worked hard enough in your life to become the number one star of lemonade commerce, the top brand in your country. Soon the product becomes well known internationally. Demand and sales rise internationally.
Your mlemonade is made from the best lemons thanks to your country’s rich soil. It is also cheap because it fits your nation’s labor intensive profile (as opposed to a capital intensive one). Your product is desirable and becomes an important export for your country.
Your country discovers that growing lemons in a cobalt rich environment makes your lemons blue. Word gets around and consumers want to try the blue lemonade to satisfy their exotic needs. That means that although you have a standard lemonade business, you address a more specific segment of the international market at the same time.
A global surge in lemon prices causes some of the poorer consumers to prefer orange juice.
Your neighbour country is afraid that their folks don’t buy domestic lemonade because mlemonade be like ‘money for value‘. That same country imposes tariffs on your lemonade, making it more expensive for their citizens and thus less desirable.
Other competing countries impose tariffs in order to protect their new lemonade businesses. They need some help to catch up, you see.
Foreign Direct Investment
Rumours have it that there is a company abroad selling pink lemons. You decide to invest heavily in it, in order to practically gain control of it. This way you are also protecting your blue lemon brand from a potential pink lemonade competitor.
At the same time you wish to invest in sectors that have nothing to do with agriculture, fruits or beverages so as to gain some profit and diversify risk. Don’t put all your lemons in one basket!
Global Supply Chains
Having built your brand using only high quality lemons, you decide to mix your lemonade up with juice of inferior quality which you make from imported lemons cut in half by their exporter, for your convenience and time efficiency.
Nobody truly believes in your country’s economic abilities. As a direct consequence the demand for your national currency drops. On the one hand that is good news, as it is easier for you to export lemonade – it is cheaper for your customers abroad. On the other hand, the portion of the lemons you are importing is now more expensive. You win some, you lose some. That wouldn’t be the case if you were in a monetary union with the country you are trading with.
A wild Oil Crisis appears
What does lemonade have to do with oil in the first place? Oil is pretty much everything: energy, electricity and more! Did you really think that factories don’t have any bills to pay?
Remember when your country was a colony of a bigger nation? They sure did exploit your lemons at the expense of the local population. You may be thinking that it is all in the past but I can see a big multinational corporation swallowing your promising and dangerous mlemonade business.
Your nation is trying to sell more of your mlemonade to create a surplus.
If your nation stops importing foreign products in order to decrease deficit, the other country may use countermeasures and retaliate by stopping importing lemonade. Though the degree of dependence varies, never forget that your business also depends on the opposing party-nation.
The Spillover Effect
Your lemonade business promotes trust and assists international economic cooperation, even across other sectors of greater importance.
The new economic environment of e-commerce and international shipping makes it easier to export mlemonade to countries that would be otherwise beyond your geographic reach.