Beyond Giants and Empires - Unveiling the Triumph of Small Nations in Global Prosperity

Unraveling Historical Threads: The Steam Engine, Industrial Revolution, and the British Legacy #

The steam engine stands as a beacon of a transformative era, reshaping our economic and social landscapes. Its absence would leave a void in our current levels of development and welfare that is hard to fathom. However, the discourse extends beyond the mere impact of the steam engine; it delves into its origin in the UK. The British Empire, a linchpin in the success of the Industrial Revolution, laid the groundwork for the contemporary world.

While nations like the USA and Germany saw the emergence of innovations like electricity and automobiles, the common narrative often revolves around the prosperity and technological prowess of larger countries like the UK, the US, or Germany. What if this historical narrative, where large countries dominate, is more of an anomaly than a rule? What if the recent era of large countries' dominance is on the brink of a transformation?

From Mesopotamia to Renaissance Italy: Small Territories, Big Prosperity #

Reflect on ancient Mesopotamia, where the inception of writing marked a powerhouse of innovation. Similarly, ancient Greece, with independent city-states such as Sparta, Olympia, and Athens, served as the cradle of Western civilization. Wealth, until at least the 17th century, found its haven in smaller territories.

The Renaissance Italy narrative challenges the notion that prosperity is exclusively the domain of large nations. States like Genoa and Venice, though diminutive in size, stood as formidable players. Even the mighty Roman Empire, despite its vastness and success, grappled with challenges stemming from its sheer size.

Historical luminaries such as Plato, Aristotle, and Machiavelli advocated for the efficacy of smaller states. However, the post-Industrial Revolution era witnessed the ascendancy of large powers, particularly the UK, in steering global prosperity. What if this trend is at a crossroads? Could the future witness the ascendancy of small countries in dictating economic development?

Challenging Conventions: Small Countries at the Helm of Economic Development #

Contrary to conventional wisdom, recent data questions the inherent superiority of larger countries. While economies of scale, diversified industries, and access to broader markets are deemed advantageous for larger nations, they might not be the sole determinants of success. Recent success stories of small countries like Ireland, Estonia, Malta, or Taiwan, with its burgeoning semiconductor industry, underscore the impressive growth achievable by smaller entities.

In a theoretically perfect scenario, economies of scale should grant larger countries a competitive edge. Yet, the reality unfolds differently. Small nations are disrupting this assumption, ushering us into an exploration of three pivotal factors: economies of scale, protection, and risk coverage.

Economies of Scale, Protection, and Risk: Debunking the Myth of Large Nation Superiority #

Economies of scale empower larger countries to cultivate extensive industries, diversify their economies, and tap into broader markets. The shield of protection, fortified by military might and political influence, appears as a distinguishing feature favoring larger nations. Additionally, the resilience provided by risk coverage seems more feasible in larger countries, where unaffected regions can lend support to those grappling with crises.

Now, the pivotal question surfaces: does the theory align with practical realities? A comprehensive study spanning 40 years and analyzing over 150 countries challenges preconceived notions. Smaller countries, especially those with populations below 1 million, consistently outperform their larger counterparts. This revelation injects fresh vigor into debates about the future trajectory of global economic dynamics.

Efficiency Unleashed: Small Countries Soaring Above Economic Expectations #

Exceeding their counterparts by up to 50%, small countries showcased a remarkable economic affluence, especially when compared to neighboring nations. The question arises: why this notable prosperity? The answer, according to the study, lies primarily in productivity. Companies in smaller nations demonstrated a level of efficiency surpassing their larger counterparts, resulting in elevated wages and corporate income.

This phenomenon stands in stark contrast to established theories, prompting the realization that there might be an intrinsic flaw in the current understanding. What eludes us? What can explain the prosperity of small countries? To unravel this mystery, let’s scrutinize the advantages.

While it’s commonly accepted that large countries enjoy undeniable advantages such as economies of scale, larger populations, and abundant natural resources, what if these apparent strengths are, in reality, veiled weaknesses?

Natural Resources Reconsidered: Escaping the Pitfalls of Plenty #

Consider the abundance of natural resources in Latin America—oil, copper, lithium-rich territories like Venezuela, Bolivia, Argentina, and Brazil. Despite their resource wealth, these countries grapple with poverty—a phenomenon known as the Dutch curse. Governments often exploit natural wealth to corrupt democracy, consolidate power, and suppress citizens. Small countries, with fewer natural resources, find themselves naturally shielded against this curse. Their smaller populations allow for more robust democracies capable of resisting tyrannical forces.

In smaller nations, rulers maintain closer proximity to citizens, bureaucracies are more agile, and corruption is more easily combatted. The homogeneity of small populations minimizes internal strife, and there are fewer large secessionist movements. Overall, the majority of the population shares common problems and objectives, rendering democracy more accessible, representative, and manageable.

Yet, challenges persist. Small countries are deemed more vulnerable to catastrophes like earthquakes or economic crises. Here, the trump card of international trade enters the scene: diversification. Countries engaged in significant international trade, when faced with a national crisis, can rely on increased trade with other nations to expedite economic recovery.

The Historical Tapestry: Unraveling the Industrial Revolution’s Enigma #

Considering the myriad advantages favoring small countries over larger counterparts, one last question lingers: Why did the Industrial Revolution and modern wealth kickstart in the UK during the era of a colossal Empire? Why this resurgence of small countries now? A historical lens might provide insight.

In the 16th century, on the cusp of the Industrial Revolution, three transformative changes tilted the balance of power in favor of large countries. Advancements in war weaponry empowered large nations to dominate smaller ones, fostering the creation of massive empires. Concurrently, these empires developed internal markets that functioned more efficiently than international markets due to language, transportation, and regulatory barriers. The third change introduced gold-based protectionism, creating hurdles for small countries.

Conclusion #

In essence, the world preceding the Industrial Revolution not only militarily disadvantaged small nations but also hindered them from leveraging their greatest asset: international trade. Since World War II, however, this narrative has been changing. Globalization, improved transportation, enhanced international legal frameworks, and the widespread acceptance of democracy and civil rights have repositioned small countries to exploit their greatest resource once more: trade.

This shift is evident in the increased number of independent countries—from 74 to over 190 today. Moreover, various countries have undergone significant processes of political decentralization, as seen in Spain with its autonomous communities. All signs point to small countries regaining prominence.