Thursday, October 09, 2008

The financial crisis and secession

Since 1990, the world has seen something of a proliferation of new independent states: 15 from the old Soviet Union, 2 from Czechoslovakia, 6 or so from Yugoslavia, plus Eritrea and East Timor. This has not ben caused by, but has certainly been aided by, a sense that the minimum size for state viability wasn't very large in an era of peace and free trade. The Baltics couldn't militarily survive the late 30s/ early 40s, but that's not our world anymore; the Czech and Slovak Republics had no economic need to stay unwillingly joined if they could trade across an international boundary almost as easily as within a common one. Regional defense organizations and regional trade unions-- prominently NATO and the EU-- made a huge difference here.

The Russia-Georgia war perhaps marks the end of the "peace" described above. Being in line for NATO membership someday is nice and all, but it's not remotely the same as being part of a great power that protects you as part of its own territory.

And the financial crisis may-- may-- mean that minimum viable state size ratchets back up on the economic side as well. Being Singapore or Switzerland or Luxembourg or a banking haven in the Caribbean has been a pretty good deal in an age of easy trade in goods and easy capital mobility. But now: Iceland gets caught in the financial crisis having to bail out a bank with assets many times its GDP, and without the deep capital or foreign currency reserves that a place like the US or Germany or Japan or Britain has.

This suggests great trouble for Quebec nationalism as a project, maybe somewhat less for Scottish or Catalan-- Iceland has a separate currency that's taking a beating; Scotland and Catalonia would be in the EU and probably in the euro zone. But the lack of capital depth would have hit Iceland now even if it were inside the EU and the euro zone.

Small-country wealth within free trade has been one of the virtues of the broadly liberal era we've been living through. When states are dominant economic actors, it's far more important what state (and how strong a state, and how big a state) you live in.