When choices are made (collectively or by an individual) to accept having less of one thing in order to get more of something else, the results are called trade-offs. For example, when one is allocating (limited) funds, the trade-off usually involves reduced spending for some purposes in order to be able to spend more for other more urgent purposes. However, the concept does not apply only (or even primarily) to decisions involving money. A student faced with the choice of spending Saturday studying for a Political Economy exam or shopping at The Mall makes a trade-off of shopping time for study time in deciding how many hours to study and how many to spend shopping. Society also makes trade-offs -- such as, for example, between its need for a more plentiful supply of energy and its need to prevent excessive deterioration of the environment caused by energy production technologies. Evaluating trade-offs, when done carefully and systematically, involves comparing the costs [see opportunity cost] and benefits of each of the available alternatives with each other. Most choices (and thus most trade-offs) are not all-or-nothing decisions; rather they typically involve small changes at the margin -- a little more of this at the cost of a little less of that. Consumers continuously practice marginalism and make trade-offs as they consider whether to buy one more unit or one unit less of a good or service in their efforts to obtain a mix of goods and services that afford them the greatest satisfaction for their available buying power. Producers must constantly be deciding (and reevaluating) their trade-offs in choosing whether to produce somewhat more or somewhat less of a particular product, whether to add a few more workers or lay a few off, whether to invest in more plant and equipment or whether to close down some of existing capacity, and so on -- in their efforts to maximize profits.
“The Big Trade-Off” examines a United States where “the relative distribution of family income has changed very little in the past generation,” and where Okun could argue that the most pressing question was how much equality was enough. Problem is, in the 40 years since Okun’s book was published, the gains of U.S. economic growth have not been shared as widely as they were in the post-war era that Okun examined. While our economy has grown and productivity has improved—that is, American workers produce more goods and services per hour worked—wages and incomes have failed to keep pace. The middle class has seen little growth and the bottom has seen no growth, while incomes at the top have exploded.
According to data from economists Emmanuel Saez at the University of California-Berkeley and Thomas Piketty at the Paris School of Economics, between 1976 and 2007 the bottom 90 percent saw their income grow by an annual rate of ¼ of 1 percent, adjusted for inflation, while the top 1 percent saw theirs grow by 4.4 percent. Put another way—and pulling forward to the most recent year of data—from 1975 to 2013, the top 10 percent of households have accrued 109 percent of all the income gained.
This wasn’t Okun’s economy. Between 1933 and 1975, the top 10 percent took home only 29 percent of the income gains. Certainly, that’s more than their equal share, but the bottom 90 percent did get 70 percent of the growth and saw their incomes rise at a pace of 3.9 percent per year.[i] Okun pondered a trade-off between equality and efficiency just when those at the top of the wealth and income ladder began hauling off all the gains of economic growth.
Our political discourse today is also strikingly different than in Okun’s time. In the era he lived in, there was broad agreement about the role of policy. It’s a world unrecognizable to those of us steeped in the severe partisanship of the Bush and Obama years. Okun could blithely write, “I do not know anyone today who would disagree, in principle, that every person, regardless of merit or ability to pay, should receive medical care and food in the face of serious illness or malnutrition” That is not America today, where lawmakers in Congress and in statehouses around the country push to cut spending on the Supplemental Nutrition Assistance Program and seek to limit the availability of Medicaid made available recently under the Affordable Care Act.
In economics, the term trade-off is often expressed as an opportunity cost, which is the most preferred possible alternative. A trade-off involves a sacrifice that must be made to get a certain product or experience. A person gives up the opportunity to buy 'good B,' because they want to buy 'good A' instead. For a person going to a baseball game, their economic trade-off is the money and time spent at the ballpark, as compared to the alternative of watching the game at home and saving their money, plus the time spent driving to the ball game.
Conflict and trade-offs are inherent in marketing decision making, and are the most fundamental challenge of marketing and brand management. these trade-offs orconflicts into four broad categories—strategic, tactical, financial or organizational decisions—which we briefly highlight here.
Strategy trade-offs
.Marketing strategy trade-offs involvedecisions related to targeting and positioning brands. Some involve trade-offs in growth strategies, such as concentrating marketing resources on expanding the brand into new product categories vs. fortifying the brand and further penetrating existing product categories. Another growth trade-off is emphasizing market retention and targeting existing customersvs. emphasizing market expansion and targeting new customers.Whether to use funds to build and retain existing customerrelationships or spend resources to develop new customers iscertainly a dilemma that many firms face.
Tactics trade-offs.
Marketing tactic trade-offs involve decisions related to the design and implementation of marketing program activities. Some of the more common trade-offs evident with marketing programs are push (intermediary-directed) vs. pull (end-consumer-related) strategies or howthe program is updated over time (emphasizing continuityvs. change).
A real dilemma for many companies is whether to support existing channels or to develop new ones, which usually meanscreating competition for the companies’ traditional outlets. The problem often comes down to a stark choice: Given evolution in customer buying patterns and preferences, and significant declines in the market position of our traditional dealers, do we create a whole new system for going to market or do we re-segment the market, refine our strategy and strengthen our position with our traditional distribution partners?
Financial trade-offs.
Marketing financial trade-offs involvedecisions related to the allocation and accountability of investments in marketing program activities. In arriving at marketing investment decisions, these are some common trade-offs:Invest in generating revenue vs. building brand equity.Go for clearly measurable effects vs. “softer” effects that are more difficult to measure.Maximize product or service quality vs. minimizing costs.Perhaps the most common trade-off is the tension on long-term brand-building strategies created by pressure for short-term earnings results and “making the numbers.” Marketing expenditures, especially for advertising and brand development, are among the most vulnerable when management is looking for ways to improve the bottom line, because thelong-term effects of most marketing expenditures are so hard to determine due to the problem of multiple causation.
Organization trade-offs.
Finally, marketing organizationtrade-offs involve decisions in the structure, processes andresponsibilities involved in marketing decision making. Forlarge global organizations especially, trade-offs found in thisarea include centrally mandated vs. locally controlled authority and standardized vs. customized marketing approaches. As effective a marketer as Nike has been, the company has often lamented that it has not historically balanced global objectiveswith local realities as well as it would have liked. Walt DisneyCo. has been even more blunt in its belief that it has needed toachieve more cultural relevance in its global pursuits.
Although we discussed marketing trade-offs within our four main categories, trade-offs certainly exist across the categories too. Pressure to achieve certain earnings targets maylead to an emphasis on short-term tactical moves, for example.
One response to these trade-offs is to adopt an “extreme”solution and maximize one of the two dimensions involvedwith the trade-off. Many management gurus advocate positions that, in effect, lead to such a singular, but clearly limited,focus. These approaches, however, obviously leave the brand vulnerable to the negative consequences of ignoring the other dimension.
The reality is that for marketing success, both dimensions in each of these different types of decision trade-offs must typically be adequately addressed. To do so involves achieving a more balanced marketing solution. Marketing balance occurs when marketers attempt to address the strategic, tactical, financial and organizational trade-offs as clearly as possible in organizing, planning and implementing their marketing programs.
There are three means or levels of achieving marketing balance—in increasing order of potential effectiveness as wellas difficulty.
Since World War II, the United States has relied on a network of global military bases and forces to provide forward, collective defense against the Soviet Union, to counter the proliferation of weapons of mass destruction, and to fight terrorism. Today, the international environment has changed, with China asserting itself across East Asia, Iran pursuing an ambitious nuclear program, and al Qaeda affiliates still posing threats to Western interests. Domestically, too, the environment is changing, as the United States confronts serious economic uncertainties and growing pressures to reduce defense spending.
It is not surprising, therefore, that a debate is under way as to the future role of America in the world, specifically regarding the size and characteristics of the U.S. overseas military presence. Whereas the Obama administration has called for a global presence that emphasizes the Asia-Pacific region and the Middle East while maintaining defense commitments to Europe, other voices have called for bringing most U.S. military forces home.
If U.S. defense leaders can agree on their highest global priorities, then the tough budgetary decisions will be easier to make, and the highest priorities will more likely be served.
For the U.S. military, the first challenge is to decide whether U.S. allies in Europe and Northeast Asia are willing to assume primary responsibility for their own security; if so, this would allow the United States to reduce its overseas presence. If relying more on the allies seems too risky, one option would be to rely primarily on U.S.-based forces to respond to global crises. If that option also seems untenable, then the United States will have to choose whether to focus its overseas presence more on Asia or on the Middle East. America cannot do it all. But if U.S. defense leaders can agree on their highest global priorities, then the tough budgetary decisions will be easier to make, and the highest priorities will more likely be served.
Assessing U.S. Options
It is useful to review U.S. global security interests. Recent U.S. strategy and defense documents have identified seven discrete and enduring interests:
A RAND team focused its attention on the first three interests above because they involve major threats to the United States and will likely be the main drivers in determining the future U.S. overseas presence. Because U.S. officials differ on what type of overseas presence is needed to serve these interests, the team compared five global postures in terms of their ability to do so.
The five alternative postures were, in brief, a shared U.S. and allied global presence, a shift to a U.S.-based long-range posture, an expanded U.S. global forward presence, an expanded U.S. forward presence only in Asia, and an expanded U.S. forward presence only in the Middle East. What emerged from comparing these postures and their likely consequences are the critical choices that U.S. officials need to make and that the U.S. public needs to debate.
The first strategic choice for the United States is to decide whether its overseas military presence can be reduced and diversified because its allies in Europe and Northeast Asia have the ability, economically and militarily, to assume primary responsibility for their own security. Such a choice could involve the United States reducing bases and combat forces in Britain, Germany, Japan, and South Korea. The remaining permanent U.S. overseas presence would provide the bases and forces for immediate responses to future threats and to reassure U.S. allies and partners. The United States would then have the flexibility to expand its presence across Southeast and Southwest Asia if threats in those areas were to increase or if partners were to request assistance.
If relying more on U.S. allies seems risky, given their reliance on nonmilitary responses to potential military threats and their political and economic constraints, the United States would face other strategic choices. One is whether it is time for the United States to rely primarily on U.S.-based forces to respond to global crises and conflicts, keeping only a small global forward presence to reassure allies and partners. Such a choice would be based on the perspective that deterring and responding to China, North Korea, and Iran will depend not on a permanent U.S. overseas presence but rather on the ability of U.S. military forces at home to surge into those regions in the event of crises or conflicts. Relocating U.S. military forces to the United States would have the advantage of reducing their vulnerability to expanding missile threats.
Choosing to reduce the U.S. overseas military presence would not make sense, however, if leaders decide that such a presence plays an important role in deterring and responding to one or more of the threats from China, North Korea, or Iran and in reassuring U.S. allies and partners. The strategic choice that then arises is whether the United States should maintain its global posture essentially as today and prepare to increase its overseas presence in Southeast and Southwest Asia if threats expand there. Retaining existing bases would have the advantage of reducing the risks associated with not being able to return to those bases after giving them up.
Such a robust global posture, though, could become too expensive or politically problematic. Therefore, the final strategic choice would be whether the United States should focus its overseas presence more on Asia (because of China's expanding military activities) or more on the Middle East (because of threats to stability and the flow of oil from a potentially nuclear-armed Iran).
Focusing on Asia would mean keeping U.S. bases and military forces in Japan and South Korea, then expanding deployments and exercises to the extent that they become politically feasible with countries in Southeast Asia. Focusing on the Middle East would mean keeping U.S. bases in the Gulf Cooperation Council states and in Africa to quickly blunt any attacks on U.S. partners in the region while relying on surging military forces from the United States for contingencies in Asia. In either case, the choice would require the reorientation of U.S. military forces in Europe to assist any surge of forces from the United States in response to crises and conflicts in whichever region (the Middle East or Asia) where the U.S. presence would be reduced.
Those debating the future U.S. global posture need to make explicit their perspectives on what role U.S. military forces should play overseas and then decide from the menu of strategic choices outlined above. While there are no right or wrong choices, focusing first on U.S. global security interests makes it more likely that the selected overseas presence will best serve the highest interests and not be based on unrelated considerations, such as the political pressures of allies and congressional leaders.
For decades America had been the worlds largest global trader and a major proponent of liberal free-trade ideology. The American pontification of free trade infers that America as an economic aggregate has concluded, that the mechanisms of global free markets are advantageous to its economic interests. This perspective is widely validated by policy makers and academics. A study conducted by the Peterson Institute for International Economics, concluded that American real incomes are nine percent higher than they otherwise would have been, as a result of the liberalisation of trade in the aftermath of the Second World War (Office of the United States Trade Representative, 2016). In liberal trade theory, the explanation for this suggested nine percent gain in real incomes is a result of the surplus creation inherent in trade. Liberal trade theory postulates that trade is in fact a good idea, better than a protectionist approach because of its capacity to produce a net surplus. Trade, as a non-zero-sum surplus generating pursuit is often credited with reducing poverty in developing countries by providing employment, as well as generating lower priced goods for consumers in developed economies such as America . The decrease in prices then results in an increase of real incomes.
From a conceptual standpoint, the notion of trade for mutual economic gain has persisted since the mercantilist, but it was Adam Smith who lay the foundation for the concept that trade is good. Smith’s hypothesis is neatly articulated in his statement “If a foreign country can supply us with a commodity cheaper than we ourselves can produce it, better buy it of them with some part of the produce of our own industry, employed in a way in which we have some advantage”.
Classic trade theory was further expanded from its absolute advantage foundations with two further complementary ideas, that of comparative advantage and of specialisation. David Ricardo’s comparative advantage, states that a countries should specialize production based on their ability to produce a commodity at a lower opportunity cost. If we assume, as Ricardo did, that labour is the only factor of production for two different commodities, the American Rust Belt and China can be used to illustrate the concept of comparative advantage. China’s enormous population endows it with cheap labour and as a result a comparative advantage in manufacturing steel. This cheap labour gives China a comparative advantage, by allowing China to produce steel relatively cheaper and with a lower opportunity cost than that of America. America on the other hand has a comparative advantage relative to China in its ability to produce skilled labour goods such as civilian aircraft. The theory states that by specializing and focusing on their respective comparative advantages, more of both commodities can be produced. China more steel and America more civilian aircraft. An economic surplus is born and trading facilitates the surplus transfer in a mutually adventurous way. This logic of mutually beneficial exchange has been at the forefront the rationalisation for globalisation for over two centuries, but there is, as always, more to the story. In America there is growing dissatisfaction with free-trades capacity to reconfigure the economic landscape and increasing skepticism regarding the disproportionate expropriation of the surplus. Anticipating the dissatisfaction with the free-trade status quo was a major global victory for Donald Trump and one that has had major ramifications for the international political landscape.
Have you ever had to make a decision about spending your money today versus tomorrow? For example, you might ask yourself, 'Should I go out to dinner tonight, or would I rather save my money so I can go to the movies tomorrow?' You probably make decisions like this several times a day without even realizing it. Since your resources - such as time and money - are limited, you must choose how to best allocate them by making some trade-offs. Let's learn a little more about trade-offs and why understanding this concept will help you make better decisions about your time and money.
Most of us don't have so much money that we are in a position to buy everything we desire. We must put thought into every purchase and how it affects our bank account. We also must think about what type of satisfaction that purchase will give us. As a result, to get one thing that we like, we usually have to give up another thing that we also may like. Making decisions requires trading off one item against another.
In economics, the term trade-off is often expressed as an opportunity cost, which is the most preferred possible alternative. A trade-off involves a sacrifice that must be made to get a certain product or experience. A person gives up the opportunity to buy 'good B,' because they want to buy 'good A' instead. For a person going to a baseball game, their economic trade-off is the money and time spent at the ballpark, as compared to the alternative of watching the game at home and saving their money, plus the time spent driving to the ball game.
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