Monday, July 13, 2015

207. Scale advantages of political integration

 Gary Marks[i] identified two contrary factors affecting political integration. Scale advantages favour integration, but parochial altruism, discussed in item 205 of this blog, works against it. I will consider this opposition in the following item in this blog. Here I analyse scale advantage. In that, one can make use of insights from economics.

Scale effects entail that efficiency is greater at higher volumes of activity. The following types have been identified[ii]

First, specialization. This goes back to Adam Smith. Larger volumes of production allow for division of labour, and the resulting specialization in component activities increases efficiency. In political integration this means that there can be specialization within bureaucracy, public services and government departments.

Second, the periphery/surface effect. For a circle the ratio between circumference and surface is 2/r, where r is the radius of the circle. In politics, the periphery carries costs of frontier policing and defence, while the surface yields resources available in the country. Thus the ratio between costs and resources declines with size.

Third, spread of risk. In a larger territory the incidence of calamities, such as earth quakes, floods, hurricanes, etc. is spread over a larger territory, yielding more remedial resources per incidence.

Fourth, incidence of excellence. At a given chance of excellence occurring anywhere, the chance that it occurs in a larger population is larger than in a small one.

Fifth, Threshold effects. Many services carry the ‘threshold cost’ of the minimum capacity needed for the service to function. An example is a service desk, with the minimum of one attendant. At a low volume of use the cost per user then is higher than with a large volume of users. This applies to all manner of government services. Also to foreign diplomatic representation and negotiation, for example. Also to other basic, minimal capacities, for basic research, security and surveillance, communication, elections, … Mostly, the cost of those carries a fixed, minimal component and a component related to the volume of use. The efficiency of size lies in the first. In some cases, such as law making, the fixed, minimum costs far outweigh costs in relation to size.  

How about an air force? One needs a lager one for a larger surface of the territory, so that it does not fall under the periphery/surface effect, but there are threshold costs in setting up and maintaining an air force of any size.

Sixth, as noted by Gary Marks, public goods are non-rival, i.e. use by one citizen does not reduce the availability to others. For example, a law does not diminish in its application. However, with an increasing population the costs of administering the law do increase.

Seventh, variety. The variety of larger territories is larger, in culture, knowledge, experience, conditions, and greater variety yields a greater fund for the ‘novel combinations’ of innovation.

However, this is a double-edged sword, since greater variety also makes cooperation and unification more difficult.

Earlier in this blog I discussed the notion of ‘cognitive distance’. The larger it is the more potential there is for learning and novelty, but the more difficult it also is to bridge that distance in order to utilize the potential.

And there is the problem of parochial altruism. I discuss that in the next item.

[i] Gary Marks, 2012, ‘Europe and its empires: From Rome to the European Union’, JCMS annual lecture, Journal of Common Market Studies, 50(1), p. 1-20.
[ii] Bart Nooteboom, 2007, ‘Service value chains and effects of scale’, Service Business, 1: 119-139.