The Optimal Size of Countries--Posner

I agree with Becker that a major factor in the growing number of countries as a result of the splitting up of countries like the Soviet Union and Yugoslavia is the reduction in international trade barriers, which reduces the value of economic self-sufficiency. Another factor, however, is the reduction in threat of conquest, partly as a result of the dissolution of the Soviet Union and partly as a result of the (related) emergence of the United States as the world’s hegemonic power committed to maintenance (for the most part) of the international status quo. Iraq was unable to hold on to its conquest of tiny, defenseless Kuwait in 1990-1991 only because the United States organized and led a coalition of nations to intervene and defeat Iraq. 

The fundamental question is the optimal size of a nation, a question similar to that of the optimal size of a corporation or other organization. Fear of conquest and height of trade barriers are only two factors to be taken into account in answering the question. The other factors bearing on the question tend to be either weak or ambiguous in direction. For example, it might seem obvious that ethnic and religious heterogeneity would be a fissiparous factor because of hostility among different ethnic and religious groups. But in many countries that has not been a problem—the United States (since the Civil War) and Switzerland are examples. India and Canada are examples of countries where it is a problem but not a serious enough one to lead to serious thought of a breakup. 

Another type of tension is regional economic tension, as in Spain (discussed by Becker) and Italy, where the north is far more prosperous than the south and resents redistributive tax and fiscal policies because they send wealth out of the region, rather than redistributing it (say to the poor) within the region. If wealthy people are concentrated in one part of the country, it naturally occurs to them that they might be better off if their region were a separate nation, for their average wealth would increase. But the main significance of agitation for separation in such cases is as a negotiating tool. The poor region doesn’t want to lose the rich, so if it thinks the risk of secession is substantial it will reduce the amount of redistribution that it imposes on the rich region. 

A nation’s government might encounter diseconomies of scale; that would be another reason for considering a breakup, but again I think not a decisive one. Government can be decentralized in order to overcome its diseconomies of scale, and in fact large countries, like the United States, do have federal (that is, decentralized) systems of government, even, as in the case of Canada and Australia, when they are not very populous. Our federal government is criticized a lot, but does not seem to be less efficient than that of other countries, large or small. So I think diseconomies of scale of government are not a significance cause of breakup. 

An underappreciated advantage of being a large country with a large and varied economy is diversification of risk. Suppose a tiny country has one big export industry, and its export earnings finance most of its citizens’ consumption, which is of imported goods. If that one big industry falls on hard times, the adverse economic impact on the country could be very great. That is unlikely to be a serious danger in a large country. 

I noted earlier that most of the growth in the number of the world’s countries is attributable to decolonization. I’m now going to argue that all of it is, provided that “decolonization” is broadly understood to mean the separation of communities that had been forcibly united. The United States began as a collection of separate colonies, but they all voluntarily joined to form a national government. In contrast, Yugoslavia was created out of bits of the Austro-Hungarian Empire plus Serbia by the great powers after World War I, and the constituents were separate communities with no affection for each other. (The breakup of the Austro-Hungarian Empire is a notable example of decolonization.) The Soviet Union was a product of conquest, not of the voluntary uniting of formerly separate states. The United Kingdom too, and it may be coming apart; and likewise Italy. 

If fundamental cultural or religious differences, submerged by forcible integration, are not present in a large country, I doubt that there are net benefits from disintegration. There are scale advantages to being a large country, the risk diversification that I mentioned, and a measure of additional security, and I think they outweigh the efficiencies of being small. It may well be that the reduction in global barriers to trade and in threat of conquest has reduced the cost of being a small country, but I don’t think it’s increased the benefits, and the benefits are large only where the country is composed of groups that simply cannot get along with each other, so that if force is withdrawn the country breaks up.

Comments

[jim kirby]

I don't fully buy the "economies of scale" argument for maintaining the status quo. Some of the smallest countries in the world are filthy rich: Switzerland, Luxembourg, Lichenstein, Monaco, Singapore and Hong Kong (though now a part of China).

I greatly favor secession by Texas. Although its economy might suffer from the scale factor, things would improve vastly by throwing out the fed, along with all its socialist tax and entitlement rules. Indeed, if the States totally broke up, we could leave CA and NY to stew in their socialist juices without dragging the others down, and we could free ourselves from the Welfare States of MS, AL and TN. What used to be Amerikans could then vote with their feet, leaving the 47% to the socialist and welfare states and the rest of us free for enterprise.

I could even imagine a state that would outlaw breeding altogether, saving all those wasted educational dollars, and allowing immigration of only the well-behaved, educated and potty-trained of other states and countries. It would quickly set a positive example, and maybe the rest of the world would then clamp down on wanton breeding, wasteful public education, and the support of the breeders, widows, disabled and dependents that is killing SS, Medicare and Medicaid.

[Neilehat]

Jim, Careful about what you wish for. There is a movement afoot both in the U.S. and Texas to give the State back to Mexico. Except for the "Golden Triangle" around Houston. BTW, how's your Spanish and there's still a requirement to convert to Catholicism. As for travel to the rest of the continental U.S. you're going to need a passport and visa. That is if we decide to allow you to cross the border... ;)

[jim kirby]

Right Neilehat,

I'm Hispanic, fluent in Spanish an Portuguese, with a home in Rio, intending to give up my USSA citizenship and build a home in Costa Rica. I've traveled throughout the USSA, never more than 100 miles from a McDonald's. BORING.

Mexico is growing; Amerika is dying. Anyway, we Hispanics will soon take over TX, CA and FL, not that we want CA.

[Eric Rasmusen]

The USA and India are large, with lots of groups that can logroll with each other and prevent a tyranny of the majority. In both cases, this wasn't always true and disaster followed--- North vs. South in the US, and Hindu vs. Moslem in India/Pakistan.

Yugoslavia might have worked, except it unravelled, with the Slovenes leaving first. There is an interseting problem of multiple equilibria due to expectations mattering---maybe the Slovenes wouldn't have left, except that they thought Yugoslavia would break up. And maybe South Carolina wouldn't have seceded if it had thought other states would not follow (certainly once most slave states had seceded, Kentucky was in an awkward situation).

[HaroldVasquezR]

Posner's argument about the disadvantage diversifying risk for a small country when facing a shock does not makes sense (paragraph 5).

Let's say that the souteast region of U.S. face an adverse shock in its manufacturing industry (i.e., the world don't want to buy more carpets from Georgia). It is true that the overall statistics of national production might not be affected for a shock in a small industry. However, the effect in the south region, and specially in Georgia, will be the same whether or not this region consider themself an independent country or a region that belongs to the US.

The fact that national output might not be affected is only an statistical fact, and it will be the same as if we compere the effect of an adverse shock on output in a small eastern european country with the effect of the name shock on the whole european output.

[Neilehat]

Jim, As for the "Golden Arches" that's Marketing at its "best". There's always a Burger and Fries nearby. Just a change from a plate of beans and lard... ;)

[Andres Orozco]

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