Like Dani Rodrik, the Italian Alberto Alesina is one of those Harvard University economists who provide sound arguments and largely unimpeachable data. His articles and books – whether on fiscal policies, country size in relationship to economic growth, ethnic heterogeneity, or a little bit of several inter-related topics – are of course open for rebuttal.
For example, one can criticize him from a Keynesian or national conservative perspective. 2008 Nobel Prize laureate Paul Krugman has criticized Alesina and Silvia Ardagna’s article ”Large changes in fiscal policy: taxes versus spending” (2009). A nationalist on the other hand, can point out that growth size should be weighted against long-term cultural cohesion.
Nevertheless Alesina’s work – often co-authored with other scholars – can inform the reader on a number of crucial sub-topics, related to broader subjects such as economics, politics and demography.
My aim is to briefly present a number of significant arguments and make suggestions on how to complement these ideas with other important aspects of research. Typically, this selection is done from an American perspective, but the reader can contextualize many of these ideas in order to understand other nations as well. Hopefully, it can offer some insights with regard to the overall situation for U.S. citizens, on which state to live in, or even secession.
1. Larger countries are often (but not always) more powerful than smaller ones
There are economic pros from having a large population, such as that per capita costs of public goods are lower (as long as the largest share of the population pays for them, thus forming a large tax base). Additionally, a larger country is less subject to foreign aggression. Furthermore, larger populations often go hand in hand with larger markets. For good and for bad, this does also imply that richer regions or states within a country can cover for less prosperous places.
For that reason, the large size has been crucial in the process of making America great. It is only one main factor but still of great importance.
2. Smaller countries are often (but not always) wealthier than larger ones
However, size has to be weighted against other dimensions such as GDP per capita and the totality of ethnic heterogeneity (racial, ethnic, religious and linguistic) and its implications at the federal, regional and local level.
Generally, a larger population implies larger heterogeneity among different groups and individuals. There are exceptions throughout the world, such as Japan, but in the case of the U.S., the country’s population has increased in conjunction with larger heterogeneity, during the last 20 years in particular. Alesina stresses:
Much more important are the facts that as countries become larger, diversity of preferences, culture, language, “identity” of their population increases. In one word, heterogeneity of preferences increases with size. Being part of the same country implies agreeing on a set of policies: from redistributive schemes, to public goods to foreign policy; as heterogeneity increases, more and more diverse individuals will have to agree on them. Certain policies can be delegated to localities in order to allow for diversity, but not every policy can be local. As heterogeneity increases, then, more and more individuals or regions will be less satisfied by the central government policies. In fact many harsh domestic conflicts are associated with racial, religious, and linguistic heterogeneity and have threatened the stability of national governments. Easterly and Levine (1997) have documented convincingly how ethnic heterogeneity often interferes with the implementation of good and growth enhancing policies. La Porta et al. (1999), show that various measures of quality of governments in a cross-section of countries are generally inversely related to the degree of ethnic fragmentation. Alesina, Baqir, and Hoxby (2000) document how the preference for racial and income homogeneity contributes to determining the choice of borders of municipalities and school districts in the United States. Alesina and La Ferrara (2000, 2002) relate the extent of participation in social activities and trust (social capital) to the degree of racial fragmentation in American communities.
Plus, most of the richest countries in the world are indeed very small:
The five largest countries (by population) in the world are China, India, the United States, Indonesia, and Brazil. Among them, only the United States is a rich country. By contrast, many of the richest countries in the world are small. Of the ten richest countries in the world, in terms of GDP per capita, only four have populations above 1 million. They are the United States (260 million people), Switzerland (7 million), Norway (4 million people), and Singapore (3 million people). Of these four, two are below average in terms of population. Singapore experienced the second highest growth rate in the world between 1960 and 1990: 6.3 percent per year. During the same period, the fastest growing economies outside East Asia were Botswana (1 million people), with a growth rate of 5.7 percent per year, and Malta (300,000 inhabitants), which, with 5.4 percent, had the highest growth rate in Europe.
On the other hand, according to Alesina and other economists, smaller countries have to rely on the openness of other markets; they are more inter-dependent. This is an important lesson if one wishes to live in a smaller country. The United States could perhaps be fairly independent if it would allow to cut down on certain material goods and products.
3. Ethnic fragmentation decreases social cohesion and governing
With ethnic heterogeneity one can mean several things, depending on the context. In the U.S. it has the meaning of both racial, linguistic, religious and more subjective and self-defining factors (for instance, blacks and Hispanics tend to be partly or largely of European ancestry). Regardless of exact definitions, ethnic fragmentation and polarization – two terms that Alesina uses in this article – tend to lead to several negative outcomes.
A large literature on US localities show that in more ethnically fragmented communities, public goods provision is less efficient, participation in social activities and trust is lower, and economic success, measured by growth of city size, is inferior. Evidence that trust does not travel well across racial lines is also supported by experimental evidence.
Of course, people should strive for to make things work as good as possible, but to increase the ethnic diversity even more is indeed only negative. Especially if one takes significant educational as well as cultural differences into account.
Conclusion
Overall, quantity has to be balanced with quality. Specifically the so-called human capital of the country’s inhabitants has to be taken into account, but also the values and preferences of presumptive new citizens. In addition, increased ethnic fragmentalization and heterogeneity do likely negatively effect economic growth (GDP per capita size in particular), quality of governance, and social cohesion.
Alesina’s work cover many important dimensions of these questions, but I would suggest the German psychologist Heiner Rindermann’s work on educational achievement and national IQ differences as a complement. For instance, there are differences between high-skilled and low-skilled Indians. If one is sceptical about to bring in contentious issues such as IQ into the debate, then educational achievement among groups and individuals can function as a proxy.
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