The Impossibility of Autarchy

By Daniel Lacalle
Daniel Lacalle
Daniel Lacalle
Daniel Lacalle, Ph.D., is chief economist at hedge fund Tressis and author of “Freedom or Equality,” “Escape from the Central Bank Trap,” and “Life in the Financial Markets.”
March 28, 2022Updated: April 7, 2022


The invasion of Ukraine, the spike in inflation, and the risks of supply shortages have made some politicians dust off some of the worst economic ideas in history: autarchy and protectionism.

Some believe that if our nation produced everything we needed, we would all be better off because we wouldn’t depend on others. The idea comes from a deep lack of understanding of economics. There’s no such thing as autarchy. There’s no such thing as covering all the needs of a population based on the limit of a politically defined border. It makes no sense.

If I told you I wanted to make my city self-sufficient, you would laugh about it, understanding that it’s impossible and that the reason why my city thrives is because of the interaction and commerce with other cities. However, when a group of politicians defines a nation’s border, we’re immediately led to believe that those limits contain every resource that citizens may need and that everything else is irrelevant.

The other fallacy about autarchy that anyone can understand is that limiting the economy to the confinement of a random area of land is a poor way to develop, grow, and prosper. It’s almost laughable to read from politicians in the eurozone about how they want to achieve full independence and limit imports while at the same time they brag about the bloc’s enormous trade surplus. It’s funny to see how the most autarchic politicians want to increase exports at the same time. Close our borders to evil foreign commerce that destroys our factories! Let’s build more manufacturing capacity so that we can export to them!

We also forget that our progress also comes from the development of the nations we trade with. Our security of supply and our improvement is only a function of everyone else’s growth.

How can autarchy and protectionism be sold to citizens? By selling the false idea of a zero-sum game in the economy. If someone is selling oil to us, they win and we lose. If someone is selling solar panels to us, they win and we lose. We would win if we sold everything to ourselves. Really? The math doesn’t work like that. Politicians selling a zero-sum game in the economy know it’s false, but they also know that protectionism and autarchic aspirations give power to them and make citizens more dependent on political power.

It’s precisely through the development of other nations and making the best out of trade that we can grow faster and have access to more goods and services at better prices.

Productivity, technology, trade, and cooperation are essential factors for prosperity. Autarchy and protectionism are essential drivers of stagnation and poverty.

It may be true that some nations have taken advantage of an open economic system in order to sell more while making it more difficult for others, but the solution isn’t protectionism but more open trade. If a nation decides to harm itself by being protectionist, we’re reaping the benefits, not them, because we benefit from trade growth and prosperity while they end in stagnation. Even large economic giants such as the United States or China can’t survive with closed economies. Who are you going to sell your excess production to if you close your borders?

The current inflation and supply shortage problem hasn’t arrived because of the evils of globalization and the mistakes of free trade, but because of the trend toward interventionism and protectionist measures that has plagued the world for the past 20 years. There’s only one way in which countries can overcome the impact of a war in a country that sells a lot of cereals, oil, and gas to the world: more trade and better diversification of sources of supply, not autarchy and protectionism.

If the current crisis can tell us anything, it’s that we need more cooperation and trade with even more countries to avoid hunger, shortages, and lack of access to essential goods. The rise of protectionism in the past 10 years has proven to be a mistake. It’s time to reverse it.

The challenges presented by China or Russia aren’t solved by closing our economies and thinking everything will be good for us while the rest of the world collapses. Our nation would fall with the rest. The solution to the challenge presented by the polarization of the world is to develop even more trade and cooperation agreements with the world. Thankfully, technology and human action are dissolving what once seemed like impenetrable borders.

The world’s supply problems can’t be solved by adding massive overcapacity in every country. That leads to a collapse in productivity and, much worse, real wages. There are plenty of great nations that can cooperate with us to deliver prosperity to everyone. Trade is the blood of the economy. Autarchy only leads to zombification and, ultimately, decay.

Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.

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