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Tuesday, November 3, 2015

Daniel Hannan: Small Is Beautiful

What are the two richest countries in Europe? According to the Legatum Institute, which publishes an annual prosperity league, Switzerland noses ahead of Norway. Money isn’t everything, of course. The United Nations runs a quality of life index, which also takes account of literacy, longevity, infant mortality and the like. It reaches the same conclusion: Switzerland and Norway are the best places on Earth to be born.

There has been a great deal of focus on these two chilly, mountainous lands recently. Because they are flourishing outside the European Union, Euroskeptics point to them as examples of how it pays to be a sovereign nation. Supporters of the EU, by contrast, are keen to rubbish their arrangements with Brussels, portraying them as oxpecker birds clinging to the mighty EU hippopotamus, voiceless passengers downloading Brussels laws over whose framing they have no say.

Last week, the British prime minister, David Cameron, effectively launched his campaign to stay in the EU by dismissing what he called a “Norway-style relationship.” Yet the Norwegians themselves plainly prefer their deal to full membership. Opinion polls there show settled majorities of three to one against joining the EU. It’s a similar story in Switzerland, which, like Norway, voted against closer ties with the EU in a referendum the early 1990s. As members of the European Free Trade Association, both countries get to participate fully in the EU market without having to join the political structures. True, they have no direct say over the shaping of the EU’s laws; but then, those laws generally don’t affect them.

Perhaps the oxpecker birds are getting the better end of the deal. Perhaps, in the modern economy, it’s better to be small and agile. After all, the countries with the highest GDP per capita tend to be very small: Switzerland, the United Arab Emirates, Brunei, Monaco, the Channel Islands. It won’t do to dismiss them as tax havens, either. How did they become tax havens? By having low taxes. Why are their taxes low? Precisely because they are small, and so avoid the duplication, the bureaucracy and the producer-capture that large states are prone to.

The only large country to get into the top twenty is the United States, which has pulled off the trick of governing itself like a confederation of statelets. The fifty states now have more sovereignty, in many ways, than entire nations within the EU. Georgia can decide whether or not to apply the death penalty, but Germany can’t. Delaware can set its own rate of sales tax, but Denmark can’t.

It’s true that the United States has become more centralized over the years: A process that arguably began during the Civil War, but that only properly got going under FDR. But it is starting from a better place than almost anywhere else. The Founders wanted power to be dispersed, divided and democratized, and drew up their Constitution accordingly. They were not starting, as many European countries were, from absolutist monarchy. Nor did they begin, as so many former colonies did after World War Two, with a belief in beneficent government. Indeed, of all the states on Earth, only happy, prosperous Switzerland has a more devolved form of administration.

And yet, despite all the evidence, we cling to the big-is-beautiful myth. “We need to band together to face China and Indonesia and the other rising powers!” say EU supporters. Really? If size were the key to success, China would be wealthier than Hong Kong, and Indonesia would be wealthier than Singapore — and the EU itself, for that matter, would be wealthier than Switzerland.

Here’s the paradox. The reason Europe emerged as the dominant civilization of the past five centuries was precisely that it never became a single state. In 1500 AD, the scattered peoples at the western tip of the Eurasian landmass would have seemed unlikely contenders for global hegemony. The smart money would have been on the great Asian empires: Ming China, Mogul India, Ottoman Turkey. With their canals and their paper money, their gunpowder and their telescopes, their cartography and their mathematics, these states were far in advance of Europe.

So why didn’t the Chinese round Africa to discover Portugal? Why was it the other way around? Precisely because Europe remained a diverse plurality of competing states.

How tragic that, just as the great civilizations of Asia are waking up to the benefits of decentralization, Europe should be determinedly going down the Ming-Mogul-Ottoman path to uniformity, bureaucracy and regulation. This won’t end well.
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