Autarky

Autarky is a condition of economic self-sufficiency in which a country, region or community meets its needs from its own production and does little or no trade with others. The word comes from the Greek for "self-sufficiency". In economics it has two uses: as a theoretical benchmark, the "no trade" situation against which the gains from international trade are measured, and as a description of governments that have deliberately tried to cut their economies off from the world.

Autarky is the extreme opposite of free trade and lies at the far end of the spectrum of protectionism. Full autarky has never existed for a modern state, but several regimes have pursued it as a goal. It is related to, but distinct from, softer ideas such as self-reliance, food security and "strategic autonomy", which aim to reduce dependence on others in particular goods rather than end trade altogether.

Picture a household that decides to grow all its own food, sew all its own clothes, build its own furniture and generate its own power. It would never depend on a shop or a supplier, and nobody could cut off its supplies. But it would spend most of its waking hours on chores, and its food, clothes and furniture would be fewer and plainer than what it could buy with the same effort spent on work it does well.

A country in autarky faces the same trade-off. Independence from outsiders comes at the cost of doing everything at home, including things others do far more cheaply, so living standards are lower than they would be with trade.

In models of trade, each country is first described in autarky, where domestic supply and demand alone set prices. Comparing autarky prices across countries reveals comparative advantage: a country tends to export goods that are relatively cheap at home before trade. The move from autarky to trade lets countries specialize and consume beyond their own production possibilities.

A widely used 2012 result by Costas Arkolakis, Arnaud Costinot and Andrés Rodríguez-Clare shows that, in a broad class of trade models, the gain from trade compared with autarky depends on just two numbers:

• $\lambda$ is the share of a country's spending that goes on its own domestic goods.
• $\varepsilon$ is the trade elasticity, how strongly trade flows respond to trade costs.
• Gains are the share of real income that would be lost by moving to autarky.

For a country that buys 90% of what it spends from home producers ($\lambda = 0.9$) with a trade elasticity of 5, the gain is $1 - 0.9^{0.2} \approx 1 - 0.979 = 0.021$, or about 2% of real income. More open economies, with lower $\lambda$, lose much more; for a small economy that spends half its income on imports, the same formula gives roughly 13%. Models that add economies of scale, imported inputs or several sectors usually find larger gains.

• Tokugawa Japan. From the 1630s to the 1850s Japan restricted foreign trade to a few channels, mainly Dutch and Chinese merchants at Nagasaki.
• 1930s Europe. Nazi Germany's Four Year Plan of 1936 sought self-sufficiency in raw materials and food for rearmament, and Fascist Italy adopted autarky after League of Nations sanctions in 1935.
• Franco's Spain. Spain pursued autarky from 1939 until its 1959 Stabilization Plan opened the economy, after years of shortages and slow growth.
• Albania and North Korea. Albania under Enver Hoxha banned foreign loans in its 1976 constitution, and North Korea's Juche ideology stresses self-reliance; both suffered severe shortages, and North Korea still depends heavily on trade with China despite sanctions.

Some countries have been pushed toward autarky by others rather than choosing it, through blockades, wars or sanctions. Iran, Cuba and Russia have tried to replace lost imports with domestic production, often at high cost; see also North Korean Won (KPW) for how such isolation shows up in a currency.

Economists of almost every school regard full autarky as costly. Without trade a country loses the gains of specialization, has smaller markets for its firms, adopts new technology more slowly and must produce goods for which it has no natural or skill advantage. Autarkic regimes have typically relied on price controls, rationing and capital controls to hold the system together.

Partial self-sufficiency is more widely debated. After supply-chain shocks during the COVID-19 pandemic and the war in Ukraine, many governments sought to make more medicines, chips and energy at home, and India launched its Atmanirbhar Bharat ("self-reliant India") campaign in 2020. Supporters see this as insurance against disruption and coercion; critics warn that it raises costs, invites rent seeking and, taken far enough, gives up the benefits of globalization that lifted many developing countries.

• World Trade Organization: World Trade Report