Is Belgium Too Big?

Belgium is nice and compact, the iPod of countries.  When I visited in 1990 I noticed that most Belgian cities were about 30 minutes from Brussels by train.  When I need an example of a small country to use in my economics class, I often pick Belgium.  But today I’d like to argue that Belgium is just too big.

In earlier posts like this one I argued that there are severe diseconomies of scale in governance.  In olden times large countries benefited from having a big internal market and a large military to deter invaders.  The unfortunate Belgians was frequently overrun by the Germans or French.  But in the modern world this is no longer a problem.  Belgium is protected by NATO and can export freely throughout the EU.  I got to thinking about this issue when I read this article:

BRUSSELS (AP) – Belgium’s 6.5 million Dutch and 4 million French-speakers are locked in an unhappy, quarrelsome union, and voters in a general election Sunday might well favor the prospect of a political divorce down the road.

A mainstream Flemish party that is expected to do well is invoking the concept of irreconcilable differences to seek a separation and, in time, take the country’s Dutch-speaking Flanders region into the European Union as a separate country.

This is a nightmare scenario for the poorer Wallonia, Belgium’s Francophone south, which greatly depends on Flemish funds.

.   .   .

The divide goes beyond language.

Flanders tends to be conservative and free-trade minded. Wallonia’s long-dominant Socialists have a record of corruption and poor governance. Flanders has half the unemployment of Wallonia and a 25 percent higher per-capita income, and Dutch-speakers have long complained that they are subsidizing their Francophone neighbors.

But those in Wallonia don’t want to join France and France has never expressed any interest in absorbing the region because of its high unemployment and other costs. France also does not to encourage separatism so regions like the French island of Corsica don’t get their own separatist ideas.

If you are a right-winger this pushes all your buttons.  Wallonia is too socialist.  They rely on handouts from the more conservative and productive Flemish.  They speak French.  But they are so poor even France won’t take them.  You’re instincts tell you that the virtuous Flemish would be better off without those deadbeats.

But I am a utilitarian, and am thus supposed to be above all that petty bigotry.  So I’ll try to make a principled argument that both sides would be better off with an amicable divorce.  The advantages to Flanders are obvious.  A population of 6.5 million is a bit more than Denmark and and a bit less than Switzerland and Austria, all three of which are highly successful countries that also border Germany.  And all three are richer than Germany.  A small country can be nimble, and set public policies that are well-suited to attracting international business.  And in a small country it’s harder for rent-seeking special interest groups to rip-off the broader public, without attracting attention.  Win-win policy coordination is easier to get in Flanders than in a country like America, where the Democrats and Republicans are barely on speaking terms.

But how would the Walloons gain?  Here the argument is a bit tougher, but I’ll try to make it using the analogy of Czechoslovakia.  Before the split-up, the Slovaks represented the smaller and less prosperous part of Czechoslovakia.  Being further east, their instincts were probably more statist.  After the breakup they did flounder around for a few years, but then got their act together and instituted some important neoliberal reforms.  And I think it is fair to say that the reforms were successful.  Obviously Slovakia still has lots of problems, but their business-friendly tax regime did attract lots of investment from multinational car companies.  So tough love can work.

I am a pragmatist, so I don’t want to argue that separation is the answer to every problem.  The Swiss have shown that decentralization can work well, and up until 1929 it was highly successful in America as well.  I suppose there is the risk that a region that strikes it rich with oil could decide that it doesn’t want to share its undeserved riches with the rest of the country.  Or Beverly Hills might want to declare independence to avoid high income taxes.  (Indeed Monaco is essentially in this position vis-a-vis France.)  But where you have two regions that are relatively equal in natural resources, but have trouble getting along due to cultural/language differences, then why not split in two?  When it comes to governance, small is beautiful.

PS.  I suppose there is the tricky issue of what to do with Brussels.  How about making it an independent city-state?  Call it Brussels D.E., meaning Brussels, District of Europa.

PPS.  I tried to find a YouTube of the old Monty Python skit about Belgians, but (perhaps fortunately) could not locate that tasteless performance.

About Scott Sumner 490 Articles

Affiliation: Bentley University

Scott Sumner has taught economics at Bentley University for the past 27 years.

He earned a BA in economics at Wisconsin and a PhD at University of Chicago.

Professor Sumner's current research topics include monetary policy targets and the Great Depression. His areas of interest are macroeconomics, monetary theory and policy, and history of economic thought.

Professor Sumner has published articles in the Journal of Political Economy, the Journal of Money, Credit and Banking, and the Bulletin of Economic Research.

Visit: TheMoneyIllusion

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