Self-sufficiency is the road to poverty

In his podcast Roberts on Smith, Ricardo, and Trade, Russ Roberts states that self-sufficiency is the road to poverty. Roberts elaborates on the economic theories of Adam Smith and David Ricardo to explain how specialization and trade create wealth and how how radical self-sufficiency leads to poverty.

Suppose you decide to grow your own food. Are you going to buy your gardening tools from Ace Hardware? If you really want to be self-reliant, you should make your own tools. Are you going to take your chances with what water happens to fall on your property, or are you going to rely on municipal water? Are you going to forgo fertilizer or rely on someone else to sell it to you? Carried to extremes, self-reliance ends in a Robinson Crusoe-like existence.

People in poor countries are often poor because they are self-reliant in the sense that they must do many things for themselves. They do not have the opportunities for specialization and trade that are available to those who live in more prosperous countries.

Some degree of self-reliance makes economic sense. Transaction costs, for example, make it impractical to outsource small tasks. It also makes sense to do some things that are not economically feasible. For example, an orthodontist may choose to make some of her own clothing or keep a garden for the pleasure of doing so, not because these activities are worth her time. In general, however, specialization and large trading communities are the road to prosperity. Without a large economic community, no one can become an orthodontist (or an accountant, barrista, electrician, …)

Why do we so often value self-sufficiency more than specialization and trade? Here are a three reasons that come to mind.

  1. In America, self-sufficiency is deeply rooted in our culture. We admire the pioneer spirit, and this leads to seeing as virtues actions that were once a necessity.
  2. Self-sufficient people are generally well liked, especially if they’re not too prosperous.  Conversely, those who create wealth by leveraging the labor of others are often treated with suspicion and jealously.
  3. Our school system encourages “well roundedness” rather than excellence. The way to succeed is to be moderately good at everything, even if you’re not outstanding at anything. (More on this idea here.)

Update: After writing this post, I read Russ Robert’s book The Choice: A Fable of Free Trade and Protectionism. I discovered one of the later chapters is entitled “Self-Sufficiency Is the Road to Poverty.” Excellent book.

Related posts:

Evaluate people at their best or at their worst?
Make something and sell it
Do something dull
Transaction costs

20 thoughts on “Self-sufficiency is the road to poverty

  1. 4. Lack of self-sufficiency can lead to complete dependence on others. An individual sense of helplessness settles in and a degradation of society as a whole when we’ve lost the contribution of those individuals who refuse to participate. Entitlement and nanny-statism follow.

  2. clintp: There is a legitimate concern about being too dependent on others. But being dependent on trade isn’t the same as being dependent on charity. You have recourse with trading partners but not with benefactors.

  3. I don’t know if you’ve ever read any Steven Covey stuff, but he suggests that Independence is a prerequisite to Interdependence. So I think self-sufficiency is a core skill which you must possess, but should by pass when the opportunity presents itself … for the sake of efficiency.

  4. John: I think what Russ Roberts is advocating is what Steven Covey calls “interdependence.” Maybe Roberts used the term “self-sufficiency” to be provocative.

    It gets back to the difference between relying on trade versus relying on benefactors. I buy my own groceries. I’m self-sufficient in the sense that I do not depend on parents, government, etc. to pay for my food. But I’m not self-sufficient in Robert’s sense of the term. I’m relying on grocers, truck drivers, farmers, …

  5. There is a clear segue to software development… What does this tell us about software productivity? Using somebody else’s code or library that fits the task less-than-perfectly will sometimes be more productive than trying to write the perfect class module for yourself. Any insight on the boundary between “acquire” and “make”?

  6. I think the term ‘self-sufficient’ changes connotation when referring to a nation or economy versus an individual person.

    Self-sufficiency, when used to describe a nation or economy tends to sound like isolationism (which is what I believe the intent is here).

    However, individuals that are not self-sufficient are not generally thought of as being more engaged with the economy, but rather the opposite – not sufficiently engaged enough to provide for their own needs. Their shortcomings must be made up for by someone else. Example: a dependent teenager who has a job, but cannot yet fully support him/herself (i.e., not yet self-sufficient). Surely Mr. Roberts does not mean to say that by becoming more competent at providing for his own needs, a teenager is on the road to poverty.

    So perhaps using different terms for the two cases would clarify things a bit? Maybe it would make them worse . .

    Perhaps there is a better or more specific set of terms

  7. Or because self-sufficient people are “happier”? It’s just a hypothesis but one that I’ve seen to be true plenty of times. Perhaps not working with our hands leaves us unfullfilled.

    Self-sufficient people are certainly more stable – see recent financial crisis as Exhibit A. Highly specialized bankers and real estate agents were left empty-handed and scared whereas jack-of-all-trades just moved on, happy with what they had, and optimistic about new opportunities.

    Lastly, self-sufficient people define their own value of their work. They plant the food and they eat it. Instead, an orthodontists worth is held over his head and determined by the market and people’s perception of value. The orthodontist may be more prosperous, but some people would prefer the control.

    As software developers and parents, my husband and I struggle with this. We want our son to have a “wholesome” childhood with fresh, healthy, home-cooked food, and a clean home and lawn that we tend to ourselves.

    In reality we both work full time, plus have the opportunity to do high-paying side work, so it’s not “worth” our time to do these things, and we have cleaners, lawn mowers, pool cleaners, and eat out more often than we eat in. This is not just a high-level society question, but one that we face every day.

  8. If we look at this dynamic in the real world, we will see that it is not like it appears to be. In theory, sounds beautiful. In practice, its ugly.

    In the 1970’s, 70% of the wealth was in the hands of 25% of the people. In the new millennium, more than 90% of the wealth is in hands of less than 1% of the population of the world.

    Hm… We as a race, have been basing our economic system on these principles, surprises?

    Peace for you all :¬)

  9. I think specialization is great, but when the Man comes to you and says, “I don’t need your specialty anymore.”, you need to be self sufficient enough to turn back to him and say, ” Thanks, Man, I don’t need you either.”

  10. Clyde: Very good point.

    It’s important to have transferable skills. If you’re a Volvo mechanic and the last Volvo dealership in your area closes, you’ll need to move or work on other kinds of cars. But you don’t have to become a farmer and live off the land. But even a category as broad as “mechanic” is very specialized compared to the Nepalese house servant Roberts talks about in his podcast.

    I’m not an advocate of hyper-specialization. I’ve always kept my options somewhat open. But I think Roberts is right that it’s not a good strategy to be too much of a do-it-yourselfer.

  11. This is a refreshing thread to come across in todays ever increasgin pressure environment that drives us to inter-dependence. I value self sufficiency in only some areas of my life, ones that I choose. I do however believe that economic self-sufficiency is far too often ‘stolen’ from ‘poor’ peoples simply because they are being controlled by artificial borders maintained by stakeholders in the economy. Everyone with access to a “market” does want money more than they desire to grow their own veg.

  12. Great post a lot to think about. I guess it means different things to different people. I made the choice years ago. I guess I’m the one with the pioneer spirit. Here at back to basics homestead, we are self sufficient, we are not caught up with all the crap they use in foods and soaps, or our meat is not soaked in preservatives. No we are not Daniel Boones, but we do have the resources for anyone to do the same. Your post was great thanks.

  13. “Because the mature state of self-sufficiency is a prerequisite to genuine, sustainable and practical liberty, yet not without being continually subject to a conscience nurtured not by vain, humanistic and altruistic philosophies of the natural man’s wisdom but by none other than the supernatural and paternal wisdom of the Holy Ghost.”
    I’d rather be free than rich.

  14. Funnily enough, most of todays rich countries selectively used protectionist measures to become better specialized.

    Just goes to show that the the free trade/protectionism is a false dichotomy.

  15. COMMUNITY. INTERDEPENDENCE ‘feeds the soul’ in a market and economy; as it acknowledges the person’s talents , skill, value of labor and importance…. whereas MONEY, SELF SUFFICIENCY, & INDEPENDENCE- leads to securing the flesh.It bears no effect to feed the soul but to avoid despair.

  16. I think anyone that supports what this guy says (I used to be one). Is not considering how different the world would be if everyone was on this level. There would be a great trading community in which, sure, other people would have what you don’t, and we would be much more creative in fulfilling all of our needs. As far as tools go, make them. As far as water, there are water tables you can tap into, streams, lakes… you may need to move to a more convenient area. As far as health, if we all got off the computer and spent our days outside and ate fresh produce, Id imagine we would all live healthier lives. What about deadly diseases or cancer. Human kind have been dealing with these things for thousands of years. When your time comes, it comes. Its a mentality shift that not a lot of people are ready for. That is part of the problem with where our world is going. They expect to live to be 100 years old, rich, in no pain, an always happy. You can be happy anyway you live, you just have to be understanding first.

  17. i think we are becoming too dependent on the system and we are drifting too far away from the earth. We are apart of nature and the further we get, the poorer our decisions become as a society.

  18. Yes, because we all know that rich people live off others and poor people don’t need any charity to live. Yeah, that makes perfect sense. /sarcasm

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