Three Reasons Why Decentralization and Secession Lead to More Open Economies
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 Scottish and Catalonian secession movement, and in the case of Brexit. Sometimes the term is intended to be pejorative. But not always.
When used pejoratively — as was the case with 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 these 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.
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 food stuff, 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 miserably.
The process is the same with small countries, but the effects of protectionism become more apparent more quickly. After all, a 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 ties to other nations will quickly find itself in a very dangerous geopolitical position.
Perhaps not surprisingly, empiri
Article from Mises Wire