Why the minnows are making a splash

Small countries can thrive in the deregulated, hi-tech Nineties. Perhaps Quebec should have said 'Oui'
  • @TheIndyBusiness
I could not help feeling a sense of disappointment at the failure of the separatists in Quebec to win the vote, and found myself wondering why. It was not because of any particular sympathy with their cause, still less a desire to see the break-up of an honourable and successful country. It was that it would have been tremendously interesting in both economic and cultural terms.

We would have seen a new Francophone nation within the North American community. We would discover whether it was possible to run an efficient small country alongside one medium-sized and one giant one. Quebec would have been a Norway or a Denmark. Could it be as successful as those two nations undoubtedly are? Is the optimal size for a country much, much smaller than we suppose?

In cultural terms, we would learn whether an independent and different culture could flourish alongside the most powerful popular culture that the world has ever known, the United States. Would Quebec be swamped, or would its sheer differentness become an aircraft carrier from which to launch a Francophone attack on the great North American market?

Anyway, the vision is delayed, so the experiment will have to wait. That seems a pity because the demerging of countries may become as important a feature of the way we organise the world as the end of colonialism and the collapse of Communism. Both those forces created a large number of "new" countries, but that was really only a by-product of the process. The instances of people in an established democracy choosing to create a new and separate nation are rare indeed.

This may change. On any long historical view, the nation is a pretty ephemeral entity. True, some nations, such as England, have been around for hundreds of years, but most are recent creations. It is not difficult to see other places where the glue is weak: within Europe, Belgium and Italy could easily split, while Scotland is likely to have some new constitutional relationship with England within the next couple of decades.

It will change if the economic arguments in particular suggest that something has happened which has made small countries more efficient units than larger ones. In the commercial world, the tendency has been for companies at the top and the bottom of the size range to benefit at the expense of those in the middle. Could the same not happen for countries?

There seem to be a number of reasons why small countries, particularly those on the borders of very large ones, have tended to do rather well in recent years. Most of these are positive ones. They are able to obtain the advantages of access to a larger market without carrying the social costs that running a large country seems to entail. So Luxembourg and Switzerland can prosper on the back of a strong German market. Another is that they can use regulation, or rather deregulation, to their advantage. Hong Kong, the Channel Islands, Luxembourg (again), Monaco, the Republic of Ireland and Singapore have all in their different ways benefited from a nimble regulatory climate. (Singapore is not renowned for lack of regulation, but rather has used regulation positively to build up specific areas of excellence in, for example, financial services.)

There are also benefits of a negative nature, in that small countries are not obliged to carry the costs expected of larger nations. They do not need to devote attention to UN peacekeeping missions, which are expensive both in the time and, more important, the space of mind of the political leaders of more important countries. Britain is a good example of a country that wastes energy playing a world role instead of concentrating on its own self-interest. If we accepted that we were a medium-sized nation, we could fit our role to our resources. We would also stop being blamed for problems that have nothing to do with us.

Of course, there are examples of small countries that have saddled themselves with the overheads of larger ones and impoverished their people as a result: the loss-making national airline, the string of expensive embassies in the nicer capitals of the world, the nationalised industries headed by members of the ruling family and their friends. But these are self-inflicted wounds and are incurred irrespective of size. They are not necessary conditions of smallness.

Many would argue that the best government in the world in terms of its economic management is New Zealand: it has pioneered what most central bankers believe to be the best practice in establishing the duties and responsibilities of a central bank within a democratic framework.

If the evidence of the recent past seems slightly in favour of the competitiveness of small nations - there is certainly no disadvantage, maybe some advantage to be small - there are also powerful reasons to suppose that the balance will tilt further. These include the further development of regional trading blocs, which guarantee access to the big market and will negotiate on behalf of the small nation: Nafta and the EU are the two main examples, but expect a trading bloc to develop around a greater China and expect, as a counterweight to that, closer ties across the Pacific between North America and the small East Asian "tigers".

Less obvious are the technological changes taking place in the world economy. Falling costs of telecommunications, in particular, make it practicable to deliver on-screen services from fringe locations, thus reducing the comparative advantage of countries at the core of a large economic region. In the past, it has been easier to be a Luxembourg and benefit from physical location at the core of Western Europe. In the future it may be just as advantageous to be a Bermuda, for building up an international insurance business merely needs a favourable tax regime and good telephone and airline connections.

Beyond this, an independent cultural identity seems to be becoming a more important economic asset. In a world where manufacturing technology crosses national boundaries in a matter of weeks, the comparative advantage of making things becomes harder and harder to retain. Other countries with lower wage rates can imitate too fast. But a country's culture is unique to it. It cannot be reverse engineered.

Ireland and Scotland both have powerful cultures which are attractive to the rest of the world. But Ireland has been able to trade off this base more effectively, by giving special incentives to film-makers and authors - something which Scotland, bound into the UK tax system, is unable to do. And it is not just tax: nationhood reinforces cultural identity.

And so it would have been - I expect eventually will be - for Quebec. When that happens, expect its cultural industries, such as tourism and the arts, to flourish in a way they could never do with Quebec as part of another country. The separatists have made a deal of noise in recent weeks, but the noise has been directed negatively, against the rest of Canada. Imagine instead that energy, that different voice, being directed positively towards the whole of North America. It would make that continent feel a different and surely more interesting place.