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Why are states breaking up?

All around us states are breaking up or within a hair's breadth of it. In Canada Quebec is poised to have another referendum if the Parti Québécois wins the next election; the Parti will go on having referenda until the people of Quebec get it right. In the ex-Soviet Union virtually all the member states have gone their own way. In former Yugoslavia...- say no more. Czechoslovakia split amicably into the Czech Republic and Slovakia. In the European Union the north of Italy, the Flemish parts of Belgium, and Catalonia all look to 'European integration' as the excuse to distance themselves from their poorer national neighbours. As for here in the UK, we have Scotland which seems willing to turn down the UK's 20% higher rate of public spending per capita for the sake of independence.

What on earth is happening to the nation state? Before our eyes it is dismembering itself into the smaller pieces from which it was once composed- not yet quite the 'city-states' of ancient Greece and Renaissance Italy, but firmly in that direction. About the only major state of which all this is, so far, definitely not true is the United States of America. But even there the 50 states are increasingly restive about Big Washington and demanding more of their money back; they want a less intrusive federalism. True, secession is not on their agenda - but then it has not been since the South tried it and was slapped down in the Civil War of 1861-65.

The triggers for break-up come in many forms. The French Québécois feel culturally threatened; their Social Democratic philosophy is out of tune with the surrounding Anglo-Saxon free market world of North America. Slovakia similarly disliked the Czechs' free market, privatising, approach under Vaclav Klaus. But the richer parts of the EU are simply fed up with subsidising their idle poorer neighbours. The Scots, they frequently tell us, 'hate' the English, but why? Perhaps because they feel more Social Democratic than we, or want sovereignty, or have been watching too many Mel Gibson films. The Yugoslavs are ethnically genocidal. The Soviet States want to get away from the stultifying control exerted by Russian central planning - partly economic, partly political. And so on.

But underneath such a plethora, there must be some deeper explanation which enables all these triggers to have their detaching effect. Somehow the pressing reasons that forced us in the past to remain together in our national huddle must be less pressing.

One of the most pressing has always been defence. Plainly the end of the Cold War and the crumbling of Soviet power has combined with nuclear weapons to change the defence rationale radically; now a country needs to belong to NATO, pay its UN dues in cash and manpower, and it can benefit from world policing led by the USA. You keep a small armed force to protect your citizens against internal disorder and small-time external threats that would not provoke the international big stick. But to do that you do not need to be a big country or state.

Another pressing reason has been world trade. For example the British Empire grew up largely out of the need to protect traders, their routes and their markets. Now we have the World Trade Organisation, the heir to the General Agreement on Tariffs and Trade, under whose auspices the last Uruguay Round produced tougher controls on non-tariff barriers like anti-dumping, reduced agricultural protection and began the opening up of services trade. Under the WTO small countries have the same legal rights of market access as big ones; and the Cairns Group of around a hundred countries, led by Australia, showed that you could exert bargaining power to free agricultural trade without being a super-state. NAFTA and the EU are also regional arrangements for bargaining (with regional protection thrown in too but at great cost to their citizens). So the state is now redundant for trade too.

States also provide infrastructure and other shared ('public') goods like health services, education and welfare. But in the absence of other reasons why regions should link in a state the solidarity necessary to get the richer regions to pay for the poorer ones is absent too.

Globalisation, with its impoverishment of the unskilled, is also forcing regions apart. Social Democratic peoples want their regional government to enforce a sharing culture of social protection and redistribution; others, mainly Anglo-Saxon, prefer the flexibility of free markets and to help victims of change to adjust.

And it is no good appealing to currency as a reason for a large state. Yes, to have a currency you need a coterminous state to ease all the adjustment problems of your regions. But any state can have its own currency at fairly minimal cost- and we have recently had numerous examples to prove it, from the Ukraine through to Ireland.

Does this logic lead to a united Europe composed of contented, stateless regions? Alas for Brussels it is as vulnerable as the states it seeks to replace. Both its regions and its states need the EU at most as a coordinating mechanism for those routine matters the world market cannot do or as part of an alliance in world trade negotiations. Both of them will resist EU attempts to arrogate more power. We are now seeing this finally in Germany which under Herr Kohl always said yes; it is now saying no, and for a start 'wants its money back', British-style. The rich North of the EU is balking more and more at subsidies to the rest. Enlargement will only occur if it is cheap. Even the single market is coming under question; free trade under competing regulative systems would be more enriching.

The members of the EU will, like their regions, have increasing choice in a world where barriers are tumbling because consumers are better off without them and impatient of the attempt to restrict them. Yes, the UK could indeed join Conrad Black's NAFTA if the EU became Fortress Europe. Or it could go it alone in the global marketplace. The world is a-changing and increasingly it is the EU that is out of step.

Patrick Minford is professor of economics at Cardiff Business School and visiting professor at Liverpool University.
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