Evaluate the strategies a government could adopt to achieve greater self-sufficiency and assess whether, on balance, these strategies are beneficial.
Rare but high-impact events—like the COVID-19 pandemic, which led to a global recession, and the Suez Canal blockage, which disrupted global supply chains—have highlighted how a highly globalised world can enhance economic efficiency while reducing resilience. In response, many governments have begun taking steps to increase self-sufficiency.
b.Evaluate the strategies a government could adopt to achieve greater self-sufficiency and assess whether, on balance, these strategies are beneficial. [15]
Introduction
The COVID-19 pandemic and major global disruptions like the Suez Canal blockage have exposed the vulnerabilities of highly globalised economies. These events prompted many governments to reconsider their dependence on global supply chains and to explore strategies for enhancing self-sufficiency. While greater self-sufficiency promises improved economic resilience, it can come at the cost of reduced efficiency. Governments must therefore weigh these trade-offs carefully when implementing policy measures aimed at boosting domestic resilience.
Diversification of Import Sources
One common strategy to improve self-sufficiency is for a government to diversify its sources of imports. This approach aims to reduce the risks associated with relying too heavily on any single supplier or trade partner. For example, Singapore has historically relied on Malaysia for key food imports such as chicken and eggs. When Malaysia imposed temporary export bans during the COVID-19 pandemic, Singapore experienced immediate supply disruptions. If Singapore had diversified its sources across multiple countries, the impact of the export ban would have been less severe.
Diversifying import sources can reduce the vulnerability of an economy to sudden supply shocks. When supply chains are more geographically varied, the risk of a single point of failure is mitigated. However, this approach is not without its challenges. Sourcing goods from more distant locations can increase transportation and logistical costs, which may offset the benefits of supply security. In addition, managing trade relationships with a wider range of countries requires greater diplomatic and administrative effort. Still, in sectors that are essential to national well-being, such as food and medicine, the cost of diversification may be justified given the importance of ensuring uninterrupted supply during global crises.
Dual Circulation Strategy
Another strategy governments can adopt is to shift their economic model towards greater reliance on domestic demand. China’s dual circulation strategy exemplifies this approach. It seeks to reduce dependency on foreign markets by strengthening the domestic economy through higher wages, increased consumption, and greater domestic investment. The aim is to create a self-sustaining internal market that can drive economic growth even when global demand falters.
The main advantage of this approach lies in its ability to insulate the economy from external shocks. If global demand contracts due to a financial crisis or geopolitical tension, a strong domestic consumer base can continue to support growth. Additionally, a focus on raising wages can improve standards of living and reduce income inequality, further reinforcing domestic demand. However, a transition away from an export-led model can bring about challenges. Higher wages, while beneficial for workers, can reduce the international competitiveness of a country’s exports, leading to trade imbalances. Moreover, shifting the structure of an economy from export-led growth to consumption-led growth is complex and must be carefully managed to avoid dislocation or unintended economic slowdowns.
Increasing Domestic Production of Strategic Goods
Governments may also seek to achieve greater self-sufficiency by expanding domestic production of critical goods, such as food, pharmaceuticals, semiconductors, and energy. This reduces reliance on foreign suppliers and ensures that a country retains control over essential resources, particularly during times of global upheaval.
However, this approach can conflict with the principle of comparative advantage, which underpins the economic gains of global trade. According to the theory of comparative advantage, countries should specialise in producing goods and services that they can produce at lower opportunity cost, while importing other goods. Producing goods domestically that a country is not efficient at making can result in a misallocation of resources. For example, if a country with little arable land attempts to achieve self-sufficiency in food production, it may need to divert scarce land, labour, and capital away from more productive uses. This could result in lower overall economic efficiency and higher consumer prices.
While such inefficiencies may be acceptable in the case of essential goods, applying this strategy too broadly risks undermining long-term growth. Producing everything domestically to guard against disruptions is neither practical nor economically desirable. Hence, this approach is best reserved for sectors deemed vital to national security or public welfare.
Conclusion
In the post-pandemic world, governments face mounting pressure to reduce economic vulnerabilities and enhance self-sufficiency. Strategies such as diversifying import sources and investing in local production of critical goods can strengthen resilience. Meanwhile, demand-side shifts like China’s dual circulation model may inspire longer-term structural reforms.
That said, self-sufficiency should not be pursued at the expense of long-run economic efficiency. In small, open economies like Singapore, completely turning inward would erode the gains from trade that have historically underpinned its prosperity. Thus, the optimal path forward lies in a balanced approach—strategically enhancing domestic capabilities in essential areas while continuing to embrace open trade in others. Careful targeting, efficient implementation, and adaptability will determine the success of these self-sufficiency measures.
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