A thought-provoking book on why smaller nations have better economies while larger countries lag behind
The world economy has traditionally been driven quite decisively by the USA, Japan, UK, Germany and probably France. In the last decade, the emerging markets, which have been clubbed as BRICS, have joined the league. These big countries have the numbers, and their success or failure can drive the global prospects quite decisively. Somewhere in this game are the small countries like Finland, Sweden, Norway, Singapore, etc, which are opposite in size but so dominate almost all the global indices in terms of performance that they form the contours of the storyline of the book ‘Too Small to Fail’ by James Breiding.
The author starts off by arguing that large countries are difficult to govern because of several factors. As countries become big, it is difficult to address issues of inequality, employment, quality of life, delivery of services, etc. The smaller countries, in contrast, are more coherent in all these respects and governments are able to perform more efficiently. The crux is in creating an egalitarian society, which can be done if governments equalise the ‘prerequisites’ that are required for creating and maintaining such societies. This is done by delivering the same education to all children, as is the case in Finland where everyone goes to schools run by the government and where teachers are paid well. Therefore, everyone starts off at the same level and has the same opportunity. This is unlike countries like India, where an education in government schools permanently damages the prospects of children compared to the affluent, who exacerbate inequality by having access to global curricula and certificates.
Similarly, Singapore is the epitome of health services where the entire structure is standardised with a pay-as-you-go model, which differentiates only the comfort and not quality. In fact, from a complex system that exists everywhere when doctors, insurance companies and hospitals have a perverse incentive to overcharge and under-deliver, the government streamlined the system so that everyone has access. It has set a model for others to emulate, though, admittedly, it is easier in a country of the size of Singapore where the population is low.
The author then talks of Denmark which addressed the issue of environment by decongesting Copenhagen, which now has the largest number of cycles on the road. The incentive to own and drive cars, which exists everywhere as people become richer and like to buy even bigger and more expensive cars, was addressed by converting roads to lanes for only cycles, which gradually brought about this transformation. This has helped people stay fit and also helped to conserve the environment as pollution levels have come down considerably.
Breiding then takes us through Israel, which given its rather vulnerable structure and political relations with neighbours, has used startups as the route to growth by combining incentives and environment to ensure that individuals took up innovation out of habit, which helped to create a strong economy.
Countries like Australia and New Zealand more recently have followed a unique path to reduce crime. Given that shooting has been responsible for deaths of several people, the governments have announced schemes of buyback of weapons, which has worked as people get paid for returning their guns, which are then destroyed. This is a unique way to reduce the incidence of crime where rather than banning the ownership of guns, which leads to a black market and premium, a buyback actually rewards people for giving up such possessions.
In fact, curiously, two interesting patterns followed by these small countries are that they have looked at manufacturing as a means to grow and, second, have or used principles of open economy and trade and have hence reaped the benefits of competition and specialisation. Hence while larger countries constantly get into the dialogue on protection of domestic markets, the smaller ones perforce follow free trade and allow the economic principles of comparative advantage to work their way through. They have created templates that can be followed where countries with limited access to raw materials can leverage trade to expand their economies and wealth.
The author also points out that by following these rudimentary principles, these countries have managed to foster egalitarian societies where individual wealth is not overtly visible as the corporate owners can barely be distinguished from a common man. With the state virtually looking after education at an early age and health when it matters to most, which is old age, there is less incentive to accumulate extraordinary volumes of wealth as seen in other countries, which, in a way, maintains a semblance of modesty.
This book will make policy-makers think hard about how to adapt these principles for larger countries. The idea of decentralisation is a step in this direction, but regional authorities need to foster these rules within their domain to make them work. Countries like India will never be able to close the bridge given that there is stark inequality, especially in education and health, which just exacerbates the future where the lesser privileged can never dream of getting out of their existing lifestyle.
In fact, governance and democracy are also important factors that the author talks of, as there are several such smaller countries in Asia and Africa which do worse than even countries like India on social parameters due to highly corrupt regimes. Hence one would get a feeling that Breiding’s exposition are models for only a set of countries that have the will to improve and deliver, which, in turn, requires very high governance standards and focused attention.
Madan Sabnavis is chief economist, CARE Ratings
Too Small to Fail: Why Some Small Nations Outperform Larger Ones and How They Are Reshaping the World
R James Breiding
Rs 699, Pp 332