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The imposition of sanctions against our country has again made the talk about the need for import substitution relevant. Sometimes there are even calls for a complete transition of the country to autarky. Understanding what exactly lies behind this concept
What is autarky
Autarky is a term consisting of the Greek roots αὐτός – self and κράτος – power, which denotes the complete economic independence and self-sufficiency of the state or the maximum desire for them. In practice, this assumes that the vast majority of goods and services are produced domestically and not imported from abroad.
This concept was introduced into scientific circulation by the German economist Friedrich List, who insisted in his book The National System of Political Economy that the entire economy is subordinated exclusively to the needs of the country. This was partly a continuation of the ideas of the German philosophers Georg Friedrich Hegel and Johann Gottlieb Fichte, who called for the creation of a strong state and a centralized government that would regulate or completely control foreign trade.
The essence of economic autarky
At its core, the idea of autarky is an extreme form of protectionist politics, which was an important component of the mercantilist doctrines popular in the XNUMXth and XNUMXth centuries. States sought to protect their economies from the influence of their neighbors and introduced various measures (such as protective duties) to limit the flow of foreign goods and at the same time develop their own industry and other sectors of the economy. But already in the XNUMXth century, protectionism began to give way to the idea of ”free trade”, that is, the openness and interpenetration of the economies of different countries, which was promoted by economists Adam Smith and David Ricardo.
The concept of autarky again becomes popular with the outbreak of the First World War and in subsequent decades. The experience of a large-scale and protracted war has become a signal for many intellectuals and politicians that the lack of domestic production of a number of essential goods and dependence on their imports from other states can put them in a difficult position, so you should try to rely as much as possible on your own economic development.
Autarky in history
Throughout the XNUMXth century, a number of states sought to put into practice the ideas of economic independence and autarkic development, but none of them could achieve the goal of complete self-sufficiency.
the USSR
After the revolution of 1917, the government of our Soviet country found itself in isolation, because the neighboring capitalist countries refused to recognize the new regime and were afraid of the spread of socialist ideas. Similarly, the nationalization of foreign-owned enterprises by the Bolsheviks led to the undermining of trade and other foreign economic relations. For this reason, the initial stage of the so-called “war communism”, characterized by famine and the devastation of the Civil War, had autarkic overtones.
But already in the 1920s, as part of the New Economic Policy (NEP), the economy was liberalized. Now foreign companies could participate in concessions for the development of a number of deposits, American and European specialists took an active part in the industrialization program, and the USSR actively purchased industrial equipment and sold its raw materials abroad. Only after a period of relative openness during the 1st Five-Year Plan (1928-1932) did the USSR attempt to switch back to autarky during the 2nd Five-Year Plan (1933-1937). Subsequently, foreign aid became one of the keys to the victory of the USSR in World War II: under the lend-lease program, the United States supplied military equipment and peaceful goods (from tanks to canned food) to the Soviet Union in the amount of about $ 11 billion (about $ 100 billion in 1990 prices) .
After the start of the Cold War, relations between the USSR and Western countries worsened again, which led to the introduction of a number of sanctions (especially from the United States) and reduced the role of foreign trade in the gross national product (GNP) of the Soviet Union to 4%. But even then, the USSR remained an important trading partner for its allied Warsaw Pact countries and a number of Third World states. In addition, the construction of a number of pipelines to Europe and the subsequent oil and gas trade began in the 1960s.
Italy and Germany
In preparation for war in Europe, the Third Reich and Fascist Italy also tried to make their economies more self-sufficient. The leaders of these countries believed that instead of depending on trade with neighbors (in particular, Germany had to buy and import food), they needed to expand their possessions at the expense of their territories and colonialism, ensuring economic prosperity and independence. Despite this, both countries continued to trade with other countries, including after the outbreak of World War II, and continued to experience problems due to a shortage of imported raw materials.
India
In 1947, India achieved the long-awaited independence from the British Empire, but Mahatma Gandhi and other politicians were afraid that political colonialism would be replaced by economic dependence on Great Britain, so they promoted the idea of ”swadeshi” or independence, which consisted in the boycott of British goods and the development of their own industries. . Similar ideas were put forward in other countries that were formed as a result of the collapse of colonial empires (for example, in Tanzania).
China
After the end of the civil war in 1950 and the coming to power of Mao Zedong, China found itself in a situation similar to that faced by the USSR in 1917. Various attempts to rely on their own forces in various areas, from agriculture to metallurgy, combined with ill-conceived reforms, had a rather negative effect. It was the normalization of trade relations with the United States and other countries in the 1980s that led to the rapid economic growth of the country.
North Korea
Perhaps the most illustrative example of autarky is the DPRK, one of the most closed states in the world today.
The dominant Juche ideology there also assumes a self-sufficient economy. Now the country lives under the burden of heavy economic sanctions, which significantly restrict the import of various goods. The DPRK depended on the import of a number of goods, in particular, fuel from the USSR. It was its termination that became one of the reasons for the mass famine of the 1990s, after which the DPRK bought food and received it as humanitarian aid. But even now the country continues to actively trade with China, the Russian Federation, Syria, Iran and a number of other countries.
Pros and cons of autarky
As can be seen from historical examples, full autarky is impossible because of the complexity of the geographical division of labor, and the transition to it is often rather forced. As Grigory Bazhenov, Candidate of Economic Sciences and author of the YouTube channel about the popular economy Furydrops, notes, “While in the XNUMXth century it was relatively easy to provide yourself with everything you need in conditions of closure, then in the XNUMXth, and even more so in the XNUMXst century, this is a clear step towards technological backwardness.
Therefore, even supporters of autarky more often speak of a movement towards self-sufficiency, rather than a state of complete isolation of the economy. On the upside of this endeavor, they often claim that the protectionist measures introduced in Western countries have boosted their economies and helped them create their own industries and protect them from competition. If we talk about recent history, they cite South Korea and Japan as an example, where large industrial concerns with a worldwide reputation, such as Samsung, LG Group, Hyundai and Mitsubishi, have appeared with state support. Grigory Bazhenov also notes that “we have experience of such regulatory policies, when temporary restrictions on the import of final products led to industrial development – the United States and Germany at the end of the XNUMXth century, South Korea in the era of the South Korean miracle. But there are also examples of the opposite.
“By engaging in international trade, a country can allocate its productive resources more efficiently, produce goods in which it has a comparative advantage, and increase GDP. Full or close to full autarky therefore always means static (that is, instantaneous) loss of benefits from trade, says Daniil Shestakov, senior lecturer at the Faculty of Economics at Moscow State University. – Supporters of the restriction of freedom of trade argue that the static losses will be compensated by the dynamic gain: protected from competition, domestic producers will learn to produce good goods. At the very least, this is an argument in favor of temporary and partial autarky – only in certain industries and until these young industries develop. The benefits of autarky for domestic consumers are thus not likely to materialize any time soon.”
For this reason, most economists are skeptical of such arguments. Experts like Gregory Mankiw and Nobel Prize-winning economist Paul Krugman believe that protectionism has a negative impact on both economic growth and living standards, while free trade not only improves growth but also positively affects economic stability.
Bazhenov agrees with this:
“In the modern world, attempts to build complete autarky have led to a growth disaster — you can think of North Korea. The rapid industrialization of a number of other economies that we are accustomed to consider as autarkies – for example, the USSR, were associated with the import of technology. For example, the Ford plant was opened in the Soviet Union in 1932 (the same GAZ was built by an American company). Moreover, when the United States actively applied sanctions against the USSR during the Reagan era, Europe, on the contrary, cooperated with the Soviet Union on a number of projects, in particular, in the framework of the construction of export gas pipelines. Yes, US sanctions hit the scale of the project, but did not lead to its closure.
No country in the world today can rely only on its own strength, this is a utopia, Bazhenov notes: “Attempts to build a full-fledged autarchy lead to the fact that inefficiency accumulates in all sectors of the economy, because there are no benefits from specializing in what your national economy can produce better than others. Focus blurred. And an attempt to develop everything and everything leads to a technological lag. The USSR, for example, even copying technologies, did it longer and worse than more open countries.”
According to Daniil Shestakov, abrupt transitions to autarky lead to a negative effect on the economy: “There are two ways to estimate instant losses from autarky. First, economists look at “natural experiments” – episodes in economic history when countries opened their country to foreign trade. For example, the immediate benefits to Japanese consumers from the opening of Japan to foreign trade in 1859 are estimated at 8–9% of GDP. When, in 1807, US President Thomas Jefferson decided to secure American ships from stops and seizures by the warring countries (Britain and France) and closed American ports, the prices of imported goods rose by 33%, and the total loss is now estimated by historians at 5% of GDP. The unpopular embargo had to be lifted after 15 months.”
However, this does not mean that the complete abolition of trade barriers is a panacea. Grigory Bazhenov gives an example of countries that for a long time supported their own, albeit less efficient, industry through restrictions, faced a drop in wages in the industrial sector relative to wages in the United States after lowering barriers – this was the case, for example, in Mexico and in some Latin American countries .
Therefore, we need to strive to maintain a balance between integration into world trade and support for our own economy: “The further, the more difficult it is to build a full-fledged autarky. To integrate with the world economy today is a necessity. But this does not mean that countries should not pursue an industrial policy, leaving everything at the mercy of world trade. After all, the history of economic growth shows us very different examples of success. And globalization, of course, has its costs,” the expert believes.
Experts believe that only countries with large and developed economies can afford to move towards autarky:
“Some large economies integrated into the world economy may be closer to autarky, but the point is not that they deliberately pursue such a policy, more often on the contrary, but that domestic demand is developed in these countries,” Bazhenov notes. “The economy is not closed, but the world economy is no less dependent on such markets than their national economy is on the world economy. An eloquent example is the USA. The share of foreign trade turnover in relation to GDP is one of the lowest in the world – about 23,5%. A similar situation is observed in Japan – 25,4%, in China already 34,5%, and on average around the world – 56,2%. However, all this does not mean that these countries do not need imported technology, brains or capital. And the United States here again is an eloquent example.
Daniil Shestakov also draws attention to the fact that in the modern world the benefits of free trade are estimated using macroeconomic models, with many assumptions: that autarky in the United States will lead to losses of 2% to 8% of GDP, and in a developing country dependent on foreign trade – from 4% to 30% of GDP, he says. “It should also be taken into account that although the majority of the country’s population will lose from autarky, it will also have supporters – those who will occupy the niches of enterprises that have left the domestic market.”