Beggar thy neighbour
Encyclopedia
In economics
, a beggar-thy-neighbour policy is an economic policy through which one country attempts to remedy its economic problems by means that tend to worsen the economic problems of other countries.
depression
and unemployment
by shifting effective demand away from imports onto domestically produced goods, either through tariffs and quotas
on imports, or by competitive devaluation. The policy can be associated with mercantilism
and neomercantilism
and the resultant barriers to pan-national single market
s.
According to economist Joan Robinson
beggar-thy-neighbour policies were widely adopted by major economies during the Great Depression
of the 1930s.
Alan Deardorff
has analyzed beggar-thy-neighbour policies as an instance of the prisoner's dilemma
known from game theory
: each country individually has an incentive to follow such a policy, thereby making everyone (including themselves) worse off.
An early appearance of the term, which presumably originates from the name of the Beggar-My-Neighbour
card game, is seen in the title of a work on economics from the early period of the Great Depression
:
Also today it is in widespread use, as seen in such publications as The Economist
and BBC News
.
provides another example, where the pursuit by individuals or groups of their own interests leads to problems. This dynamic has been called the "tragedy of the commons
," though it appears as early as the works of Plato
and Aristotle
.
"Beggar thy neighbour" trade policies can lead to trade wars between countries. These trade wars follow the "prisoner's dilemma" game theory analysis developed through Nash Equilibrium in which 2 countries are poised against each other to produce in the market. Production requires export subsidies for the domestic firm to capture the market, effectively deterring the competing entity. Imagine two companies: Boeing and Airbus, one American, one European firm. They can either chose to Produce or not to Produce. The matrix follows that if both produce both will lose market share (-5,-5) as they compete in the industry. If they both don't produce (0,0) nobody benefits. If One produces whilst the other doesn't (100,0) the producing company will capture the industry and have 100% share (0,100) The game theory states that the first mover, or the initial firm in the industry, will always win. The competing firm will have no incentive to enter the market once the competitor has the advantage and thus will be deterred. However, with a strategic trade policy of an export subsidy, the matrix changes as the protecting government covers some of the costs. The matrix now changes from (-5,-5) to (-5,20) in favour of the domestic firm with the subsidy. This will see the protected firm 'win' in the game and capture more of the market share as the subsidies burden the costs, which would otherwise deter the company. The game does not finish here, as the other company, being usurped on the second move, will then itself become protected through export subsidies, leading to a trade war between countries. Ergo, Beggar-thy-neighbour is evident in trade wars as it increases the domestic welfare at the expense of the competing country.
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...
, a beggar-thy-neighbour policy is an economic policy through which one country attempts to remedy its economic problems by means that tend to worsen the economic problems of other countries.
Original application
The term was originally devised to characterize policies of trying to cure domesticDomestic policy
Domestic policy, also known as public policy, presents decisions, laws, and programs made by the government which are directly related to all issues and activity within the country....
depression
Depression (economics)
In economics, a depression is a sustained, long-term downturn in economic activity in one or more economies. It is a more severe downturn than a recession, which is seen by some economists as part of the modern business cycle....
and unemployment
Unemployment
Unemployment , as defined by the International Labour Organization, occurs when people are without jobs and they have actively sought work within the past four weeks...
by shifting effective demand away from imports onto domestically produced goods, either through tariffs and quotas
Import quota
An import quota is a type of protectionist trade restriction that sets a physical limit on the quantity of a good that can be imported into a country in a given period of time....
on imports, or by competitive devaluation. The policy can be associated with mercantilism
Mercantilism
Mercantilism is the economic doctrine in which government control of foreign trade is of paramount importance for ensuring the prosperity and security of the state. In particular, it demands a positive balance of trade. Mercantilism dominated Western European economic policy and discourse from...
and neomercantilism
Neomercantilism
Neomercantilism is a term used to describe a policy regime which encourages exports, discourages imports, controls capital movement and centralizes currency decisions in the hands of a central government...
and the resultant barriers to pan-national single market
Single market
A single market is a type of trade bloc which is composed of a free trade area with common policies on product regulation, and freedom of movement of the factors of production and of enterprise and services. The goal is that the movement of capital, labour, goods, and services between the members...
s.
According to economist Joan Robinson
Joan Robinson
Joan Violet Robinson FBA was a post-Keynesian economist who was well known for her knowledge of monetary economics and wide-ranging contributions to economic theory...
beggar-thy-neighbour policies were widely adopted by major economies during the Great Depression
Great Depression
The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s...
of the 1930s.
Alan Deardorff
Alan Deardorff
Alan V. Deardorff is the John W. Sweetland Professor of International Economics and a Professor of Economics and Public Policy at the University of Michigan, Ann Arbor. He is also the Associate Dean at the Gerald R. Ford School of Public Policy. Former Chair of the Economics Department, Professor...
has analyzed beggar-thy-neighbour policies as an instance of the prisoner's dilemma
Prisoner's dilemma
The prisoner’s dilemma is a canonical example of a game, analyzed in game theory that shows why two individuals might not cooperate, even if it appears that it is in their best interest to do so. It was originally framed by Merrill Flood and Melvin Dresher working at RAND in 1950. Albert W...
known from game theory
Game theory
Game theory is a mathematical method for analyzing calculated circumstances, such as in games, where a person’s success is based upon the choices of others...
: each country individually has an incentive to follow such a policy, thereby making everyone (including themselves) worse off.
An early appearance of the term, which presumably originates from the name of the Beggar-My-Neighbour
Beggar-My-Neighbour
Beggar-My-Neighbour, also known as Beggar-Your-Neighbour, Beat Jack Out of Doors, Beat Your Neighbour Out of Doors, Beat your Neighbour Out of Town, Strip Jack Naked, Picture and Draw the Well Dry, is a simple card game somewhat similar in nature to War, and has spawned a more complicated variant,...
card game, is seen in the title of a work on economics from the early period of the Great Depression
Great Depression
The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s...
:
- Gower, E.A., Beggar My Neighbour! : The Reply to the Rate Economy Ramp, Assurance Agents' Press, (Manchester), 1932.
Also today it is in widespread use, as seen in such publications as The Economist
The Economist
The Economist is an English-language weekly news and international affairs publication owned by The Economist Newspaper Ltd. and edited in offices in the City of Westminster, London, England. Continuous publication began under founder James Wilson in September 1843...
and BBC News
BBC News
BBC News is the department of the British Broadcasting Corporation responsible for the gathering and broadcasting of news and current affairs. The department is the world's largest broadcast news organisation and generates about 120 hours of radio and television output each day, as well as online...
.
Extended application
"Beggar thy neighbour" strategies of this kind don't apply only to countries: overgrazingOvergrazing
Overgrazing occurs when plants are exposed to intensive grazing for extended periods of time, or without sufficient recovery periods. It can be caused by either livestock in poorly managed agricultural applications, or by overpopulations of native or non-native wild animals.Overgrazing reduces the...
provides another example, where the pursuit by individuals or groups of their own interests leads to problems. This dynamic has been called the "tragedy of the commons
Tragedy of the commons
The tragedy of the commons is a dilemma arising from the situation in which multiple individuals, acting independently and rationally consulting their own self-interest, will ultimately deplete a shared limited resource, even when it is clear that it is not in anyone's long-term interest for this...
," though it appears as early as the works of Plato
Plato
Plato , was a Classical Greek philosopher, mathematician, student of Socrates, writer of philosophical dialogues, and founder of the Academy in Athens, the first institution of higher learning in the Western world. Along with his mentor, Socrates, and his student, Aristotle, Plato helped to lay the...
and Aristotle
Aristotle
Aristotle was a Greek philosopher and polymath, a student of Plato and teacher of Alexander the Great. His writings cover many subjects, including physics, metaphysics, poetry, theater, music, logic, rhetoric, linguistics, politics, government, ethics, biology, and zoology...
.
"Beggar thy neighbour" trade policies can lead to trade wars between countries. These trade wars follow the "prisoner's dilemma" game theory analysis developed through Nash Equilibrium in which 2 countries are poised against each other to produce in the market. Production requires export subsidies for the domestic firm to capture the market, effectively deterring the competing entity. Imagine two companies: Boeing and Airbus, one American, one European firm. They can either chose to Produce or not to Produce. The matrix follows that if both produce both will lose market share (-5,-5) as they compete in the industry. If they both don't produce (0,0) nobody benefits. If One produces whilst the other doesn't (100,0) the producing company will capture the industry and have 100% share (0,100) The game theory states that the first mover, or the initial firm in the industry, will always win. The competing firm will have no incentive to enter the market once the competitor has the advantage and thus will be deterred. However, with a strategic trade policy of an export subsidy, the matrix changes as the protecting government covers some of the costs. The matrix now changes from (-5,-5) to (-5,20) in favour of the domestic firm with the subsidy. This will see the protected firm 'win' in the game and capture more of the market share as the subsidies burden the costs, which would otherwise deter the company. The game does not finish here, as the other company, being usurped on the second move, will then itself become protected through export subsidies, leading to a trade war between countries. Ergo, Beggar-thy-neighbour is evident in trade wars as it increases the domestic welfare at the expense of the competing country.
Other uses
The term has also been used as the title of a number of literary works:- Gerard, EmilyEmily GerardEmily Gerard was a nineteenth century author best known for the influence her collections of Transylvanian folklore had on Bram Stoker's Dracula...
& Gerard, Dorothea, Beggar My Neighbour: A Novel, W. Blackwood and Sons, (Edinburgh), 1882. - Drew, Sarah, Beggar My Neighbour, J.M. Ousley & Son, (London), 1922.
- Fielden, Lionel, Beggar My Neighbour, Secker and Warburg, (London), 1943.
- Ridley, Arthur, Beggar My Neighbour: A Comedy in Three Acts, Evans Bros., (London), 1953.
- Macelwee, Patience, Beggar My Neighbour, Hodder and Stoughton, (London), 1956.
See also
- Currency warCurrency warCurrency war, also known as competitive devaluation, is a condition in international affairs where countries compete against each other to achieve a relatively low exchange rate for their own currency. As the price to buy a particular currency falls, so to does the real price of exports from the...
- ProtectionismProtectionismProtectionism is the economic policy of restraining trade between states through methods such as tariffs on imported goods, restrictive quotas, and a variety of other government regulations designed to allow "fair competition" between imports and goods and services produced domestically.This...
- MercantilismMercantilismMercantilism is the economic doctrine in which government control of foreign trade is of paramount importance for ensuring the prosperity and security of the state. In particular, it demands a positive balance of trade. Mercantilism dominated Western European economic policy and discourse from...
- Domestic policyDomestic policyDomestic policy, also known as public policy, presents decisions, laws, and programs made by the government which are directly related to all issues and activity within the country....
- Economic policyEconomic policyEconomic policy refers to the actions that governments take in the economic field. It covers the systems for setting interest rates and government budget as well as the labor market, national ownership, and many other areas of government interventions into the economy.Such policies are often...
- Monetary policyMonetary policyMonetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability. The official goals usually include relatively stable prices and low unemployment...
- International tradeInternational tradeInternational trade is the exchange of capital, goods, and services across international borders or territories. In most countries, such trade represents a significant share of gross domestic product...
- Balance of tradeBalance of tradeThe balance of trade is the difference between the monetary value of exports and imports of output in an economy over a certain period. It is the relationship between a nation's imports and exports...
- Choum