Turbulent Seas Can Favour the Unsinkable Small Chips; WEDNESDAY ESSAY Small Is Cute, Sexy and Successful and Wales Could Be a Prosperous Independent Nation, Argues Former Plaid MP Adam Price, Who Is Studying Public Administration at Harvard University

Western Mail (Cardiff, Wales), April 20, 2011 | Go to article overview

Turbulent Seas Can Favour the Unsinkable Small Chips; WEDNESDAY ESSAY Small Is Cute, Sexy and Successful and Wales Could Be a Prosperous Independent Nation, Argues Former Plaid MP Adam Price, Who Is Studying Public Administration at Harvard University


THE great French moralist Andr Gide's last reported words were, "I love small nations. I love small numbers. The world will be saved by the few".

During the long boom of the 1990s and 2000s, that last-gasp proclamation took on an almost prophetic air. Small and nimble open economies like Ireland, Iceland and the Baltic States became the poster boys of globalisation. Countries the size of Norway topped every feel-good league table in existence from gross domestic product (GDP) per capita to indexes of innovation, happiness and peace.

Small is successful (think Sweden), sexy (think Costa Rica), smart (think Singapore), even cool (think Iceland). Yet recently, something strange tends to happen every time there's talk of carving a new independent country out of an old colonial one.

Faced with the prospect of a people choosing its own destiny and charting its own course, the champions of the status quo gravely intone that such a move would not be economically viable.

So, why the new pessimism? Well, now that economic conditions have turned, so has the tide of ideas. The travails of small countries have made big headlines worldwide in a series of Lehman Brothers-like moments.

The sovereign debt crisis in Greece, the banking collapse in Iceland and Ireland's fall from "Celtic Tiger" grace have all led to a shift in the intellectual terms of trade. "Big is best" has replaced "small is beautiful" as the new global mantra. This was perhaps best summed up by an epithet attributed to Paul Volcker, former US Federal Reserve Chairman (with a sideways nod to Roy Scheider's character in the movie Jaws): "In turbulent times, it's better to be on the bigger boat."

Can the small survive and thrive through the present storm? How does country size affect economic performance? And what would independence do for a place like Wales? These are more than just academic questions for me. After almost a decade at the coal face of politics in the House of Commons as a Welsh Nationalist Member of Parliament, I came to the John F Kennedy School of Government at Harvard University to find solid foundations for my lifelong dream.

Intellectual revolutions of the 1980s, represented by new growth and new trade theory, were based on the idea of increasing returns to scale.

The upshot was that large countries - where economies of scale seem more feasible - were predicted to do better. But the empirics pointed in a different direction. In fact, there is growing evidence of an inverse scale effect.

In a remarkable series of papers, largely unnoticed in the English-speaking world, a new school of geoeconomists based in France claims to have discovered a "size nexus" at work in the European economy, with smaller lead countries like Ireland and Finland outperforming larger laggards like Germany.

My own analysis confirms the French results. Using World Bank data, we found that small European Union countries (those with fewer than 15 million people) enjoyed a 50% increase in exports per capita between 2000 and 2008, compared to a 35% increase for larger states.

The small, it seems, have gained disproportionately from the expansion of trade since the introduction of the euro.

The latest crisis aside, what might lie behind this remarkable story of small country success under normal economic circumstances? There are broadly three potential sources of small-scale advantage: openness to trade, social cohesion and adaptability.

Due to the smaller size of their domestic market (relative to total income), small economies tend naturally to be more export-oriented than large countries. This means they are better positioned to benefit from the expansion of trade and are more skilled in responding to changing conditions. …

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Turbulent Seas Can Favour the Unsinkable Small Chips; WEDNESDAY ESSAY Small Is Cute, Sexy and Successful and Wales Could Be a Prosperous Independent Nation, Argues Former Plaid MP Adam Price, Who Is Studying Public Administration at Harvard University
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