Strength in Frailty?

“The Paradox of Vulnerability” presents an interesting explanation of why smaller nation-states seem to respond better to global crises.

If you had lived in 19th century Europe and I was to ask you,“Which European countries are going to be the most developed, 200 years from now? Which would respond best to a crisis?”, what would you say?

Germany? The British Empire? France? Almost certainly not Denmark or Switzerland.

This is probably because both these countries, small as they are, are hardly awe-inspiring. Surely, in the anarchic international order, it is better to be a large blob on the map, and carry a satchel of carrots and big sticks.

In The Paradox of Vulnerability: States, Nationalism and the Financial Crisis, Campbell and Hall turn this assumption on its head. They argue that it is precisely because small countries are vulnerable to the large ones that they perform so well – the “paradox” of the title. A simple pathway is proposed, and is validated through a comparative historical analysis of three European countries, and a detailed look at their policy responses to the 2008 financial crisis. The book blends the study of political economy and nationalism to understand a simple question:

In a crisis, why do some nations succeed while others fail?

Is It Better to Fear than to Be Feared?

The importance of power on the international stage is well-established. The idea dates to at least Thucydides’ account of the Peloponnesian War of the 5th century BCE, where he has the Athenians announce: “The strong do what they will, and the weak suffer what they must”. This anarchic conception was slightly modified after the Peace of Westphalia in 1648 CE, when the conception of national sovereignty and of some degree of rule-based international interaction was codified in Europe.

Such rules, of course, do not favour all players equally. The largest and most powerful nation-states set the rules, and the smaller ones must follow them. If they do not, they risk being completely overwhelmed.

This risk of being overwhelmed, argue Campbell and Hall, is central to how smaller nations develop their nationhood. It fosters a culture where those in power must think about consensus and compromise in the national interest, or risk falling prey to a Great Power. It allows for citizens to develop a shared conception of nationhood, and makes them willing to accept some degree of hardship. It brings key stakeholders to the table and makes them willing to negotiate – and, in a small nation, there are fewer of them.

The tendency to arrive at a consensus, to keep all stakeholders on board, and the development of social capital in the form of national identity lead to the formation of “thick” institutions. These thick institutions are flexible and capable of quick response to crises.

The authors set out to validate their theory by comparing the historical trajectories of Denmark, Ireland, and Switzerland. Each of these nation-states is small, all of them were badly affected by the 2008 crisis, yet each of them responded to it with differing degrees of success.

Denmark and Ireland are both relatively homogenous in terms of ethnicity and language. Denmark responded admirably to the crisis – setting up expert committees and formulating new regulations for the banking sector. In Ireland, on the other hand, the response was disastrously handled by bureaucrats and some banks consciously misled regulators. The “Troika” of the EC, IMF and ECB was forced to step in and impose austerity.

Why was the response so different? By 1864, point out the authors, Denmark’s Baltic/German multi-ethnic empire was snatched from it by other European powers. This led to a recognition of its vulnerability, and civil society recognised the importance of national identity. National identity was then strengthened by cultural institutions, which strengthened the state and allowed it to further develop its own institutions. Proportional representation in Parliament encouraged consensus. Gradually, in this environment of perceived vulnerability, Denmark developed highly meritocratic, cooperation-driven “thick” institutions that served it well in 2008.

Ireland, meanwhile, was essentially a British colony till the early 20th century. The British administration had not bothered to foster inclusive institutions, and the concept of Irish nationhood was highly contested owing to religious and economic struggles. Furthermore, after gaining independence, Ireland was at little geopolitical risk. The apparent absence of vulnerability encouraged cronyism and rent-seeking behaviour, and little was done to improve on its “thin” institutions. The 2008 crisis, as a result, was a disaster for Ireland.

Vulnerability and the Rise of the Nationalist

The Paradox of Vulnerability is a brief but interesting thought exercise, and offers insights not only into the behaviour of the nation-states analysed, but also into the general paths that nation-states follow.

India, it could be argued, has not faced existential risks since Independence, lessening the imperative for stakeholders to cooperate. Political discourse was torn by conflicting ethnicities, cultural, religious, and linguistic groups who had no need to compromise. This led to rent-seeking behaviour and cronyism among elites. A strong sense of India as a nation, as a social contract, was unable to fully develop, and our institutions suffered for it. And as a large country, we have not had to face serious consequences for it.

Today, though, the perception of the religious majority being “vulnerable” to a religious minority has arguably strengthened majoritarian nationalism. Only time will tell how this will affect our institutions. Meanwhile, Denmark, facing an influx of immigrants, is now at a similar crossroads that might very well undermine the consensus-oriented institutions it already has. As a small country, this may prove to be disastrous in the long run.

Campbell and Hall deserve credit for their rigourous historical and institutional analysis. While the historical processes leading to the development of “national” identity are well-documented, The Paradox of Vulnerability provides a useful (if not earth-shattering) further understanding. More importantly, it sheds light on the broader and increasingly relevant question of how nations behave, and on the importance of consensus, trust, and negotiation. Though its focus is on responses to 2008, it is strikingly relevant in an age where aggressive, majoritarian nationalism is on everyone’s lips and fingertips.

About the author

Anirudh Kanisetti

Anirudh Kanisetti is a Research Associate at the Takshashila Institution. A graduate of BITS Pilani Goa, his research interests range from systems modelling to geostrategy, economics, history and culture.