THE BLOG
09/09/2014 05:28 pm ET Updated Nov 09, 2014

Proudly Small

By Johannes Berchtold

When Barack Obama lamented the "smallness of our politics" in his 2007 campaign, what he had in mind was the lowland of pure self-interest and the petty squabbling of party politics. And although he was right that smallness in this sense is something to be overcome, he -- like every other politician -- was unable to present any alternative, other than to think big. His were the big scenarios, the radical changes in the American social order, the grand schemes for the betterment of the people. He was elected on the notion that in politics you have to think big. He only could fail.

Obama's example is highly instructive. First, because the problems we are facing today are often of an overwhelming magnitude, many believe that any solution must be presented in equally big terms. Second, thinking big attracts people and makes them vote, whereas thinking in smaller terms seems to show a lack of ambition and vision. Third, small might be beautiful, but in the end size seems to matter most. In human history, the pursuit of volume and expansion is as dominant as the desire for greatness. Both in politics and in the private sector, there is often little trust in small entities to handle big problems.

However, there is a strong argument for cherishing the small and for raising awareness about the fact that small is not only pretty, but a force for good in the world. Looking at the political system, policies are more often approved when citizens are closely involved in the decision-making process. They are also much easier to craft and implement. On the level of nation states, we see a string of prosperous small countries across the world benefiting from a global economy that offers them multiple opportunities. Though often marginalized politically, small states lead the global rankings in categories ranging from competitiveness and innovation to per-capita wealth. It can pay off nicely to be small.

Finally, the private sector offers a wide range of examples of the effectiveness of small entities. Small companies make a huge cumulative contribution to GDP, while start-ups sow the seeds for what might become the next big idea. Large corporations, in turn, have come up with various business models that try to build collaborative internal organisations and capitalise on distributed forms of leadership.

There is, evidently, a case for the small. The 45th St. Gallen Symposium (7-8 May 2015) will take up the theme and will put its debates under the headline of "Proudly Small." An affection for modest ideas seems to be almost fashionable today, as shown in the symposium's first cluster, "The human scale." The second cluster, "In praise of small entities" looks at the benefits that arise when dealing with problems where they occur and matter most. The third cluster, "When small and big correlate," emphasizes the fact that small always has to be seen in relation to big.

The human scale

A vague feeling has become apparent in most societies that the modern way of life has overstepped its mark and lost touch with the human scale. In reaction, an almost romantic preference for small over big has penetrated many areas of society. Discomfort with the global economy has been a defining feature of modern life since the Industrial Age, and gradually work and life conditions have become incomprehensible to people. It is no surprise that we see today again a strong advocacy for the small world. Farmers' markets and local craftsmanship are en vogue, as are small producers of renewable energy. Local business, too, is fashionable, with its appearance of greater accountability compared to multinationals. Buying from small businesses conveys a rare feeling of participating in an economy within our control.

There is no question that the gigantic consequences of the financial crisis have fueled skepticism regarding the global economy and the trustworthiness of its key players. But go back 70 years, to the post-war era, and you will see the theoretical groundwork for small already being laid by influential economists such as Leopold Kohr and E.F. Schumacher. They analyzed the critical mass that is inherent to every organizational structure. Only small entities, they found, can be governed democratically. And smaller companies are economically competitive and innovative, since they can fail without much effect on the rest of the world.

But in the decades since, the pendulum has swung in the other direction. Large single markets frame global trade, capital flows easily across borders and the world is turning into one vast labour market. Urbanization has sucked the remaining bits of simple rural life into the maelstrom of big city life. We have parted from the idea to go back to the human scale once again. But we cannot ignore the effects of a world that lacks any sense of proportion, any sense of the small. There is an area of conflict between a world where things have grown big and overwhelming and a world that is longing for clarity and small scale.

In praise of small entities

It has always been a challenge to be small, whether you are a cultural or ethnic community, a political district, a small company, a business unit or a state. But strengths that develop into unbeatable advantages are born out of precisely such fragility. With small size comes strategic agility, the ability to adjust and adapt quickly when times change. There is also intellectual openness, and the curiosity so distinctive to small entities, which are often laboratories for new ideas and innovations and are back on their feet quickly should they fail.

Small political units have proven to be very effective at finding suitable solutions and legitimizing decisions and leaders. Federalism and similar forms of devolution systematically favor the smallest entity. Political participation is strongest when the environment is comprehensive and manageable and the relations are built on trust. This is no makeshift solution -- on the contrary. It stems from the awareness that in large structures, the smallest entity often can make the biggest contribution to the overall good. Small entities do not necessarily need to cooperate in order to be strong: As in biology, cell division can be a more promising way.

Small states, for their part, are well suited to weather crises and, thanks to low transaction costs, they can adapt their structures, institutions and strategies to changing circumstances with more ease than the super-tankers that steer the global economy. Interestingly, although generally without leverage on the global stage, small states rarely cooperate among each other outside their geographical neighborhood. Small state cooperation like the "Tomonwealth" idea developed by the St. Gallen Symposium's think-tank laboratory "TOM-LAB" has, therefore, to be given special consideration.

When it comes to the business world, small units and lean organizations matter a great deal as well. Not only do SMEs make up the biggest chunk of the global workforce, they also drive innovation and progress. On a management level, there have been multiple attempts to deal with the fact that firms have become truly global but still rely on a physical local presence and a workforce that looks for differentiation rather than homogenization. It is worth looking closely at how companies have organized themselves in order to give responsibility to small units and to profit from their very own cell division.

When small and big correlate

Let us not confuse ourselves in praising the small. Modest size imposes limits that have to be confronted. Only then will the true benefits and opportunities of being small come to light. Small has always been a relative term: The actual strengths of small companies and countries are relative to the challenges and threats they are exposed to. Being small can be a harsh fate when faced with a mighty aggressor. But the small can also flourish comfortably in a game created by bigger players.

The strong position of small states today is an obvious example of the symbiotic relationship between small and big. In the past, small states had the disadvantage of both being insecure against outside threats and an insufficiently large domestic market. Today, political boundaries no longer determine the size of the market. Free trade has deeply integrated small states into the world economy. Agility and leanness, paired with vast global markets, have let small economies blossom from Norway to New Zealand. However, free trade remains a framework that has not been created by small players. Nor can they do much to alter the rules of the game. They rely substantially on the interests of larger economies, as evidenced by the stalled WTO negotiations. Small states might be good at building networks, but in the end the hierarchies in the global power play dictate the rhythm.

The same is true in the private sector, where small players only fully unlock their potential in concert with bigger players. The success of small businesses is often directly linked to that of larger corporations, inasmuch as small businesses are critical to larger manufacturers' supply. Furthermore, large firms often lose their edge over time and can only make up for their empty product pipeline by joining forces with smaller but more innovative companies. That is just one example of how financial partnerships between SMEs and big corporations could benefit both sides, bringing new products to market while providing funds to small companies and creating jobs.

"Proudly Small" will be discussed at the 45th St. Gallen Symposium, held from 7-8 May 2015 in Switzerland. Students who currently study at graduate or postgraduate level are invited to compete for participation here.