How small states can be significant

In the current global context there has been a trend where small states have emerged as success stories in the international arena. This is important as many of the independent and sovereign countries that constitute the international community are indeed small states in terms or geographical size or population.

There is no broad definition to what really constitutes a small state and the question then arises whether Sri Lanka does fall within this category. Sri Lanka is indeed a small state when compared to its very large neighbours in South Asia such as India, Pakistan and Bangladesh, but had this country been located in the Caribbean, the Middle East or the South Pacific, the perception would have been different.

Small states have indeed at various times played a significant role and often this has been within the framework of international groupings. One can think back of the past role of Ceylon/Sri Lanka as a member of the Non-Aligned Movement.

However in more recent years small states have earned recognition as economic success stories and even in some cases models to be emulated by others. The countries that come to mind are Singapore, Dubai, Ireland, Luxembourg and Iceland.

Hence a point that needs to be considered is that geographic size, demography or even the existence of natural resources are not pre-requisites for development and economic success but are other factors, approaches and policies that these small, nimble, adaptable and business friendly states have introduced and assimilated.

While many of these small states have a variety of political systems and some may not be considered democracies by any definition, they have often adopted a general culture of broadmindedness and tolerance. They have also embraced and assimilated technological advances very easily in areas such as production, trade practices, logistics, telecommunication, information technology and services.

Information technology

Iceland is one case of a small state which has developed rapidly and indeed radically, in recent years. At the beginning of the 20th century it had a population of about 100,000 inhabitants mainly engaged in fishing or related activities. But today Iceland’s population of 300,000 enjoys one of the highest GDP per Capita in the world.

Iceland has ranked 4th in the world in 2017 with US$ 70,248.

The Icelandic miracle was the result of a successful adoption of Information technology as well as mobile telephones and internet connections.

In addition, the country has over the years developed a strategy where its natural resources are utilized in a sustainable way. Furthermore, excellent business practices have made this small country’s enterprises active players in international business. Despite their relative small size their successes have received considerable coverage in leading international publications.

Another success story which is closer to home is the well documented case of Singapore. Singapore’s example is well known and this city state which has a GDP per capita of US$ 60,000 (or the world’s sixth highest from just US$ 320, fifty years ago) has been often suggested as a model that Sri Lanka could will emulate.

Singapore’s initial history was as a part of Malaysia, but the city state was expelled from the Malaysian Federation due to the complex nature of the region’s ethnic politics.

Post-independence problems

The country was able to address many of its post-independence problems such as unemployment, urban slum dwellings where much of the population lived in and challenges from regional neighbours such as Malaysia and Indonesia. Other issues were the lack of natural resources, sanitation, infrastructure and even water.

Singapore’s leader Prime Minister Lee Kuan Yew developed a comprehensive economic plan which focused on labour intensive industries and the country from the onset made every effort to connect with the outside world, to secure a manufacturing base in Singapore.

This was a difficulty in a country without a tradition of industrial production. The emphasis was to attract multinational corporations to Singapore.

At the same time, considerable efforts were made to create a predictable and stable environment which was corruption free, with low taxation, and without industrial action. This form of autocracy had a zero tolerance policy towards crime, notably drug trafficking but also with those engaged in divisive politics. The result was undoubtedly a very business friendly environment conducive to attracting investors.

Once the economy picked up, Singapore focused on developing its human resources as well as the infrastructure. Technical schools were established and international corporations were even paid to train skilled workers in cutting edge industries such as Information Technology, electronics and petrochemicals.

This fostered economic transformation as Singapore moved successfully from the textile / garments/ basic electronics industries to an economy where logistics, biotech research, pharmaceuticals and aerospace engineering have become the leading sectors.

Currently Singapore has become a world leader in several key areas. The Port of Singapore is now the busiest transshipment port overtaking Hong Kong and Rotterdam. It is the second busiest Port after Shanghai.

Singapore has also emerged as a leading banking centre, rivaling Switzerland. The biotech industry has attracted plants from leading manufacturers including Glaxo Smith Kline and Pfizer. Another important industry is oil refining.

Tourist destination

Singapore is also well known a tourist destination with 10 million visitors arriving annually. Singapore with a small land area has developed attractions such as a nature reserve, luxurious Casino Resorts at Marina Bay Stands as well actively promoted medical tourism and culinary tourism.

Ireland has long been considered a model to small countries to emulate particularly in the area of investment promotion.

From being a country that has for centuries exported its population due to economic hardships, Ireland in GDP per Capita terms is ranked third in the European Union. (US$ 68,710 in 2017).

Many of the reasons that have been attributed to the “Irish Miracle” include excellent human resources and education, the knowledge of the English language and a business friendly environment. This has resulted in hundreds of companies setting up offices or plants in Ireland.

Iceland is a hub for specific industries such as aviation with many aviation leasing companies and supporting companies are established there. The same goes for services including IT. But what is remarkable is the success of Ireland in the area of “economic inclusiveness”.

Ireland is in fact ranked 8th in a measure formulated by the World Economic Forum that looks beyond the traditional economic growth data to include socio economic measures such as living standards, environmental sustainability and the protection of future generations from indebtedness.

This approach, which Ireland is actively following, addresses in strategic and consistent manners the dangers of pursuing short term gains and allowing inequality to grow.

The lessons that can be learned is that small states can achieve growth that is both inclusive and promoting sustainable development.

The countries that have scored high on this measure are by and large European countries with small populations and quite often small territories.

They include Norway (first in the list), Iceland, Luxembourg, Switzerland, Denmark, Sweden, the Netherlands and Ireland among the highest ranking.

It can therefore be argued that well managed Small States can indeed become success stories and combine economic growth with sustainability and inclusiveness.

However free from the concerns of large states such as balance of power questions, many small states can focus directly on the very problems that concern them and whose solution will lead to betterment.

The writer is Director (Media & Publicity), Board of Investment of Sri Lanka