Some Big Ideas from Small Countries

Many small countries on the periphery have experimented with policies and institutions that could usefully be adopted by others. Two decades ago, many thought the lesson of the 1980s had been that Japan’s variant of capitalism was the best model, that other countries around the world should and would follow it. The Japanese model quickly lost its lustre in the 1990s. One decade ago, many thought that the lesson of the 1990s had been that the US variant of capitalism was the best model, that other countries should and would follow. The American model in turn lost its attractiveness in the decade of the 2000s. Where should countries look for a model, now? Many small countries on the periphery have experimented with policies and institutions that could usefully be adopted by others. A panoply of innovations has helped Chile to outperform its South American neighbors. Chile’s fiscal institutions – structural budget balance with the parameters estimated by independent expert panels — insure a countercyclical budget. They are among the mechanisms that are particularly worthy of emulation by other commodity exporting countries, to defeat the Natural Resource Curse.