Beggar thy neighbour is a term used in economics to describe a policy that is designed to benefit one particular country while having a negative impact on others. Beggaring thy neighbour is a particular risk during global recessions, when there is a need for co-ordinated action across national boundaries to lift the global economy as a whole back into sustainable growth. Most economists see beggar thy neighbour policies as a key factor in the Great Depression, and many historians would go further and say they also contributed to the outbreak of World War II by pushing the world into competing economic blocs. Avoiding a repitition of this pattern in the aftermath of the credit crunch is a key goal for policymakers today.
Most beggar thy neighbour policies concern controls on the movement of goods and capital across national boundaries. There are two types of countries in the global economy: those who export more than they import (called "surplus countries") and those who import more than they export ("deficit countries"). As a rule, countries in recession seek to import less and export more, as this allows them to maximize the growth of their own economy. If people buy products from domestic companies, it helps those companies turn a profit and boosts the domestic economy, rather than that profit being made abroad. And, obviously, if your country's companies are selling plenty of products abroad, then that helps their profit margins as well, further boosting your economy.
There are many ways that a country can achieve this shift in the make-up of imports and exports (which is called the "balance of trade"). One of the most brutal is to impose trade barriers and tariffs, which legally ban or restrict the movement of goods; if I ban all imports, I force domestic industry to produce replacements. Or, more subtly, I might heavily subsidize domestic industry with government grants and loans which allows them to produce goods more cheaply than their competitors, meaning they can find new export markets or sell their goods domestically and block imports.
A final method I might use is currency manipulation, meaning I artificially lower the value of my currency so that it becomes cheaper for foreigners to buy my exports and more expensive for my own citizens to buy imported goods. Simply printing money and causing inflation will be sufficient to make this happen, as will the more subtle method of intervening directly to lower the value of my currency by selling large quantities of it onto the world market. The more of my currency there that there is floating around the financial markets, then the cheaper it is for foreigners to acquire it and buy products from my country; conversely, the more expensive it becomes for my citizens to buy products from abroad because foreigners are less interested in acquiring my now-cheaper currency.
Leaving aside the potential downsides of these policies for the country engaging in them (which are considerable), all of these actions are likely to have a mirror impact on the countries that trade with it: if I'm exporting more and importing less, than my trading partners will find themselves importing more and exporting less. This is precisely the opposite of what they will be seeking to do during a global downturn, because their own recovery depends on stimulating demand in their domestic economy. I am hence beggaring my neighbours because my strategy for growth depends on undermining their own.
But it gets worse; the negative impact might not be limited to my neighbours. Because not only is this something of an international faux pas and likely to lead to an increase in political tension between us (not to mention a trade war), it also risks causing such severe damage to my neighbours' economies that they become incapable of buying my goods. Suddenly my brilliant strategy for escaping recession has failed, and I have become like a drug dealer whose clients all lose their jobs and can't afford any more smack. A more sensible policy would have been for me to co-ordinate my strategy with my neighbours so that rather than seeking the maximum benefit for myself at their expense, we all experienced just enough benefit and just enough pain for everyone to be able to get back to growth. The recovery would then be sustainable.
All of this is relevant to our current predicament, even within the eurozone, in which trade barriers and tariffs are virtually non-existent and currency manipulation impossible because of the single currency. Some countries, like Germany, run off exports, while others rely on importing, and many people - mainly outside of Germany - think this should change. Outside of the eurozone, China is public enemy number one for its aggressive strategy of targeting western markets with cheap goods while leaving its domestic market underdeveloped, although a long process of adjustment has now begun. And then, as always at the moment, there is the issue of budget deficits.
At first glance it might not be obvious why government spending would have anything to do with beggaring or enriching thy neighbours, but over the last few years it has been an important factor. When the credit crunch hit and the private sector collapsed, governments stepped in with huge stimulus measures in which they borrowed large sums of money and then spent it to kick-start their economies. The demand that they generated for goods and services didn't only benefit their own economies, but those of their trading partners as well - by keeping their economies spinning, they ensured that the demand for imports didn't collapse entirely. The trading partners of a country applying stimulus hence benefitted, and the worldwide co-ordination of stimulus ensured that everyone benefitted rather than just a few countries.
However, countries all over the world are slowing or halting stimulus spending now because they have become so heavily indebted and have begun to worry about their credit ratings. By so doing, they seek a benefit for themselves - addressing their growing debt problems - while dishing out a penalty for their neighbours, because the slower growth that inevitably ensues in the short-term will reduce their demand for imports and hence harm the economic growth of foreigners.
This is slightly different to the policies we discussed earlier, because the effects are not symmetrical: it is not a matter of boosting domestic production or exports at the expense of one's neighbours, but of a net reduction in economic growth as a whole. Debt has made this necessary, but some economists are worried that the result will be enough to plunge the global economy back into recession because so many countries are removing stimulus at once and hence production and growth will be dashed everywhere. Yet growth is impossible without sustainable public finances, and the move back to them has to be made eventually; our hopes now rest on the assumption that we have picked the right moment, and that what beggars our neighbours in the short-term will enrich them later on by returning everyone to the path of sustainable growth.