What does a “state” mean? Sovereignty the defining factor. So no dependencies are included however they are labeled (Martinique, Falkland Islands, etc). But, apart from dependencies, I am excluding those ministates that are extremely well-off economically such as Qatar, Monaco, etc. It is the poorer end of the list in the Caribbean and the Pacific mainly, that requires attention. What problems are small, developing states likely to face?
Here size really asserts itself; a small country is not just a small version of a big country. If you are a country then you need the trimmings such as diplomacy, a legal system and code, possibly a central bank, public services, etc. These require a high level of skill and training, which a small population is unlikely to possess, and such skills are easily poached away by the salaries the trained locals can command in bigger countries, or international organizations and companies. Small countries are unlikely to pay competitive salaries. Government at home must cover basic services such as policing and law, defense, education, health standards etc. But the base to cover even the most fundamental services cannot fall below the critical mass required to make it function at any level. Hence the public sector is relatively large (compared to the population) and consequently relatively expensive compared to bigger countries.
Small, developing countries have, by definition, modest, poor populations emphasizing the “smallness” factor. There are very few economies of scale to support diversity. So they are often very dependent on a narrow economic base, frequently tourism (about 25% of exports), for which they must often compete with one another. Furthermore, most are islands, adding isolation to their problems. Since 2007 tourism has declined and many of the outlying players (e.g. Maldives, Fiji) have felt the pressure. One breakthrough came when, after nineteen years, the UN’s Treaty on the Law of the Sea was enacted extending economic sovereignty out to 200 nautical miles. In the Pacific, for instance, the ocean is a source of very valuable tuna, but how can countries like the Solomon Islands or Kiribati possibly police these huge expanses against Asian or American high-powered fishing boats? Items like postage stamps flourished for a while (Tuvalu) but there was massive overproduction and an eventual general global lack of interest in stamps and colorful banknotes. The World Bank told the small, developing countries to “find their niche.” But, what niche? What does a country with 100,000 do?
Sovereignty itself is a commodity as it creates and administers its own law such as issuing end-user certificates for arms, supporting “Offshore-Banking”, citizenship rights, selling votes in UN organisations etc. Ministates in need may afford you recognition, or a vote, for a price and small states may be seen as bargains in this field. A Harvard study mentioned that, in December 2009, Russia offered the island state of Nauru $54 million to grant diplomatic recognition to Abkhazia and South Ossetia; two breakaway parts of Georgia. In 2008, Iran paid $200,000 to the Solomon Islands in exchange for future votes against Israel in the U.N. General Assembly. Small states feature strongly in the “diplomatic recognition” game. Another temptation was in the area of “offshore banking” or, more precisely, the secrecy it provided. Countries such as Vanuatu were holding hundreds of millions of dollars in offshore accounts in big-name banks with few questions asked and nothing revealed. Antigua and Barbuda became the star player hosting Russian online banks running Ponzi schemes scamming people all over the world out of their savings with impossible promises. Despite endless warnings from the FBI, Antigua did little to halt this and the bank collapsed and decamped with millions. After that, to Antigua, came Sir Alan Stanford (his knighthood came through Antigua) and his Stanford International Bank. His “bank” was another Ponzi scheme and he ended up, despite Antigua’s sovereignty, in the hands of the FBI, landing a 110-year sentence and a $6B fine. The extreme case of shady doings was Nauru (8.1 sq. miles). This was once a major source of phosphates, until they mined all of it and were left with nothing (except, of course, sovereignty) and a 94% unemployment level. They tried selling passports, then becoming a tax haven through which Russians laundered $70b, until eventually becoming an “offshore processing centre” for those seeking asylum in Australia, which needed somewhere outside Australian sovereignty to park them (996 of them in late 2014). There is certainly no possibility of escape and equally totally nothing to do. (The Australians have the same arrangement with Papua New-Guinea). Tiny Tuvalu makes an income from leasing out its .tv domain name.
We have observed that small developing states have little capacity to police their assets. Many of these countries are geographically close to large neighbours as is the South Pacific to Australia and the Caribbean to the United States. These can provide a magnet for emigration, given the limited opportunities for employment in the diminutive home country, hence the large number of Fijians in Australia, for instance. But the mini-states also provide a convenient transit point for illegal goods such as South American drugs trafficked through the Caribbean. This led the USA to institute a “hot pursuit” policy in “The Caribbean area which means the Gulf of Mexico, the Caribbean Sea and the Atlantic Ocean west of longitude 45–degrees West, north of latitude 0-degrees (the Equator) and south of latitude 30-degrees North with the exception of the territorial sea of States not Party to this Agreement.” This allows the US to penetrate the sovereign territory of the stated areas where there is a clear suspicion of parties attempting to break US law ultimately on its own territory. Appeals from the international organizations for small developing countries to diversify their economies are very hard to enact. They remain very vulnerable and susceptible to changes in world patterns of trade, prices, and demand for their narrow range of commodities and services, especially as the pressure is on them to tighten-up banking systems and the other “gray” areas that once provided some relief. In the meantime, the ambitious leave for the big neighbours.
As the rest of the world engages further and further into large Free-Trade Areas and economies of scale, it is hard to see how the small developing states can compete. Many of them share a colonial heritage and were thrust into independence largely through the efforts of the UN’s Decolonization Committee with little thought of their ultimate viability. Some of them have formed regional organizations, such as CARICOM in the Caribbean, and they have their own global organization (SIDS). As mentioned above, size is not a problem for some of the members because they are already prosperous, but those do not seem to provide a model for the poorer members to follow, even though Singapore is always presented to them. Singapore is strategically well-positioned and may have “captured” the financial market even though it is only a city state that was once a fishing village.
Small, may not always be beautiful, and in the case of Kuwait was downright dangerous.
The article was published in “Life” magazine (24 april 2015)