Sunday, January 20, 2008

Prosperity and Size

All the talk about the potential recession in 2008 has had many thoughts brewing in my head. A large country like United States wins big, and loses even bigger, when a recession is triggered.

When I hear the word prosperity, many European countries come to my mind. It is their size? If we agree that the economy of tomorrow (and today) is the “creative economy”, are smaller countries managing creative talent better? Is smaller necessarily more beautiful? (Thanks to Louis for pointing out this source)

I agree with all people who believe magnitude brings political leverage and military might. The former Soviet Union was a super power for a few decades until it fell apart and United States is the only super power in the 21st century so far for that reason. It is important to understand why the European Union has taken flight, although it is a union very different from a single federal government with a central power.

However, do we lose (economic) efficiency as we gain magnitude, political leverage and military power?

Naturally, my profession (environmental management) imposes a bias on how I view economy, and for a long time, there has been a popular school of thought that smaller systems are more environmentally sustainable (much smaller foot-print) than large centrally-managed systems, the same reason why Kyoto Protocol is not an economically viable option for North America. In the light of the potential energy crisis in the 21st century, many people draw parallels between environmental sustainability and economic prosperity. Is it simply the case that smaller countries have better potential for prosperity in the 21st century?

The cost of running elections (the Senate, House of Representatives, Primaries and Presidential) in the United States is likely to be bigger than all elections held across Europe. That reminds me of all big (bureaucratic) projects that lose economic efficiency due to size: federal public healthcare, federal public education.

I am not an economist (my biggest regret in life), but I would like to know if there is a current economic model that can easily compare large communities (i.e. countries) and smaller ones in terms of economic efficiency, prosperity as well as talent (creativity) management.

If such theory is ever proven, future economic constraints and future energy crisis (environmental constraints) will likely lead larger countries to re-think “federalism” and gravitate toward delegating all political government (in the true sense of the word) to smaller entities (e.g. provinces, states) under a merely-administrative union that has as much authority as the European Union does on its member countries.

Of course, my biggest fear is that nuclear weaponry and military will interfere with all such equations.

What do you think?


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