Chapter 5: Small states: challenges of political economy
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Small states are not game controllers, and not even game changers, in the international economy; but they have tended to survive fairly well, even by deploying unorthodox policies. This chapter offers a synthesis of the arguments which highlight the (mainly economic) vulnerabilities and opportunities faced by states because they are small. It does so mainly by reviewing four, interlocking sets of policy issues which have serious implications on the nature of politics in small states. First is making a virtue out of smallness: scrambling to exploit one economic niche or opportunity, for as long as it lasts. Second is managing the mixed blessing of market concentration: given the small size of the economy and society, any successful economic sector can quickly achieve market dominance. Third is market failure: power and influence, economic as much as political, tends to be concentrated in the hands of single (hence, monopoly power) or a few (hence, oligopoly power) individuals, institutions or organizations. Fourth and last, is the disposition towards economies of scope: within the public administrations of small states, there are critical mass requirements and indivisibility constraints but without economies of scale.

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