Is Small still Beautiful? A Swiss Perspective
Small polities have different advantages. Because of their smallness, they can be more efficient; this allows them to be alert to opportunities. Because of their social tissue, small polities have the advantage of self-regulating through bonding and bridging, i.e. through social capital, rather than through bureaucracy. Social capital increases with its usage and is a resource for implementing novelties based on alertness. The third factor that contributes for small polities being at an advantage is competition – in its economic and political sense. There is a cautious note, however: not all small polities can mobilize these factors.
Is Small still Beautiful? A Swiss Perspective
In the “Landsgemeinde” of 2005, the “Landammann” – the local prime minister – pointed out: “Here, in Appenzell, we have democracy. Not as they do in Switzerland”.
Switzerland consists of 26 states, which are called cantons. Each canton enjoys ample autonomy, for example in setting its own taxes – all taxes in Switzerland are primarily local and cantonal – or making its own laws. In Appenzell Innerrhoden, for example, there is no law that has not passed a popular vote. Note the distinction: Not laws that have been made by representatives of the people, as it is the case in Germany or France; nor laws that have been tacitly accepted by the people if no referendum is called against them, as it is the case on Switzerland’s national level. In Appenzell Innerrhoden, all laws must be explicitly approved by the people (Huber-Schlatter 1987).
Once a year, all voters – the term “citizen” has a different meaning in Switzerland – come together in the “Landsgemeinde” to approve, amend or reject laws as well as to elect officials, or holders of public office. The proceedings in the “Landsgemeinde” are public. Any voter can speak at any time. Any voter can propose new business. Any vote can call for a vote at any time. Voting itself is a public procedure by voters openly raising their hands, or swords. Because of this political organization, the voters of Appenzell Innerrhoden cultivate a mild skepticism regarding Switzerland. For them, the Helvetic Confederation is far too large to be governed, too sluggish to react to the needs of the people, and, simply, a too bureaucratic monster-polity. In the “Landsgemeinde” of 2005, the “Landammann” – the local prime minister – pointed out: “Here, in Appenzell, we have democracy. Not as they do in Switzerland” (Helg 2007).
Appenzell with its 15.000 inhabitants is not a particular case. It is small and cherishes it. The same thinking applies to most (or all) Swiss cantons. As in 2014, when a popular vote was called to unite the cantons Basel-Stadt (175.000 inhabitants) and Basel-Landschaft (285.000 inhabitants), and the people dismissed it by 60%. Switzerland’s newest canton, Jura (75.000 inhabitants), only joined the Confederation in 1979, as some of the francophone regions of the canton Berne declared their independency and formed their own republic within the Helvetic Confederation (Hauser 2004).
According to Buchanan, the future is not only unknown, but open-textured – it is a matter of creation and not discovery. Thus, entrepreneurs actively create innovation becoming themselves the drivers of the innovative process. They create innovation because they are alert to their possibilities as well as to potential customers’ demand.
As these examples show, from the Swiss perspective, the most likely answer to the question whether small still beautiful is in the affirmative. As important as this answer is, it is also worthwhile considering the reasons for the yes. These reasons shall be explored by using concepts that did not originate in Switzerland and examples that are non-Swiss. After all, small states are beautiful from a multitude of perspectives. The concepts being used here to explore the reason for small still being beautiful are, firstly, scarcity and alertness to explain how small political entities react to chances. Second, bonding and bridging, to understand how small political entities maintain not only alertness, but profit from their stock of social capital. And third, competition points at how to implement a system in which small political entities can thrive. The final section will conclude and ask the inverse question: why do most small polities fail, as a matter of empiricism?
A caveat applies: The three concepts just mentioned were not developed for the analysis of political entities at a state-level. Nonetheless they prove interesting if applied cautiously.
- Alertness and Scarcity
The main object of Israel Kirzner’s (b. 1930) studies is the role of the entrepreneur in market-processes. Kirzner argues that alertness is the main characteristic of the entrepreneurial action. In an early version of his thought, the entrepreneur was an arbitrageur: the entrepreneur is on the lookout for opportunities for profit. In this version of alertness, these opportunities arise when there are differences in the prices of resources and products and these differences can be turned into profits by entrepreneurs. The typical example goes as follows: A and B both sell coffee at the same price. A discovers that his coffee-stand stands longer in the sun, which attracts more customers. A takes advantage of this situation and charges a premium for coffee. Nothing changes in the production structure of A, but A takes advantage of a random factor that works to his advantage.
Kirzner argues that alertness is the main characteristic of the entrepreneurial action. The alertness of entrepreneurs directed them to a certain course of action. But it was the relative efficiency of the small polity that enabled the necessary regulatory adjustments to be quickly made.
James Buchanan (1919 – 2013) criticized this conception, thinking that the idea of alertness to be useful but at the same time unnecessarily restrained by Kirzner. Buchanan explores two criticisms. First, in an economy guided by supply and demand, prices are not a function of the production structure of supply, but one of the preferences of supply and demand. The entrepreneur does not need to be an arbitrageur in order to charge the premium; the entrepreneur just need to pay attention – to be alert – to supply and demand. Second, Kirzner seems to assume that there is no innovation in the entrepreneur’s action. Or at least that innovation means discovering possible imbalances and taking advantage of it. According to Buchanan, the future is not only unknown, but open-textured – it is a matter of creation and not discovery. Thus, entrepreneurs actively create innovation becoming themselves the drivers of the innovative process. They create innovation because they are alert to their possibilities as well as to potential customers’ demand (see, for example, Buchanan & Vanberg 1991).
Kirzner, then, expands the idea of alertness to encompass many aspects of innovation. In this latter version, the alert entrepreneur gauges opportunities that have remained unnoticed by others (Kirzner 1997). Whatever counts as opportunities remains open. It can be pure arbitrage; it can also be a new product, a new use for a known product, the embitterment of a product, a new business model, different marketing-activities, etc.
This should not be understood as an exclusivity claim; there are quick and adaptable large polities, too. But small polities are more alert to new chances because they have to position themselves in a system of competition and they know that they lack scalability, so they search for other means. This seems to be pivotal. Small polities act on their (relative) scarcity.
How to apply the concept for small-scale political entities? Switzerland, once again, can serve as an example (see, for these and other examples, Barankay and Lockwood 2007). The above-mentioned canton Appenzell Innerrhoden never had a law about the opening hours of businesses. It was never considered necessary. Other cantons had (have) such laws. Businesspeople in Appenzell realized that they could open on Sundays and serve tourists and other customers. Ever since Appenzell started keeping businesses open on Sunday, different larger cantons have been trying to change their laws in order to allow for the same. But because of their larger and in relation to Appenzell relatively complicated polities, they failed. A national attempt to liberalize business hours was launched on the confederate level, but failed to pass.
More examples
Kirzner contends that entrepreneurial alertness is taking advantage of a situation. In a small polity like Appenzell, it is easier to do so. In Appenzell, no regulatory environment was needed; just the mutual consent of businesspeople involved – who wants to open, opens, who does not want to, does not – and some consultations with stakeholders. Note that in this example, Appenzell leads not only because of the absence of the law, but because of the permissive general condition. In this small polity, entrepreneurs had the relative advantage (in comparison to other polities) of acting as they judged fit and the polity itself did not react against it. It is, therefore, the sum of alert entrepreneurs in a general condition allowing them to implement their entrepreneurial decisions and harvest the fruits of alertness.
Another example: After a very problematic independency and a bankruptcy in its first years, the Swiss canton Jura developed into a hub for watchmaking industry. This was not initially planned: it happened as the remnants of the watchmaking industry standing at the brink of general bankruptcy decided to attract their vertical supply-chain to geographic proximity. In a concerted effort, these companies lobbied the small government of the new but poor canton, which in need of capital inflow, job security and “positive signals”, quickly made the changes needed, attracting many enterprises from the surrounding cantons and countries.
While alertness is the sufficient, scarcity is a necessary condition for small polities to position themselves well – politically, economically, and socially.
Here again, it was the smallness of the polity that enabled quick entrepreneurial action. The alertness of entrepreneurs directed them to a certain course of action. But it was the relative efficiency of the small polity that enabled the necessary regulatory adjustments to be quickly made. The cantonal government, in this case, was alert and accommodating to the alertness of entrepreneurs.
A third and last example: The Swiss canton of Zug is today as a hub for commodity trade, asset management, and crypto-currencies. An attentive Parliament recognized that the other Swiss commodities hub, Geneva, was on the way of overregulating the sector. Zug opted for the opposite. Also, Zug noticed that the banks were squeezing independent asset managers and other small-scale financial service providers out of Zurich and actively offered its 30-minutes-from-Zurich-self as a new place. Zug’s regulatory thrift allows many enterprises to experiment with new financial products, for example crypto-currencies.
The social fabric of a community, what is sometimes called “social capital”, comes from social interaction in which individuals bond, creating trust, and bridge, solving conflicts, or connecting different groups.
This example is slightly different from the previous two. In this case, it was the local government that acted on alertness realizing that Geneva’s overregulation and Zurich’s oligopolies posed problems for the firms. Acting on this alertness, Zug’s government saw that the canton could be a solution to these firms’ problems. At the same time, Zug’s government realized that the solution is not a political one, but one based on information. It was about informing the troubled companies about Zug’s existence, infrastructure, and place, and especially its absence of factors mitigating business. Zug did not change the regulatory environment neither did it attract companies with subsidies or favors of any kind. Zug was alert enough to discover that its “bare existence” solves potential problems – and Zug was disciplined enough to allow for the enterprises to be alert on the business side – without need for government intervention. It was the small polity of Zug that acted on its alertness.
The point
These three examples show how alertness can – but not necessarily – function on the level of polity. Small-scale political instances are quick to adapt. If the entrepreneur is an arbitrageur, only the one that quickly transforms alertness into streams of revenue is the successful one. If entrepreneurs’ alertness also allows for innovation at-large, it is still part of the alertness not only to identify the opportunity, but to seize it and turn it into a product. The same applies to political bodies. It is not enough to see a possibility, it is much more important to be (or be among the) the first mover and turn the opportunity into an advantage.
Naturally, this should not be understood as an exclusivity claim; there are quick and adaptable large polities, too. But small polities are more alert to new chances because they have to position themselves in a system of competition and they know that they lack scalability, so they search for other means. This seems to be pivotal. Small polities act on their (relative) scarcity. It is this scarcity that is the driver for their alertness and efficiency in seizing opportunities. For small polities, scarcity is a blessing rather than a curse because it drives them to innovation and entrepreneurial action. While alertness is the sufficient, scarcity is a necessary condition for small polities to position themselves well – politically, economically, and socially.
Bridging social capital occurs when members of one group connect with members of other groups to seek access or support or to gain information. Bridging also means the capabilities of resolving conflicts without calling a third party, i.e. someone or some institution outside of the social group.
These three examples show yet two further features: in every one of them, cooperation and competition were important, even constituent factors. The small polities stand in competition against each other. They also compete with larger ones. In these examples, they acted in order to position themselves well in competition to the others. Note that none of these examples makes a claim on absolute values: maybe the shops in Appenzell are not attractive, by an objective standard; perhaps the watches in Jura are not the best in the world; and even Zug is not the largest financial hub on the planet. The claims made are on a relative basis: Appenzell has the open shops relative to the closed ones around it; Jura has the geographical integration of watchmaking relative to the other watchmaking places; and Zug is the hub in comparison to its Central-European competitors.
The solutions found by these polities all required a large degree of cooperation and commitment of the local entrepreneurs, governments, and other stakeholders. At the same time, these partners in cooperation would stand in competition to each other. What these examples make clear is that apart from alertness and scarcity there is also need for cooperation and competition between the local agents and also between the small-scale polities. These aspects shall be analyzed in the next sections.
- Bonding and Bridging
The social fabric of a community, what is sometimes called “social capital”, comes from social interaction in which individuals bond, creating trust, and bridge, solving conflicts, or connecting different groups (Putnam 1995). “Social capital refers to features of social organization, such as networks, norms, and trust, that facilitate coordination and cooperation for mutual benefit” (ibid, 35). Bonding social capital occurs within a community of individuals, such as a neighborhood, a lineage group, or a network; but the relationships and trust formed by bonding social capital may not precipitate action. Bonding social capital is a necessary antecedent for the development of the more powerful form of bridging social capital.
Politics suppresses, ousts, or replaces social capital because it substitutes the interpersonal relationship and accountability with impersonal processes therefore limiting the individual responsibility for the whole. This dislocates bonding between people to “trust” in procedures.
Bridging social capital is what Putnam (1995) refers to as cross-cutting ties. Bridging social capital occurs when members of one group connect with members of other groups to seek access or support or to gain information. Bridging also means the capabilities of resolving conflicts without calling a third party, i.e. someone or some institution outside of the social group. As it was the case with scarcity being a necessary and alertness a sufficient factor for the development of the small polity, as far as social capital is concerned, bonding is the necessary and bridging the sufficient condition for small polities to succeed.
On the other hand, small scale polities are at an advantage in bonding as well as in bridging. In small scale polities, political decision-making supervenes on social capital. In large political bodies, politics suppresses, ousts or replaces social capital. This warrants a more detailed explanation; it follows here, embracing two aspects:
First, this claim is not one by necessity, but by probability. It is more probable for political processes to supervene on social capital in small polities because the managers of these processes are part of the community. They interact with the community not primarily as a political manager, but as a member like any other. The political activity is secondary, and dependent on being a member of the community. In large scale polities, however, managers of political processes rely on the political processes themselves to remain in power as well as to perform their duties. In larger scale political entities, with increasing political anonymity of the individual and multiplication of networks, one network alone – with all its bonding and bridging capital – is neither large enough to control nor powerful enough to empower the managers of political processes. Therefore, these managers resort to different networks becoming relatively independent from one system of bonding and bridging.
As Elinor Ostrom (1933 – 2012) was careful in pointing out, the stock of social capital only grows with its usage and shrinks with its administration.
Second, politics suppresses, ousts, or replaces social capital because it substitutes the interpersonal relationship and accountability with impersonal processes therefore limiting the individual responsibility for the whole. This dislocates bonding between people to “trust” in procedures. And it externalizes – outsources – the bridging of interests to managers of political processes or judges (see Newton 1999, Robison & Ritchie 2016). Bonding and bridging, therefore, cannot be engineered top-down, as sometimes the political term “big society” insinuates (Lowndes and Pratchett 2012). It has to grow bottom up. In order for it to grow, it needs free space – i.e. the absence of political intervention –, allocation and symmetry of individual responsibility, the possibility of failure, and the possibility of conflict. As Elinor Ostrom (1933 – 2012) was careful in pointing out, the stock of social capital only grows with its usage and shrinks with its administration (Ostrom 2000). Using social capital also entails allowing for it to lose value for it is in remedying the lost that instruments for bridging can develop.
The cities of brotherly love
Benjamin Franklin’s (1706 – 1790) Philadelphia in the 18th century serves as a non-Swiss example (Franklin 1998). The Philadelphia of that time was a small political entity. It was part of a larger political body, but the city basically consisted of three networks (each with subdivisions, of course): Quakers, English-speaking inhabitants, and German-speaking inhabitants. These networks each functioned as a social group, with their own division of labor, stratification, social institutions, and ways of conflict-resolution.
Franklin realized that the political setup of the city was not able to cope with different challenges. He also realized that the colonial administration was not even aware of the different areas in which problems had to be addressed. He, instead of calling for political action – that happened later – initially set out to mobilize groups of like-minded people that would do what they considered that needed to be done. These were not interest groups. They would not claim for any provision by the polity, but they would form a fire brigade, create a library, build a convention hall (church), clean the streets, provide relief for the poor and education for the German-speakers, or train a militia. These groups of citizens would take matters into their own hands. But by doing so, they would also take responsibility for their success or failure. The individual members would feel responsible not only for the group’s endeavor, but also for the whole community.
Franklin himself writes of how difficult it is to create consensus in these groups, especially because he was careful enough to recruit people from each of the three networks and include them in his “civil-society-groupings”. Franklin was thus acknowledging that developing the bridging mechanisms takes bonding, time and failure. Indeed, the emergence of a colonial community in the US can be seen as a continuous exercise in bonding and bridging among many entities that stood in principle in competition with each other.
Another example for bonding and bridging communities are the Chinese villages in Hong Kong’s New Territories. Not Hong Kong, but its New Territories are the example of a small polity. Due to a mix of lack of interest and lack of comprehension, the British administration did not extend its colonial bureaucracy to the New Territories. In fact, until the 1980s, this relatively large part of Hong Kong was left to self-regulation (Wesley Smith 1998). Instead, the Colonial Office accepted that the different lineage groups in the New Territories had (or have) their own system of functioning. So, instead of de-facto incorporating them into the political system of Hong Kong, the British allowed for the different networks in the New Territories to access political institutions on an as-needed basis.
Political competition is the inner momentum of a polity. It addresses how they stand relative to themselves, or to their inhabitants. There are many ways of incorporating political competition into a polity. But genuine political competition happens if the polity can be dissolved at any instance or if unhappy members can opt out of the polity without having to fear retaliation.
It was with equal lack of understanding that the British administration witnessed how it were these groups that pushed for Hong Kong’s industrialization – while the European remained essentially traders – and used the inflow of refugees from China as workers integrating them as members into the community (Potter 1968). The small, decentralized and bottom-up grown system of the New Territories was better than the administration in dealing with problems such as hunger, criminality and diseases. Because of the alignment of responsibility for success and failure in networks such as “Clans”, “temples”, “villages” and/or “brotherhoods” – the quotation marks here only denote that these expressions are imprecise descriptions of local phenotypes – the New Territories could organize themselves, integrate the influx of migrants and turn this social capital into productive assets, namely, into industrialization.
This system of social capital was enough not only to maintain order and stability, but also for allowing economic development and cultural diversity. Larger elements of self-organization, such as temples for deities that transcended “clans” and “villages”, hospitals, and schools, emerged. The leadership of these larger elements of governance made sure that the different networks in the New Territories cooperated in this exercise of self-regulation, thus bridging between them (Watson and Watson 2004).
Note that both examples do not make a case for the small-scale polity not needing political processes. Benjamin Franklin as well as different heads of linage groups in Hong Kong were (are) politically active. But these examples do make the direction of the vectors explicit. The political processes in both cases supervene on social capital. Because the communities work well, they sometimes resort to the political processes on an as-needed basis. And because they were (are) successful leaders of their respective communities and because they can facilitate bonding and bridging, Franklin and the heads of lineage in Hong Kong became successful politicians. It was (is) the social capital of the small-scale polity that allows for politics and political activity.
This section provided, thus, the explanation for cooperation as a success factor for the small polity. The next section reviews the second factor, competition.
- “Gumsa” and “Gumlao”
Competition happens on three separate levels: first, between the agents of the small-scale polity; and second, between the polities. But there is a third type of competition: political competition in the small-scale polity. The first and second are quickly explained. Next to all cooperation described in the previous section, the individual members of the community still are in competition to each other. They might solve some problems and address some chances through the communal channel, but in order to succeed, they need to use alertness to their own profit. A small-scale polity that allows for as much competition as possible is at an advantage. Then, small-scale entities stand in competition with each other. The more they embrace the competitive principles, the more they can use resources within their communities to cooperate in identifying chances of differentiation from other polities.
Political cooperation is a necessary, political competition within the polity a sufficient condition. Wherever an entity wants to become independent, if a sufficiently large majority of its people opts for independence, this independence should be respected and the newly independent entity should not fear any retaliation.
The third type of competition seems counterintuitive, but as necessary as the other two. Political competition is the inner momentum of a polity. It addresses how they stand relative to themselves, or to their inhabitants. There are many ways of incorporating political competition into a polity. For example, taxation could be defined at a micro-entity level – village, neighborhood, association –, micro-entities standing in competition with one another in a given polity; or institutions of the polity could stand in competition with each other, for example different courts, the courts and private-party-mediation, executive and legislative powers etc. But genuine political competition happens if the polity can be dissolved at any instance or if unhappy members can opt out of the polity without having to fear retaliation.
Sir Edmund Leach (1910-1989), a British anthropologist, studied the Kachin in Highland Burma. Leach shows that the Kachin political system is in an in-equilibrium state because of the existence of two – from the point of view of anthropology – inconsistent and contradictory ideal modes of life (Leach 1964). On the one side, there is the “gumlao” which is egalitarian and “anarchic” where the political organization is characterized by the absence of chiefs, by the equal rank of all lineages and by territorial units comprising several villages of the same status. On the other side, there is the Shan – the name of the large-scale polity in the lowlands of the valleys – ideal type which is a feudal system based on hierarchic order and the autocratic rule of a chief. Leach's central argument is that Kachin communities fluctuate between the two ideal types--democratic “gumlao” and feudalistic Shan such that in reality the majority of actual Kachin communities are neither “gumlao” nor Shan in type. In other words, the majority of Kachin communities are organized according to “gumsa” which is a kind of compromise between “gumlao” and Shan ideals. Leach thus shows that the “gumsa” communities are not static or in a state of stable equilibrium. Depending on the economic and social circumstances, the “gumsa” Kachin communities can move in the direction of the Shan model or the “gumlao” model. In a nutshell, the “gumsa” political structures are essentially unstable because of the existence of the two contradictory polar types of “gumlao” and Shan organization.
One important note that Leach makes: Especially when “gumsa” are strong and heading towards Shan, any member of the group can opt for leaving the group, even with followers, and had to fear no retaliation. The discontented would go on and form a new group; any new group would start off as “gumlao”. This system that, from the anthropological perspective, is unstable led to the growth of the Kachin polity due to two reasons: First, the real possibility of self-determination through “gumlao” might create friction on the smaller-scale, but strengthens the overall identification or individuals as Kachin, including the endorsement of the Kachin values. Second, this system is attractive enough to attract individuals from other groups wanting to withdraw from those groups and become Kachin, mostly in “gumlao” communities. Therefore, the second big issue in Kachin anthropology is how to be and become a Kachin (Sadan 2013).
The genuine political competition between the different Kachin types of Kachin political organizations makes the Kachin attractive as a polity. It also keeps the Kachin from becoming an autocratic regime and maintains the openness of the Kachin group for inner-differentiation and for foreign influence while maintaining the overall identification as Kachin and the adherence to its values. This model of inner competition could also serve as a guiding principle in international politics. Political cooperation is a necessary, political competition within the polity a sufficient condition.
Social capital is much more effective than politics in creating trust, bonding, and bridging interests and conflicts.
Wherever an entity wants to become independent, if a sufficiently large majority of its people opts for independence, this independence should be respected and the newly independent entity should not fear any retaliation. The principle works, as the Swiss model shows: In 1977, people opted for the Jura to become independent. They took responsibility for it, created and paid for a new canton. As the canton went bankrupt in 1981, neither another Swiss canton nor the Confederation helped the “république jurassienne”. It was again its inhabitants that had to step in and take responsibility. In the year of 2017, the city of Moutier decided to leave the canton of Berne and to affiliate itself with the Canton of Jura. These “gumlao” elements do not only work for the Kachin, or in Switzerland, but could be applied in many other contexts.
Who fails – and who does not?
From a Swiss perspective, small is still beautiful. More than that: It is highly doubtful than any political organization can be more beautiful than the small-scale polity. But this does not automatically mean that every small polity is beautiful, or successful, just because it is small. In fact, empirical evidence of the contemporary world would suggest that most small polities are not successful: Switzerland, Liechtenstein, Brunei, and Hong Kong might be the exception, not the rule. The question becomes, rather, how small political entities can become beautiful – and successful. We have identified three separate elements:
- Scarcity is a necessary, alertness a sufficient condition: Small polities embracing scarcity do not rely on effects of scale. Instead, they seek for economies of scope, innovation, and efficiency. If they do so, they understand which chances to seize and how to turn opportunities into practical advantages – at least they are in the position of doing so better or quicker than their relative competition, i.e. other (larger) political entities. They are more open to alertness than large polities because on the one hand they lack other ways for positioning themselves, and, on the other hand, their social capital makes them quicker in deciding how to act.
- Bonding is a necessary, bridging a sufficient condition: In successful small-scale political entities, politics supervenes on social capital; in larger-scale ones, politics suppresses or displaces it. This is particularly problematic as the stock of social capital only grows with its use and diminishes with its administration. Social capital is much more effective than politics in creating trust, bonding, and bridging interests and conflicts.
- Political cooperation is a necessary, political competition within the polity a sufficient condition. Lastly, the principle of competition is important for small-scale polities. First, their members need to compete among themselves; second, the polities themselves need to stand in competition with other polities. And third, small polities need political competition within themselves in order to prevent them from becoming like larger-scale polities and to maintain their close links to their social capital. Although there are proxies for a political competition within themselves, the genuine way is to allow individuals and communities to opt-in or out without fearing retaliation.
The more small-scale political entities approximate these three elements, the more successful they will be. It is not only from a Swiss Perspective that a small state can be beautiful.
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