Self-Sufficiency Is Among The Most Dangerous Economic Myths

Jacob van Walscapelle: Still Life with Fruit // Public domain

It is no surprise that the annual address of President Vladimir Putin to the Russian people featured a call for self-sufficiency, the closing of the national economy, and catering to all needs only with internal resources. Even though the statements of foreign leaders are not directly linked to the Bulgarian context, such ideas can find their ground at home too, especially in the context of election campaigns.

The contents of the Russian President’s words are not surprising, given the sudden breaking of almost all economic ties with trade partners in Europe:

“(…) we will create a very strong and self-sufficient economy that will not remain aloof in the world but will make use of all its competitive advantages. Russian capital, the money earned here, must be put to work for the country, for our national development. Today, we see huge potential in the development of infrastructure, the manufacturing sector, in domestic tourism and many other industries.”

We will focus on these specific words. Putin’s call is far from groundbreaking – in it, we find a push towards creating all economic boons domestically, intertwined with blaming external forces that aim to steal these boons abroad. By the way, some European politicians made similar statements during the passing of initial anti-covid measures.

In the modern economic context, such autarky is impossible. Only North Korea comes close to that kind of a model, but even that country imports a lot, mainly from China. In any case, North Korea is hardly an example of economic prosperity or high living standards.

Yet, why exactly is economic self-sufficiency undesirable? It certainly seems appealing – the country does not rely on the will of others and is therefore immune to economic dependencies being weaponized against it. At the same time, the fruit of local production benefits the nation that has worked for it. Unfortunately, this idealized situation comes with a couple of obvious problems.

The first is access to raw materials – contemporary production requires access to a broad range of metals, energy sources, and countless other inputs. When a nation that attempts to be self-sufficient cannot extract all of them, entire industrial sectors become automatically inaccessible. The same applies to food – if the climate is not suitable for growing certain plants and raising certain animal stocks, many foods would be out of reach.

Another issue is the need to produce everything on-site. When a national economy has little demand for a certain (say luxury or niche) good, the chance of a local entrepreneur choosing to produce it is rather low. When production seeks to satisfy only local demand, it is difficult to achieve specialization and economies of scale, unless demand contracts to, say, just two types of shoes and one car model in ten years. By the way, we lived in such a world in the recent past, in case anyone has forgotten.

With autarky, research and development become severely more difficult – technological advancement is a product of global networks and shared efforts. A self-sufficient country, however, tries to catch up with the rest of the world in innovation, which is incredibly restrictive, even if we only consider the pool of brains, limited by national borders, working on that task. Lagging behind technologically then becomes inevitable, worsening the state of the country, compared to what it used to be before self-sufficiency.

Attempts at self-sufficiency, almost by default, lead to the need for ever larger state interventions in the economy in a push to create a more effective local economy. Consequently, monopoly producers emerge, and they face no competitive pressure whatsoever. This is wonderful for their well-connected managers but not for the regular person.

Autarky does not help the job market much either. A closed economy can rely only on the local labor force but not on a fresh immigrant stream, in case of deficits. The problem of providing specialists for all areas of our complicated economy remains unresolved as well. At the same time, for some people with certain skills and talents, there is no room for advancement since they cannot contribute to an economy that cannot utilize them fully.

We can only be glad that this suicidal economic course has been undertaken by another country and not ours. It seems that in the Russian case, “self-sufficiency” does not mean fully closing the economy but rather ending all possible ties with the West.

Still, many of the consequences are already visible – missing goods from the local markets, investors abandoning the country, and a stagnating standard of living, which is remarkable for an economy of its size. The smaller the country, the more destructive the results of self-sufficiency attempts – that’s why we need to hope future Bulgarian politicians would not dare to even think about such an idea.

Adrian Nikolov