Beggar Thy Neighbor Policy

Good neighbors always spy on you to make sure you are doing well.

Pawan Mishra

 

Beggar Thy Neighbor

 

Beggar thy neighbor policy is an economic policy which aims to boost the economy of a country, while worsening the economic conditions for another country, usually a neighboring country. Like, if you consider it as a zero-sum game, then one country gains only at the expense of another one.

The term was first used by Adam Smith in his book Wealth of Nations:

Nations have been taught that their interest consisted in beggaring all their neighbors. Each nation has been made to look with an invidious eye upon the prosperity of all the nations with which it trades, and to consider their gain as its own loss. Commerce, which ought naturally to be, among nations, as among individuals, a bond of union and friendship, has become the most fertile source of discord and animosity.

However, he concludes that:

After all the anxiety, however, which they have excited about this, after all the vain attempts of almost all trading nations to turn that balance in their own favour and against their neighbors, it does not appear that any one nation in Europe has been in any respect impoverished by this cause. Every town and country, on the contrary, in proportion as they have opened their ports to all nations, instead of being ruined by this free trade, as the principles of the commercial system would lead us to expect, have been enriched by it. …

Later, in 1937, Joan Robinson also used this term in her article Beggar-My-Neighbour Remedies For Unemployment:

In times of general unemployment a game of beggar-my-neighbour is played between the nations, each one endeavouring to throw a larger share of the burden upon the others. As soon as one succeeds in increasing its trade balance at the expense of the rest, others retaliate, and the total volume of international trade sinks continuously, relatively to the total volume of world activity. Political, strategic and sentimental considerations add fuel to the fire, and the flames of economic nationalism blaze ever higher and higher.

So, how are such policies implemented? One way is by setting some barriers to trade such as tariffs and quotas. By doing so, imports would become more expensive for the domestic consumer which results in a shift toward domestic products. This acts as a stimulus for the domestic producers and economy, but will do so at the expense of the other country’s exporters.

Or, a country can pursue such policies by means of devaluating its own currency. Devaluing a currency results in higher prices for imports which again shifts the domestic demand towards domestic products. Moreover, it makes the country’s exports cheaper, and hence increases its competitiveness in the global market. And all so is done at the expense of its trading partners. Hence the name, beggar-thy-neighbor.

 

Also watch

 

Further reading

Beggar Thy Neighbor’s Beggars? Using Trade Policy to Moderate Food-Price Spikes May Hurt the World’s Poor

The Legacy of Joan Robinson

Whence Cometh Beggar-Thy-Neighbor?

The folly of beggar-my-neighbour policies

Beggar-thy-neighbor policy

Beggar-Thyself versus Beggar-Thy-Neighbor Policies: The Dangers of Intellectual Incoherence in Addressing the Global Financial Crisis

 

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