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What Is 'Comparative Advantage'?

Comparative Advantage means it's better to capitalize on your strengths than to shore up your weaknesses. Businesses work better if the individuals focus on what they're best, and work with other specialists. Comparative Advantage is the reason why diverse teams outperform homogeneous teams.

Josh Kaufman Explains 'Comparative Advantage'

Essential to the idea of working with other people is the question: why work with other people in the first place? If you can’t control them and get them to do exactly what you want them to do all the time, why bother?

The answer is Comparative Advantage, a concept which originated in the “dismal science” of economics. Attributed to David Ricardo’s 1817 text On the Principles of Political Economy and Taxation, Comparative Advantage provided an answer to a question of international politics: Is it better for the economies of countries to be self-sufficient and produce everything themselves, or specialize in producing certain goods, then trade with each other?

Using Portugal and England as examples, Ricardo calculated that even if both countries were capable of producing cloth and wine, England could produce cloth with much less effort, and Portugal was much better at producing wine. As a result, instead of wasting time and money struggling to do something they weren’t good at, Portugal and England would clearly be much better off if they each specialized, then traded with each other for what they needed.

Comparative Advantage means it’s better to capitalize on your strengths than shore up your weaknesses. In First, Break All The Rules and StrengthsFinder 2.0, Marcus Buckingham, Donald O. Clifton, and Tom Rath shared the results of the Gallup Organization’s comprehensive research on human productivity. As it turns out, Comparative Advantage applies as much to individuals as it does to countries: businesses work better if the individuals that operate them focus on what they’re best at, working with other specialists to accomplish everything they need. “Strengths-Based Management” is simply another term for Comparative Advantage.

Comparative Advantage is why it often makes sense to work with contractors or outsourcers than try to do everything yourself. If you want to build a house, it’s probably more efficient to hire a general contractor and specialists who do the kind of work the project requires every day. You could certainly try to do it yourself, but unless you know what you’re doing it’ll probably take longer, and the results won’t be as good.

Comparative Advantage also explains why diverse teams consistently outperform homogenous teams. Having a wide variety of team members with different skills and backgrounds is a major asset: it increases the probability that one of your teammates will know what to do in any given circumstance. If every team member has the same skills and the same background, it’s far more likely the team will get stuck or make a preventable error.

Self-reliance naturally improves your flexibility and knowledge over time, but too much self-reliance is a mistake. I’m a huge advocate of self-education and learning how to do things yourself, but taking the DIY ethic to an extreme often does more harm than good. Working with others can help you get more done, faster, and improve the quality of the result. Even Thoreau left Walden Pond every once in a while to buy things in town.

The major benefit of self-education when working with others is knowing what skill looks like. You may be able to hire a programmer halfway around the world via eLance.com or oDesk.com, but if you’ve never done any programming yourself, you’re going to have a difficult time figuring out whether or not their work is actually good. Learn a little programming, however, and your ability to identify good programmers will increase, making you more likely to identify skilled colleagues and partners.

In the immortal words of John Donne: “No man is an island.” Focus on what you can do well, and work with others to accomplish the rest.

Questions About 'Comparative Advantage'

• What can you do better than 90% of the human population?
• How can you spend more of your time doing those things, and less time doing things that others can do better than you?

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"Be a first-rate version of yourself, not a second-rate version of someone else."

Judy Garland, actress and singer

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