The Benefits of Secession

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At the Mises Institute, Ryan McMaken discusses the benefits of secession, which include lower taxes and more trade. He writes:

When we hear of political movements in favor of decentralization and secession, the word “nationalist” is often used to describe them. We have seen the word used in both the Scottish and Catalonian secession movements, and in the case of Brexit. Often the term is intended to be pejorative.

When used pejoratively—as by the critics of Brexit—the implication is that the separatists seek to exit a larger political entity for the purposes of increasing isolation, throwing up greater barriers to trade, and pursuing a more autarkic economic policy. In other words, we’re supposed to believe that efforts at decentralizing political systems leads to states becoming more oppressive and more protectionist.

But there’s a problem with this claim, and with connecting protectionist nationalism to decentralization and secession: the act of breaking up political bodies into smaller pieces works contrary to the supposed goals of nationalism.

That is, when a political jurisdiction is broken up into smaller independent units, those new units are likely to become more reliant on economic integration and trade, not less. This dependency increases as the country size becomes smaller. If the goals of the nationalists include economic autarky and isolation, nationalists will quickly find these goals very hard to achieve indeed.1

This is true for at least three reasons.

One: Economic Self-Sufficiency Is Costly and Difficult

Economic self-sufficiency—i.e., autarky—has long been a dream of protectionists. The idea here is that the population within a given state benefits when the residents of that state can cut themselves off from other states while still maintaining a high standard of living. Fueled by the false notion that imports represent economic losses for an economy, protectionists seek policies that block or minimize the importation of foreign goods.

Large countries can pull this off—for a little while. For countries with vast agricultural hinterlands, large industrial cities, and innovative service sectors, it is possible to move toward economic reliance on only domestic foodstuff, domestic raw materials, and domestic industry.

Over time, however, protectionist states begin to fall behind the rest of the world, which is presumably still engaging in international trade. It will become increasingly clear that the protectionist states are not keeping up in terms of their standards of living. This will have geopolitical implications as well, since protectionist countries will become relatively impoverished and relatively less innovative compared to other states. Protectionist states thus lose relative power both economically and militarily.

We saw this at work in Latin America, for instance, when it was in the thrall of dependency theory during the mid-twentieth century. The idea was that countries could become wealthier and more politically independent by reducing trade. The strategy failed. Geopolitically, the isolationist regimes of Asia set themselves back decades through their attempts to achieve autarky.

The process is the same with small countries, but the effects of protectionism become more apparent more quickly. After all, an autarkic small country that lacks a diverse economy or a large agricultural sector will quickly find itself running out of food, skilled labor, and raw materials. Moreover, a small country without close economic ties to other nations will also soon find itself in a very dangerous geopolitical position.

Perhaps not surprisingly, empirical studies have found that small countries tend to be more open to international trade than larger countries. In their study of small economies, Sergio Castello and Terutomo Ozawa found

Small economies, when economically successful and compared to their larger counterparts, tend to be: more export focused in manufacturing, likely to specialize in differentiated manufactures, more actively involved with direct overseas businesses…[and] more actively involved in international trade through varying degrees of economic integration.2

These realities have not been lost on those who control these small states, and small regimes have enthusiastically sought out more opportunities to engage in international trade.3 Castello and Ozawa conclude that in a world of specialized and growing trade:

Small economies naturally grow more trade-oriented in both exports and imports…Ceteris paribus, small nations thus become more trade-focused than large ones.4

Indeed, this may be the only way for them to prosper. As Gary Becker noted during the period when new post-Soviet states were entering the global marketplace:

Small nations are proliferating because economies can prosper by producing niche goods and services for world markets….In fact, small nations now have advantages in the competition for international markets. Economic efficiency requires them to concentrate on only a few products and services, so they often specialize in niches that are too small for large nations to fill.5

Small countries can’t offer the world a wide variety of goods and services, but they can specialize and offer at least some goods or services for which there is global demand. Without doing this, small states have little hope of raising their standards of living. This is why economists Enrico Spolaore and Alberto Alesina concluded in 1995 that “smaller countries will need more economic integration” in order to benefit from independence.6

This all suggests that the need to integrate becomes greater the smaller the state, and that the need for economic openness and integration are even greater for microstates—the smallest of the small states. William Easterly and Aart Kraay found in 1999, for example, that in spite of the “widely held view that small states suffer from their openness,” financial “openness may help microstates insure against the large shocks they receive.” This is in part due to the fact that financial openness “allows countries to share risks with the rest of the world.”7

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