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Small Nations in a Big World

How does export-led growth benefit small nations more than big ones?

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Takeaways


Studies show no statistical relationship between country size and economic growth rates. Even people who argue that the size of a home market is important concede that because of the effect of other economic factors, high internal demand doesn’t guarantee that a big country will outperform a small one.

Moreover, there is reason to believe that some big countries — particularly those well endowed with oil, minerals and other resources — actually under-perform smaller countries because of what political economist Terry Lynn Karl calls “the paradox of plenty.”

The experience of Nigeria, Iran and Indonesia — all big resource-rich countries — suggests that the “instant bonanza” brought about by commodity exports can reduce a country’s competitiveness. By contrast, adversity has a healthy effect on many small nations, forcing them to work harder and smarter to gain economic advantage.

Economics is only part of the surging outlook for small nations. At a time when economic victory often goes to the player who arrives first to a destination, small nations are inherently faster than big ones at making decisions and shifting gears. Just as small companies can hybridize more quickly than big ones, small nations can more quickly than big nations seize the benefits of hybridity.

Small nations (those with small populations of, say, less than five million, or small land areas of, say, roughly the size of a small American state) once were viewed as mere fodder for big nations because they were thought to lack the internal resources to achieve wealth.

Economists thought that nations prospered by first exploiting domestic demand, then moving into international trade, so that the bigger a nation was, the better. For the past two centuries, small countries were seen as “material” out of which to build big ones.

In 1843, one respected political observer said it was “ridiculous” that Belgium or Portugal should be independent. Giuseppe Mazzini, the nineteenth-century unifier of Italy, said the ideal number of European nations would be twelve (as opposed to fifty today).

The twentieth century proved no kinder to small countries. Consider the Netherlands, which built a sprawling colonial empire in the Pacific. The Soviet Union, China and India absorbed smaller neighbors unapologetically. Germany took the first step toward World War II when in 1938 it seized what was then Czechoslovakia. One rationale for these power grabs was that none of the absorbed countries — not Tibet or Kashmir or the Baltic state of Estonia — could survive on its own.

Not so. Economists now say almost no nation is too small to prosper. Many small countries outperform economically much larger nations, and for sound reasons. “Since the economy is so global now, the costs of being small have gone down,” says Alberto Alesina, an economist at Harvard University who studies small nations.

“You can afford to be small.” So it seemed to the late Ernest Gellner, a political theorist, who wrote in 1997: “What makes you big, important, rich and strong in the modern world is not acreage but rates of growth.”

This helps to explain why there are more small nations in the world than ever, more than 190 in all, up from 74 in 1946. Of these, 87 countries had populations below 5 million, 58 less than 2.5 million and 35 less than 500,000. “If the critical ingredient has shifted from natural resources to knowledge,” says futurist Paul Saffo, “then the successful country is the one not with the most brains, but the most brains that can act in concert.”

Adapted from "The Global Me" by G. Pascal Zachary. Copyright © 2000 by G. Pascal Zachary. Used by permission of the author.

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