{"id":18069,"date":"2022-05-18T01:00:00","date_gmt":"2022-05-18T00:00:00","guid":{"rendered":"https:\/\/www.economicsobservatory.com\/?post_type=question&p=18069"},"modified":"2022-05-18T09:05:50","modified_gmt":"2022-05-18T08:05:50","slug":"scottish-independence-how-do-other-small-economies-fare","status":"publish","type":"question","link":"https:\/\/www.economicsobservatory.com\/test\/scottish-independence-how-do-other-small-economies-fare","title":{"rendered":"Scottish independence: how do other small economies fare?"},"content":{"rendered":"\n

Small states are at the centre of the Scottish independence debate. Proponents of independence routinely invoke the economic and political success of small European nations<\/a>, especially Nordic ones<\/a>, to justify the viability of an independent and prosperous Scottish state.<\/p>\n\n\n\n

For example, below a picture of Reykjavik\u2019s mountainous skyline, a recent op-ed<\/a> in the pro-independence newspaper The National declares that \u2018it is widely accepted that smaller nations are actually better at creating healthy political and economic systems\u2019.<\/p>\n\n\n\n

Unionists are more sceptical. They warn that low populations deprive smaller states\u2019 governments of economies of scale. This makes public sector spending relatively more expensive in smaller states, requiring higher taxes.<\/p>\n\n\n\n

Supporters of the Union also point to the experiences of small states like Iceland and Ireland in the wake of the global financial crisis of 2007-09 as a reminder of their vulnerability to fluctuations in the global economy (Harvey, 2017<\/a>).<\/p>\n\n\n\n

Research on small states in Europe and beyond can advance this debate. In this article, we review social science research on small states in domestic and international affairs. Most of this work defines size by population, and categorises small states as those with populations of fewer than 1.5 million residents.<\/p>\n\n\n\n

By these measures, Scotland \u2013 with a population of close to 5.5 million \u2013 is not a small state. Nevertheless, size is relative. Small independent states are a useful lens through which to envision an independent Scotland.<\/p>\n\n\n\n

We move beyond adjudicating whether smaller is better for political and economic development by highlighting the challenges and opportunities confronting small states. The prosperity of these states depends on their leaders\u2019 ability to forge collaborative and cooperative relations in domestic and international politics.<\/p>\n\n\n\n

Small states and local governance: pitfalls and potentials<\/h3>\n\n\n\n

Are smaller states better governed than larger ones? Evidence is mixed if \u2018good governance\u2019 is defined by the rule of law. Some find that small states, especially islands, are less corrupt than larger ones (Congdon Fors, 2014<\/a>; Olsson and Hansson, 2011<\/a>; Xin and Rudel, 2004<\/a>).<\/p>\n\n\n\n

Others argue the opposite: smaller states are more prone to clientelism and less professional bureaucracies (Corbett, 2015<\/a>; Gerring and Veenendaal, 2020<\/a>). Sceptics also warn that missing data on smaller states lead to a bias in analyses, showing that small states have better governance (Knack and Azfar, 2003<\/a>).<\/p>\n\n\n\n

This mixed evidence suggests that small size may have competing effects on good governance. On the one hand, smallness may strengthen public sector accountability because citizens can monitor bureaucrats\u2019 behaviour more easily.<\/p>\n\n\n\n

At the same time, smallness may blur the lines between state and society, abetting favouritism because \u2018everybody knows everybody\u2019 (Corbett, 2015<\/a>). It is paramount for leaders of small states to capitalise on the accountability benefits of smaller polities while suppressing temptations for favouritism (Mungiu-Pippidi, 2015<\/a>).<\/p>\n\n\n\n

Evidence of smaller being better is also mixed if good governance is defined by bureaucratic capacity. There is a trade-off between size and administrative effectiveness (Jugl, 2019<\/a>). Bureaucracies in smaller states do not benefit from economies of scale: they can be over-stretched and under-specialised.<\/p>\n\n\n\n

Yet bureaucracies in smaller states do profit from easier communication and coordination among state institutions and the public. As a result, the evidence suggests that medium-sized countries can have the most effective bureaucracies, all else being equal, while very small and very large countries perform less well (Jugl, 2019<\/a>).<\/p>\n\n\n\n

Measured on a population basis, an independent Scotland with a population of close to 5.5 million would fall below this \u2018golden mean\u2019 of population size, which the study estimates at between 15 and 94 million (Jugl, 2019<\/a>).<\/p>\n\n\n\n

This suggests that, all else remaining equal, an independent Scotland would have to be mindful of administrative effectiveness and take action to avoid efficiency losses, which the evidence suggests have been a feature of some countries of a similar size.<\/p>\n\n\n\n

Overcoming these losses would require stronger communication and coordination between agencies and departments, and a greater focus on common goals and \u2018big picture\u2019 questions. Some smaller European countries \u2013 such as Estonia, Iceland, Latvia and Luxembourg \u2013 have mastered this challenge (Sarapuu and Randma-Liiv, 2020<\/a>; Jugl, 2020<\/a>). With a committed leadership and civil service, Scotland could do so as well.<\/p>\n\n\n\n

Figure 1: Countries according to their size and government effectiveness<\/h4>\n\n\n
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