PRINCETON -- The winners of the great globalization push of the 1990’s were small states such as New Zealand, Chile, Dubai, Finland, Ireland, the Baltic Republics, Slovenia, and Slovakia. The East Asian tigers that pushed themselves onto the world economy’s center stage were small units, and in some cases – Singapore, Taiwan, or Hong Kong – were not even treated as states. Even South Korea, which is a giant in comparison, was only half a country.
Such states are vulnerable, and the past is littered with small and successful globalizers that lost out because of power politics: the Italian city states of the Renaissance, the Dutch Republic, or, in the twentieth century, Lebanon and Kuwait. Small states frequently became the victims of larger but poorer neighbors envious of their success and eager to seize their assets, while oblivious to the fact that such seizure actually destroys the source of wealth and dynamism.
In the world of pure globalization, small states do best, because they are more flexible and can adapt more easily to rapidly changing markets. Small states are better at public policy adjustments, freeing up labor markets, establishing a solid framework for competition, and facilitating cross-border takeovers and mergers.
The urgency of such a program has been underscored in much recent analysis of the poor performance of the major continental European economies – France, Germany, and Italy – compared with smaller and much more dynamic economies in northern and central Europe. But, at the same time, small states are also more likely to be successful in defending crucial aspects of the welfare state.