Wiki Self Sufficiency

Self Sufficiency

Basic Description

China, India and most African and Eastern European countries adopted this strategy at one time. The idea is to protect local, fledgling businesses from large, international competition. This also helps to make your country independent of the MDCs and not at the whim of TNCs.

  • Higher taxes on imported goods (tariffs)
  • Set quotas on imports
  • Import-license requirements

Elements of Self-Sufficiency

A country should spread investment as equally as possible, across all sectors of its economy and in all regions. The pace of development may be modest, but the system is fair because residents and enterprises throughout the country share the benefits of development. Under self-sufficiency, incomes in the countryside keep pace with those in the city, and reducing poverty takes precedence over encouraging a few people to become wealthy consumers.

This approach nurses fledgling businesses in an LDC by isolating them from competition of large international corporations. A country's fragile businesses can be independent and insulated from potentially adverse impacts of decisions made by businesses and governments in the MDCS.

Countries promote self-sufficiency by setting barriers that limit the import of goods from other places. Three widely used barriers include setting high taxes on imported goods to make them more expensive than domestic goods, fixing quotas to limit the quantity of imported goods and requiring licenses to restrict the number of legal importers. The approach also restricts local businesses from exporting to other countries.

Tariffs

Problems with Self Sufficiency

Inefficiency-- Self-sufficiency protects inefficient industries. Businesses can sell all they make, at high government-controlled prices, to customers culled from long waiting lists, so they have little incentive to improve quality, lower production costs, reduce prices, or increase production. Companies protected from international competition do not feel pressure to keep abreast of rapid technological changes.

Large Bureaucracy-- A complex administrative system encouraged abuse and corruption. Potential entrepreneurs found that struggling to produce goods or offer services was less rewarding financially than advising others how to get around the complex government regulations. Other potential entrepreneurs earned more money by illegally importing goods and selling them at inflated prices on the black market.

India as an Example

For many years India made effective use of many barriers to trade. To import goods into India, most foreign companies had to secure a license. This was a long difficult process. Once a company received an import license, the government severely restricted the quantity it could sell to India. The government also imposed heavy taxes on imported goods. Businesses were suppose to produce goods for consumption inside India because of that the government of India pretty much controlled everything since everything needed a license and permission. When India abandoned this technique their economy took off as seen in the graph above.