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Small Countries Weathering the Recession: Crashing and Burning or Rising From the Ashes

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The post-Cold War years were good for the fortunes of small countries. Small states did indeed seem beautiful in the 1990s and early 2000s.

The end of bipolarity and the competing alliances ended the vulnerability of small countries to choose between bandwagoning with or balancing against either the U.S. or the USSR.

Hyper-globalization allowed them flexibility to find profitable niches in the global economy.

Although for good reason, maligned neo-liberalism did allow small countries some ideological cover for taking shortcuts to competitiveness, such as in the case of tax competition in offshore financial centres or tax havens.

The financial crisis of 2008 and beyond reversed this course. Being small took on a troubled ugly dimension.

Many small countries were the poster states for economic vulnerability.

Ireland crashed hard from being the Celtic tiger to a classic bubble with an over-tended housing market and massive unemployment leading to an exit strategy by young well educated citizens.

Excessive developments such as Dubai World in the UAE wobbled under the weight of massive liabilities in a speculative culture.

The Baltic states were forced to take deep austerity action far ahead of bigger states such as the UK.

The tax havens came under increased pressure from international organizations to become more transparent about their financial regimes.

Just as seriously, small countries have been in the forefront of political resistance to cutbacks.

Riots in Greece -- the anti-model for innovative behaviour by a small country -- make the front pages around the world.

But more successful countries, notably Chile, have experienced protests starting with students over the structure of education fees and escalating to trade unions.

Even a country such as Singapore, with a highly successful economy with an impressive wealth fund, has encountered some degree of political pushback with some losses for the hegemonic ruling party in a recent election.

Yet for all the vulnerability, the continued resilience of small countries deserves attention as well.

For a few lucky small countries global turmoil allows them the option to step up their activities to another far more ambitious level.

Qatar is un-rivaled as a small country that plays big across a range of issues. Well known for its prowess as a mediator (on Lebanon for example) and purveyor of soft power (al-Jazeera) in a tension-filled neighbourhood.

Qatar has raised its game in an impressive fashion.

On the symbolic side, it has won enhanced status by its triumphant bid for the 2022 football World Cup.

Substantively Qatar chose the winning National Transitional Council in Libya from the outset of the campaign against the Gaddafi regime -- providing not just diplomatic and logistical support but hard power in the form of aircraft to special forces on the ground.

Goodwill built up through this concerted, albeit risky, strategy now promises to reap major benefits for Qatar as reconstruction kicks in.

However resilience extends in other ways to countries without the good luck or management as Qatar.

I was in Iceland last week at a conference and my main takeaway was how this small island state differed from the standard image of a country under the sustained turmoil of crisis.

Although Iceland saw the end of so-called "Viking capitalism" with the collapse of its major banks, a 50 per cent devaluation of its currency, a popular protest that pushed the government out of office, emergency aid through the IMF, and ongoing disputes with European investors, as well as some serious loss of young talented people overseas, Iceland looks a pillar of normalcy with the maintenance of most public services and sense of national identity (including a beautiful new concert hall and a well-attended national culture day), and a confidence that prosperity will return -- albeit a prosperity built on a more sustainable basis.

The assessment of beauty in state-centric terms as in other arenas is a contested art.

What seemed a beautiful condition for small states prior to the financial crisis hid many flaws.

Equally however the ugliness of the post-crisis experience should not overshadow the built in attractiveness of some of this cluster of countries.

Luck of natural endowment certainly plays a part.

Still to weather the storms of economic turmoil small states -- whether they be Qatar, Iceland or other among the other small states that make up the vast majority of the countries in the world -- must combine this form of luck with skill and resolve that allow them to compensate for their structural deficiencies due to size.

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