Why countries are more likely to break up than to merge

Tomorrow, Scottish voters will go to the polls to answer a simple and direct question: “Should Scotland be an independent country?”

When the campaign began last November, it was widely believed that the result might be similar to the outcome of the 1980 sovereignty referendum in Quebec, in which 60 percent voted against cutting the province’s ties with the rest of Canada.

But a vigorous “Yes” campaign led by Scottish first minister Alex Salmond, and a lacklustre “No” campaign led by Alistair Darling, Britain’s former Chancellor of the Exchequer, has dramatically closed the gap. As of this evening, a comparison to the too-close-to-call 1995 Quebec referendum might be in order, as the final polls suggest a slight “No” lead.

Despite our own experiences with Quebec nationalism, many Canadians still wonder why about one-half of Scots would want to separate from a relatively large and successful country of 64 million people to become a small country of just over five million people.

Isn’t bigger supposed to be better? Indeed, why don’t countries that share the same language merge to get rid of this wasteful duplication of governments and to increase their power on the world stage: Austria with Germany, New Zealand with Australia, Uruguay with Argentina, Ireland back into the United Kingdom . . . and Canada with the United States?

Alas, global might seldom translates into domestic bliss. Last January, this blog noted that when citizens of OECD countries were asked to rate their overall life satisfaction on a zero-to-10 scale, the countries at the top of the list read like a who’s who of small countries with little global influence: Switzerland, Norway, Iceland, Sweden and Denmark.

Further analysis suggested that satisfaction with life was closely tied to having a job and a steady income, feeling healthy, living in decent housing, and having a good personal social support network.

Credit Suisse, a Zurich-based bank and financial services company, also noticed that small countries tended to do better than their larger neighbours in securing a good life for their citizens, and conducted their own study, called “The Success of Small Countries”, to understand why.

Not only did Credit Suisse find a negative relationship between a country’s size and its per capita GDP, but they also found that smaller countries tended to do better in education, health, equality and other aspects of human development — even noting that Scotland has a higher level of human development than the U.K. as a whole, while Catalonia does better than Spain, the country many Catalans hope to separate from in the years ahead.

Smallness might also lead to pragmatism. The Credit Suisse report noted that smaller countries have opened themselves more to international trade than their larger neighbours, and have been more enthusiastic about globalization and technology. Their governments also tend to be less wasteful, in part because they don’t have to please as many parochial constituencies, as the report notes:

The larger the country, the more the need for local and regional governments to manage some of the key social services like education or police services.

Decentralization also gives rise to transfers from the central government to the poorer regions or states to allow for a more balanced growth and relative wealth across the country. Transfers — a political tool to keep a country together — add complexity and may lead to distortions and inefficiencies if not allocated properly . . .

The USA and the European Union provide a valuable illustration of this dynamic. In the USA, Federalism has added costs as each state has its own government infrastructure and ability to issue legislation. The result of this ‘government’ structure is often overspending and higher deficits at the regional or local level.

The same could be said about the European Union and the component states: 40% of the legislative acts of the EU concern agricultural policies, while agriculture represents less than 5% of European GDP.

A final factor that smaller countries seem to have on their side: higher levels of urbanization. The report notes that “cities are the most efficient form of human settlement” and are a “massive driver of growth and of wealth”. Urban societies are said to be “more practical and less ideological”, are better at producing higher-income jobs, and have citizens who are more comfortable dealing with cultural differences.

Thus, the Credit Suisse report might hold some of the clues to the appeal of Scottish nationalism. An independent Scotland would be under less pressure than the British government in London has long been to please far-flung constituencies, could focus its energies on building a healthier and better-educated population — which it needs in troubled areas such as Glasgow — and would have little choice but to be open to globalization. It would also be a highly urbanized country, with about 70 percent of its population living in the regions surrounding Edinburgh and Glasgow, and about 80 percent officially living in urban areas.

Yet this should not be taken as an endorsement of the “Yes” camp in tomorrow’s referendum. The Economist, always a source of sensible advice, points out in its call for Scots to vote “No” tomorrow that the nationalists’ optimism about oil revenues and the possibility of keeping the British pound as the Scottish currency are contestable. They also point out that, horrified by the close call with national breakup, the British government is likely to give the existing Scottish legislature so many additional powers within the U.K. that independence would be hardly worth seeking.

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About theviewfromseven
A lone wolf and a bit of a contrarian who sometimes has something to share.

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