Wednesday, September 27, 2017

Economics: Why Secession Begets Success Stories

(Drivebycuriosity) - Catalonia (a region of Spain) and Kurdistan (a region of Iraq) both want to secede and to become independent nations. Being an economist with a strong interest in history I believe that both regions have a convincing agenda. Catalans & the Kurds would be better off if they go their own ways.

Secession isn`t a new idea. In the early 1990th many regions used the breakdown of the defunct Soviet Union to gain freedom and to become independent states: The Baltic states (Estonia, Latvia, Lithuania) plus Ukraine, Azerbaijan, Uzbekistan, Moldova and more. At least some of the them have flourishing economies now. Today the Baltic states Estonia, Latvia, Lithuania all have higher per capita income then the Russian Federation (worldbank). Other parts of the former Soviet empire also broke apart: Yugoslavia  (into the separate states Serbia, Croatia, Bosnia & Herzegovina, Montenegro, Macedonia & Slovenia) and Czechoslovakia (into Czech Republic & Slovakia). There is global trend toward having more and smaller countries: In the mid-1950s, there were 80 states in the world. Today, there are 200 (ibtimes).    

History shows that even very small countries can prosper after becoming independent. Switzerland has been proving for many centuries that small states can do well. 1499 the country separated from the German federation, the Holy Roman Empire. Switzerland didn´t participate in World War I, neither in World War II and decided against a membership of the European Union. In 2016 Switzerland had a per capita income of $78,000 beating neighbors Germany  ($41,000) & France ($36,000 ) and even the USA ($57,000 ) by far ( worldbank). The tiny independent states Luxembourg & Liechtenstein also belong to the richest nations of the world.

There are more success stories. Taiwan separated in 1949 from Motherland China which led to a "period of rapid economic growth and industrialization, creating a stable industrial economy" (wikipedia). Today Taiwan has a per capita income of $39,600, about 5-times of China ($8,100). Hong Kong, which got separated in the 19th century, has a per capita income of $43,600. Singapore did even better. The tiny state had been a part of Malaysia, but got kicked out in 1965 after political conflicts (wikipedia). The independence brought Singapore swift economic growth, thanks to the intense trade relationships with the rest of the world. Today Singapore has a per capita income of $52,000, far above Malaysia ($9,500) and Indonesia ($3,500).

This is no coincidence. Small countries (and independent regions) are less complicated than huge states. They are easier to govern and to manage and therefore they are less bureaucratic. The government of a small country is closer to their citizen and can respond better to local needs. Government decisions about taxes, health car, public spending and more could be fairer & more efficient.



                                                     Creative Environment

Secession leads to decentralization. Decentralization "increases efficiency - and effectiveness - due to reduction of congestion in communications, quicker reaction to unanticipated problems, improved ability to deliver of services, improved information about local conditions, and more support from beneficiaries of programs" (wikipedia).

Europe became the world’s most dynamic civilization after around the year 1500 partly because of political fragmentation and competition between multiple independent states, wrote the historian Niall Ferguson (bostonglobe). Small countries like The Netherlands became global power and stayed wealthy till today. The Italian Renaissance happened as Italy was just a cluster of small independent city states like Milan, Florence, Pisa, Siena, Genoa, Ferrara, Mantua, Verona and Venice. The competition between these places created an creative environment that inspired advances in arts, science and business (wikipedia). The independent Greek city states (Athen, Byzantium, Sparta, Troy and more) developed democracy and founded European culture. The huge Roman Empire instead, which spread from Northern Africa to Southern England, broke down under its own weight. Today Switzerland & Norway aren`t member of the European Community - and both countries are doing well. People worldwide are buying Swiss products & services and don´t care whether the country is part of an union or not.  

I believe that Catalonia and Kurdistan each can repeat these success stories by focusing on their human capital and trading freely with the rest of the world as Switzerland & Singapore do.

I believe that small countries (and separate regions) have just one disadvantage: They are military weak and could be easily overrun by enemies. But the existence of Switzerland, Singapore, Luxembourg, Andorra and other tiny states shows that this risk is very low today. It is not likely that Catalonia will be attacked by its neighbors Spain & France.

Viva la independence.

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