On Top Of The World: Explaining The Statistical Success Of Modern City States

According to the United Nations, the richest 10 countries in the world, as measured by GDP per capita, are Liechtenstein, Monaco, Luxembourg, Bermuda, Switzerland, Macau, Norway, Qatar, the Cayman Islands, and Ireland. Half of those countries are city states.

Modern city states outperform their larger neighbors when it comes to nearly every metric: murder rate, HDI, educational achievement, life expectancy, and happiness. This is quite remarkable, especially considering the how few city states there currently are.

So why are city states so secure, healthy, and wealthy?

Statistical Artifacts

To a certain degree, the numerical prosperity of city states comes down to statistical artifacts.

When any sample size is lower, it is easier for odd patterns to emerge. For example, when Bill Gates walks into a room, the average wealth increases dramatically. When Bill Gates lands in a big country like the United Kingdom, the average wealth changes very little.

A city with no murders in a given year has a murder rate of zero, which is infinitely better than a city with a single murder. In reality, both cities might be extremely safe, but the smaller city with no murders appears to be much safer.

However if statistical artifacts were the only cause at play, one would expect city states to cluster towards both extremes - they would not only appear to be very safe and rich, but also appear to be very poor and dangerous. Also, the outperformance of city states if far too consistent for it to be purely written off as statistical artifacts. Finally, city states do better in areas with aggregate metrics like HDI which are less susceptible to anomalies.

City States are Easier to Manage

The most intuitive explanation of a city state’s success is that they are easier to manage. During my time in Singapore, I would often ask people why their city was so successful. Everyone told me the same answer: Singapore is small and easy to manage.

The smaller the city state, the more localized politicians become. There is less political intrigue, less factions to deal with, and there are fewer special interests. If the city is small enough, then everyone knows everyone else, and there is a high trust society. Decision makers cannot hide behind the veil of anonymity, and can be held accountable by their peers.

In large countries, political conflicts usually have a geographical component. For example, in the United States, conservatives cluster in the countryside, and liberals cluster in cities. Similar patterns are true everywhere from Europe to Russia to China. City states never have these issues, as the geo-electoral composition is always homogenous.

With smaller geographical size, everything is easier. There is only one power grid. There is only one water grid. Fighting crime becomes a simple matter of keeping criminals away from the city. Roads are short and easy to maintain. Public transportation becomes much simpler.

Small polities are easier to manage.

Constrained Policies

The most important factor in the success of city states comes from the types of policies they implement. City states are generally innovative and forward looking. This isn’t due to superior insight, but rather because the constraints placed on politicians are greater.

For example, a large country like the United States might be tempted to implement protectionist policies to prevent off-shoring of domestic jobs. These might include tariffs, export bans, and made in America subsidies. Protectionism forces consumers to use domestic goods, but increases prices, reducing overall economic efficiency. City states are always more dependent on exports: they never have all the natural and agricultural that they need. If a city state attempts protectionism, everyone starves overnight. For this reason, all city states have strong free trade policies.

It is harder for city states to go into large amounts of debt, and the day of reckoning is more immediate. Instead of focusing on long term debt programs, politicians are forced to think in the moment using the resources that they have. They must maintain balanced budgets, and stay out of debt.

Many commentators have complained that city states serve as tax havens. It is true that they generally tend to have low taxes, but that is because the politicians have no other choice in order to survive. Businesses have very few reasons to operate in a city state, so politicians have to compete with efficient taxes and a streamlined regulatory system.

Conclusion

There is a myriad of factors which contributes to the statistical success of city states. Although there are reasons to doubt the degree of optimism reflected by the numbers, anyone who has traveled to the modern city states can see that they are among the richest and most stable places on earth.