Smaller State? No, Smaller Government is better…

June 17, 2008 at 4:05 pm | Posted in Economics, Geopolitics, Politics | 1 Comment
Tags: China, Economics, India, Nation States, Separatist Movement

The American magazine has an interesting article on the topic of Geopolitics and how maps are being redrawn. The article titled “Map Quest” talks about the continual flux in the way the various nations of the world keep changing in their ideaologies and with it the economic conditions leading to different postures in foreign policy. Economic changes and the ambitions of the people of a nation always seems to have some kind of correlation. What seems to be interesting is the fact that this economic upswing and downswing seems to be of a cyclical nature.

Take for example the case of India and China; some three hundred years ago, the Indian and Chinese economies were the dominant economies in the world. America and Japan were nothing more that third world countries. During this period, most products that originated in the subcontinent and China were held in very high esteem. And true to the famous saying that ‘imitation is the best form of flattery’ the western businessmen actually copied the articles from the oppulent orient and sold it in their countries for a premium. Ceramic is a classic example of this kind of a situation. It was a product of China and some European entrepreneurs perfected a process to make cheap imitation ceramic and sold it to the western nations. Today, when the US is the dominant economy, we see a reverse situation. Chinese and Indian entrepreneurs are the one becoming competitive by manufacturing western products in a cheaper and better way!

Geopolitically, the economic dominance of nations has a cause & effect relationship with the countries prosperity – that is until, it seems there is a cyclical economic swing in other direction. Now, about the redrawing of maps, I think the most common reason which most separatist movements quote for wanting to form their own countries or states is economic freedom and release from oppression. If one observes the various factions in the Indian states which want their own separate states (Telengana, Vidharba etc) economic liberty to choose a different ideaology from the parent state is one of the strong reasons for the want of separate states.

But is this a productive and forward looking? One of the funadamental tenets of free market capitalism is the right to private property. This right is the genesis of the capitalist society which can lead to entrepreneurial activity and competition leading a robust trade. Is there any causal relation between the formation of smaller states and countries which have governments which control smaller geographies and the increase in the robust trade and better economic conditions? I think not. Even if these smaller newly formed states have free market leaning governments, I think economic conditions will not improve too soo. Of course, Singapore and Hong Kong are classic opposing examples to this arguement. Singapore, separated from the larger nation of Malaysia and is today a leading free-trade embracing nation with a dominant economy. Hong Kong, a economic giant, the true bastion of Free trade, has now been rejoined with a left leaning Chinese mainland and is seeing an economic downturn.

The reason, I think a smaller newly formed state, albeit with a free trade embracing government would struggle to be economically strong is that while it might uphold the laws of private property, it is a move which is against another of free market capitalism’s basic tenets. It is a net move towards increased Govenrment. From a single government which governs a large geography to multiple governements which govern smaller geographies in the same total region is a net increase in the interference of government and this would be an obstacle to free trade.

It might make more sense for those who want to separate from a larger parent nation, so that they can follow a free trade policy in their own small country/state, to rather effect change in the existing government to move towards free trade. This would also give them the benefit of ‘more’ scare resource to allocate properly for the ‘greater good’. And of course, those separatist movements which focus not on economic liberty but rather seek separation so that they can establish more control and rule over their separate communities, well they are defenitely not in the free trade mould and would anyway not get the benefits of free trading economy!