Print Friendly and PDF
only search openDemocracy.net

40 reasons to support Scottish independence: reason 16: the flotilla effect and why smaller countries are richer

Small European countries tend to be more prosperous than big ones. Their governments can use economic policy more subtly, and they can adapt faster to changing circumstances.

An independent Scotland could become the richest country on earth...

There is... one characteristic common to all the top ten ranking nations, bar one. It is that they are small. Dominic Frisby, The Independent

Take a moment to look at the following two graphics. They come from this report (pdf) by Adam Price and Ben Levinga - both researchers at Harvard, though the former used to be a Plaid Cymru MP. If you think that makes him biased, feel free to check his data. The first looks at GDP per capita in the EU 15 countries (ie, basically Western Europe). Blue is for countries with more than 15 million people, red is for those with fewer.


The Netherlands, with 16.7 million, is just over the line. The Western European countries not in the EU - Norway, Switzerland, Iceland, etc, skew the figures even further towards the trend that small European countries are richer. It's not just Europe. Of the ten wealthiest per person countries on earth according to the World Bank, 9 have fewer than 15 million people.

Since GDP isn't the best measure of economic success, here are the top 10 countries in the world by a range of yard-sticks. Again, red is smaller than 15 million people, blue is bigger.

 

The report is full of these. The data all tell the same story. Small EU countries tend to be richer and to have more successful economies than bigger ones. They export more, they bounce back faster from recessions, and so on.

French economists Laurent and Lacheux also studied how country size impacts on the economies of EU countries. They say “we present evidence of a systemic divergence between small states and large states that amounts to 2.3 percentage points in real growth”. In other words, it's not just coincidence that European countries are richer if they're smaller. The Price/Levinga report argues that there are four reasons:

“Openness to trade, social cohesion, adaptability, ‘the macro-politics of micro scale’ – big government in a small country.”

Let me start with the last of these. If you're a hardcore Thatcherite, then you think that the government shouldn't have much role in the economy. So it should be stripped back, and as far away as possible. For those of us who are anywhere to the left of the Tea Party, the state should be involved in a number of sorts of economic management to a greater or lesser extent. The 2008 financial crisis shows what happens, for example, when we get rid of regulations. There's also fiscal policy, procurement strategy, labour market strategy, infrastructure investment, ownership, trade deals, trade promotion, subsidies and so on, all of which can be used to help steer our economy towards a just, flourishing and sustainable future. This isn't a radical proposition. Having an active industrial policy is a pretty normal suggestion these days.

But while states should consider how they apply their levers over the economy, it's important to recognise that each can be a little clumsy in a complex world. The bigger the country, the more balls you have to keep in the air, the more likely it is that one group will be hurt by a policy you introduce with another in mind. And just as England's industrial base was hammered by decisions which boosted the banks, when a government is balancing one sector against another, that which is controlled by those who are richer and more powerful is more likely to win out.

On the other hand, with a smaller country, you can focus on your specific circumstances with more surgical precision. Scotland's problems with centralised land ownership, for example, are more distinct than those in the rest of the UK – so we need different rules, and need to focus on the issue more. Scotland's got proportionally much more countryside, and so needs more focus on rural economic strategy; it's got huge amounts of renewable energy capacity and more top universities per head than anywhere else in the world. It's got distinct exports to promote like whisky, computer games, and bio-medicine, and particular poverty problems to solve.

The other points from the report are important too. More aware of the world around them, smaller countries are better at trading. A more wieldy size, they are more able to adapt to the ebbs and flows of the world's economy. The report is called 'the Flotilla Effect' because Europe's family of small states, like a flotilla compared to a single titanic tanker, is able to adjust course faster in a changing world. As we steam towards the climate change iceberg, that ability is going to be more vital than ever.

Economic policy is an art, not a science. It requires the careful application of numerous policy levers in the appropriate way at the best possible time. What will work in one place and moment could make things worse in another. With fewer people, with less complexity, it's easier for the government to get it right. It's no wonder small countries tend to be more economically successful. The failure of neoliberalism teaches us that state intervention is needed. The 20th century shows that it shouldn't be allowed to be too centralised. Unless you have some romanticised nationalistic attachment to larger geographical units, these two facts point to a simple answer: smaller countries. The evidence is clear. They work better.

OurKingdom needs to raise £5,698 to continue running our Scottish debate series until the referendum in September. Please contribute here.


We encourage anyone to comment, please consult the
oD commenting guidelines if you have any questions.