You Can Have Only Two of Three

From The Economist:

Dani Rodrik of Harvard University is the author of the best-known such critique. In the late 1990s he pointed out that deeper economic integration required harmonisation of laws and regulations across countries. Differences in rules on employment contracts or product-safety requirements, for instance, act as barriers to trade. Indeed, trade agreements like the Trans-Pacific Partnership focus more on “non-tariff barriers” than they do on tariff reduction. But the consequences often run counter to popular preferences: the French might find themselves barred from supporting a French-language film industry, for example.

Deeper integration, Mr Rodrik reckoned, will therefore lead either to an erosion of democracy, as national leaders disregard the will of the public, or will cause the dissolution of the nation state, as authority moves to supranational bodies elected to create harmonised rules for everyone to follow. These trade-offs create a “trilemma”, in Mr Rodrik’s view: societies cannot be globally integrated, completely sovereign and democratic—they can opt for only two of the three. In the late 1990s Mr Rodrik speculated that the sovereignty of nation states would be the item societies chose to discard. Yet it now seems that economic integration may be more vulnerable.

Alberto Alesina of Harvard University and Enrico Spolaore of Tufts University presented a different but related view of the trade-offs entailed by global economic integration in “The Size of Nations”, published in 2003. They note that there are advantages to being a large country. Bigger countries can muster more resources for national defence, for instance. They also have large internal markets. But bigness also carries costs. The larger and more heterogeneous a country, the more difficult it is for the government to satisfy its citizens’ political preferences. There is less variation in political views in Scotland, to take one example, than across Britain as a whole. When policy is made by the British parliament (rather than in Edinburgh, Belfast and so on) the average Briton is slightly less satisfied with the result.

Global integration, Messrs Alesina and Spolaore argue, reduces the economic cost of breaking up big countries, since the smaller entities that result will not be cut off from bigger markets. Meanwhile the benefits of separatism, in terms of being able to cater better to the preferences of voters, are less diminished. So the global reduction in barriers to trade since the second world war, the pair contend, at least partly explains the simultaneous growth in the number of countries, even if national fractures often involve, or lead to, political instability and violence.