Academic journal article National Institute Economic Review

The Political Economy of Small European States: And Lessons for Scotland

Academic journal article National Institute Economic Review

The Political Economy of Small European States: And Lessons for Scotland

Article excerpt

An independent Scotland would be a small European state. Small states may be at a disadvantage in world markets but can also adapt successfully. There are different modes of adaptation, notably the market-liberal mode and the social investment state. Either mode is dependent on internal institutions, social relationships and modes of policymaking. It is not possible to pick and choose items of different models since they have an internal coherence. The Scottish White Paper on independence supports the social investment state. Scotland has some, but not all, of the prerequisites for this so that independence would require internal adaptation.

Keywords: Scotland; globalisation; political economy

JEL Classifications: O1; O2; H1; H4


The White Paper on Independence (Scottish Government, 2013, xv) suggests that "Independence will give us the powers we need to build an even stronger economy" and to assure social justice. Critics have argued that Scotland is better off as part of a larger unit. As an independent Scotland would be a small European state, it is worth looking at other small European states to examine the ways in which they have met the challenge of global market forces. There is not a single mode of adaptation but several, each with its own logic such that it is not possible simply to mix and match items within them. The independence White Paper and other pronouncements from the pro-independence side suggest that they favour a social democratic social investment state, but this is mixed with other elements drawn from different models. Scotland would need significant internal adaptation to fulfil the requirements of the social investment state.

The size of polities

The mid-twentieth century was, in many respects, the era of big states. In the aftermath of two world wars it seemed that the only hope for security was to be a large state, able to mount its own defence effort, or to shelter under the wings of such a state. The Cold War reinforced this idea, with only a handful of small European states, notably Sweden, Switzerland and Yugoslavia, even pretending to an autonomous defence strategy. The economic and technological requirements of government and social control appeared to point to economies of scale, both for states and for local governments within them. Mass production of consumer goods seemed to require large domestic markets, such as existed in the United States of America. Keynesian economic management, seeking to reconcile full employment, growth and price stability, favoured large economic units since any stimulus could otherwise leak away and produce its multipliers in another jurisdiction. Large market areas could also help to provide security against asymmetric shocks, hitting geographically concentrated sectors, while economies of scale could be exploited in research and technology. The welfare state also pointed to large units, since they provided a bigger resource base for redistribution and risk mutualisation, and could also absorb asymmetrical shocks. Within states welfare development was also a force for centralisation. All of this fitted easily with a certain modernist teleology that pointed to integration, homogenisation within state boundaries and the growth of big systems as an outcome of technological advance.

European states, unable to match the USA in size, sought to gain its economies of scale through economic integration, while sharing security in transatlantic institutions. Neo-functionalists argued (or hoped) that the European project could follow the same trajectory as the state, as economic integration spilled over into other policy fields and eventually into political unity.

From the standpoint of the early twenty-first century, it is easier to see the growth of large states as less an inexorable trend than a response to geo-political and economic conditions peculiar to a specific point in history. …

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