Born small and being small
View(s):In February 2010, representatives from all countries in Asia and the Pacific region gathered in Beijing to attend a conference. It was organised to assess the impact of the global financial crisis on the economies of countries in the region.
One of the country presentations that fascinated me was the study from the Cook Islands which had been affected severely by the financial crisis. My curiosity over this country swelled because of the tiny size of the country which was revealed by some of the information presented there. Apparently, the size of the country was an important determinant of the severity of the crisis impact on its economy.
The Cook Islands was a topic of our chats even outside the conference venue especially because of the “smallness” of the country. Someone remarked that “the total population there is just 12,000 only”. Another took it to crack a joke: “you are exaggerating!” He added a few more hundreds and, revealed its population figure as closer to the exact number as possible.
Today, I thought of speaking about the economics of the “smallness” from a different angle.
Some nations are “born small” because they are physically small; the Cook Islands is one extreme case of this nature. At the same time some other nations continue to remain small as a “choice”. The economic repercussions of both types are the same.
Cook Islands: Physically small
The Cook Islands got that name from Captain James Cook who visited there in 1773. It is an independent country located in the South Pacific Ocean; it is known as a self-governing territory in free association with New Zealand.
Since the time I came to know about the “small size” of the country, I felt a series of fascinating questions; they are all about the particular economic challenges that it has to face due to the unusually small size of the country. Even though the severity of economic challenges has been minimised through economic policies and being in free association with New Zealand, still its economic vulnerability is high.
The Cook Islands comprises 15 islands spread in a vast area of 1.8 million square kilometres. This means that the tiny nation of the country is split further into smaller groups and scattered far away from each other.
Imagine the cost of infrastructure and logistics needed to establish physical connectivity and a transport system among the islands! Even if it is done, it is just for less than 18,000 people, according to latest population estimates. How can a nation run such facilities, just for a few thousand people?
Little bit of everything
What about the cost of building social infrastructure? The Cook Islands needs just only a few doctors, a few teachers, a few professionals and, just a handful of technicians from each field.
By Sri Lankan standards, the Cook Islands need just 20 doctors; the number is too small to make them specialised doctors. Similarly, the country does not need more than 100 school teachers; again they cannot be specialists in different subject streams as the number is too small. Even a single hospital or a single university seems too big for the country.
From each and every consumer good, they need to produce just a little bit only – each day a few loaves of bread and buns, a few kilograms of potatoes and tomatoes, and a few litres of milk and coffee, and so on. This is because there are only a few thousand people to consume.
File picture of Colombo city. Like Sri Lanka, the Cook Islands also depends on tourism.
The economic problem of producing a “little bit of everything” is enormous, however. No nation can afford to do that by modern standards because the cost of that effort is overwhelming for a marginal return. Every economic activity in the Cook Islands is just like that. The cost is high and, compared to that the return is too small.
Overcoming the smallness
The Cook Islands, however, did not want to remain small. It has been struggling to become big because otherwise it can’t even survive. It is quite possible that nations as such might get reduced to isolated tiny tribal groups.
The Cook Islands is already in the category of “high-income” countries. It has a per capita income of about US$ 20,000 as at present.
The Cook Islands export about US$ 5 billion worth commodities; pearls, marine products and agricultural products – this means, its per capita exports amount to US$ 300,000. Compare it with Sri Lanka which has about US$ 10 billion worth exports a year; with 20 million population, per capita exports amount to US$ 500 only.
The major economic activity of the Cook Islands is the tourism industry – annually a few 100,000 tourists arrive in the Cook Islands. Tourism industry accounts for about 60 per cent of the GDP.
Challenges
The Cook Island is, however, not free from the challenges. The challenges that the nation is facing are mostly related to its physical location and smallness.
Its rate of annual economic growth is slower, and it is highly vulnerable to external shocks. The major economic activity – the tourism industry, cannot grow either because it is faced with the lack of infrastructure and human resource constraints.
The country is also faced with the problem of depopulation, as people are leaving the country. Due to its isolated location, the country is far from been connected to global business centres as well as to international travel and transport routes.
Smallness by choice
Smallness can be a choice of a nation too. Some countries choose to remain small, even if they are physically not as small as the Cook Islands. Some of them are even blessed with their strategic location in the global business environment and closer to the international travel and transport routes.
Yet they choose to remain small due to the policies and regulations that constrain their growth to a big nation – a nation that is integrated well with the global economy.
The main economic problem of “smallness” is the inability to sustain higher growth momentum. If a nation thinks of sustaining a higher economic growth, in the first place it should have a higher level of investment every year, which is primarily coming from the private sector. Private investment does not grow, if the economy is too small. This is because investment itself is costly on the one hand and, returns to investment is too small on the other hand.
In the second place, sustaining higher growth requires a bigger market, which is the international market. This means that exports do not expand, if the economy is too small affecting integration with the global market.
A small economy does not provide space for higher growth which should originate from private investment and which should go to international markets. At both ends – origin and destination, “choose to be big” is a fundamental requirement.
Choose to be big
Nations that choose to be big have a big vision – what the nation wants to be in the long-run. The vision has to be achieved through a programme designed for that mission. Even in Asia we can identify the countries which were guided by a big vision and a long-term mission designed to achieve that.
What is our vision for Sri Lanka? How do we imagine the nation of Sri Lanka in another 10 – 20 years’ time? What is our programme to reach the status of our imagination?
I must say that I have high regard for the leaders of the countries who had “big visions” for their nations and, led their nations to overcome the economic problems of “smallness”.
(The writer is a Professor of Economics at the Colombo University. He can be reached at sirimal@econ.cmb.ac.lk)