Thanks to their limited demographic scale, efficient stakeholder networks, and streamlined administrative systems, small states can often implement strategic changes rapidly, making them well-suited to thrive in a rapidly changing global economy. This represents an ideal opportunity for global investors.
BONAIRE, CARIBBEAN NETHERLANDS – In a fast-changing global economy, one development warrants particular attention: the emergence of small states as significant economic actors. And now this challenge to traditional growth paradigms is poised to reshape the global investment landscape.
According to research by the BIG Ideas Foundation, 17 of the world’s top 20 economies by per capita GDP are small states, with populations of 10-12 million or less. Spanning all geographic regions, these states have diverse histories, social structures, and governance models. But they share three fundamental strengths: institutional agility, manageable demographic scale, and quality leadership.
In times of rapid systemic transformation, adaptability is more important than size. In fact, being too big can often be an encumbrance rather than an advantage in such periods. This is true in the natural world as well: periods of dramatic environmental change often favor smaller, more adaptable species. Marsupials, flightless birds, and resilient insects (such as cockroaches) have survived major extinction events that wiped out larger species, such as dinosaurs.
The success of small states in today’s global economy reflects the same principle. Efficient stakeholder networks and streamlined administrative systems, together with effective leadership, enable small states to implement strategic changes rapidly and agilely capitalize on opportunities and address challenges.
These structural advantages become increasingly relevant as global change accelerates, because they enable small states to adapt their economies quickly in response to new external realities. For example, they might decide to develop their profiles as global financial centers, embrace digital governance, invest in artificial intelligence, or foster entertainment hubs. Whichever vision they choose, their manageable scale means that they can implement it holistically.
Small states excel at cultivating economic niches. Rather than competing across all sectors, successful small states identify specific domains where they can build lasting competitive advantages. This specialization strategy has proved particularly effective in knowledge-intensive sectors, such as microchips, where the concentration of expertise generates self-reinforcing ecosystem benefits.
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The agility of small states also translates into regulatory excellence. Unlike their larger counterparts, small states can adjust and even overhaul their regulatory frameworks within months. This enables them to respond to new technologies and business models in a timely manner, creating attractive conditions for emerging industries, such as financial technology, digital assets, and AI.
Given these advantages, small states offer attractive investment opportunities. But individual countries may lack sufficient scale to make a meaningful impact on investors’ portfolios. By integrating these agile economies into a unified investment framework, however, we can unlock opportunities for considerable returns, leverage scalable innovation systems, and create robust hedges against market uncertainty.
Again, the natural world offers a guide. Rather than operate independently, smaller organisms tend to form dynamic collectives to overcome size-related limitations. For example, schools of smaller fish form “bait balls,” moving together to evade predators. Likewise, starling murmurations enable individuals to keep warm, exchange information, and avoid becoming easy targets for predators.
Of course, small states are hardly as homogenous as starlings. On the contrary, they have a broad range of interests, capabilities, and levels of development. This variety offers important benefits, not least portfolio diversification. But it also complicates the creation of a small-state asset class. Past experience establishing asset classes with diverse constituents can offer useful lessons. For example, the creation of the emerging-markets asset class showed that heterogenous countries can be included in a single aggregate, and indices, funds, and institutions that comprise the investment ecosystem can be sector- and region-specific.
Innovative financial structures, including blended finance and first-loss provisions, can support the introduction of a small-state asset class. A dedicated “Small States Investment and Credit Guarantee Facility” could strengthen the class’s appeal, including by managing risk exposure of the most vulnerable states when they are grouped with lower-risk peers.
Formal recognition of the small-state asset class will catalyze interest from investors. Small-state family offices – entities established by wealthy families to provide wealth-management and other services, such as estate planning, to their members – can play a particularly important role in driving the asset class’s development. With their diverse interests and long-term perspectives, a few leading families can often transform an investment ecosystem. When such families find common purpose across regions, the systemic impact is profound.
The emergence of a small-state asset class is not only possible; it is increasingly likely, as the changing dynamics of the global economy alters our understanding of competitive advantages. As existing systems are disrupted, owing not least to accelerating technological innovation, the natural advantages of agile small states have become impossible to ignore. For investors, this implies a golden opportunity to capture significant value while bolstering global economic resilience and agile innovation. Those who lead the way stand to reap the greatest rewards.
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BONAIRE, CARIBBEAN NETHERLANDS – In a fast-changing global economy, one development warrants particular attention: the emergence of small states as significant economic actors. And now this challenge to traditional growth paradigms is poised to reshape the global investment landscape.
According to research by the BIG Ideas Foundation, 17 of the world’s top 20 economies by per capita GDP are small states, with populations of 10-12 million or less. Spanning all geographic regions, these states have diverse histories, social structures, and governance models. But they share three fundamental strengths: institutional agility, manageable demographic scale, and quality leadership.
In times of rapid systemic transformation, adaptability is more important than size. In fact, being too big can often be an encumbrance rather than an advantage in such periods. This is true in the natural world as well: periods of dramatic environmental change often favor smaller, more adaptable species. Marsupials, flightless birds, and resilient insects (such as cockroaches) have survived major extinction events that wiped out larger species, such as dinosaurs.
The success of small states in today’s global economy reflects the same principle. Efficient stakeholder networks and streamlined administrative systems, together with effective leadership, enable small states to implement strategic changes rapidly and agilely capitalize on opportunities and address challenges.
These structural advantages become increasingly relevant as global change accelerates, because they enable small states to adapt their economies quickly in response to new external realities. For example, they might decide to develop their profiles as global financial centers, embrace digital governance, invest in artificial intelligence, or foster entertainment hubs. Whichever vision they choose, their manageable scale means that they can implement it holistically.
Small states excel at cultivating economic niches. Rather than competing across all sectors, successful small states identify specific domains where they can build lasting competitive advantages. This specialization strategy has proved particularly effective in knowledge-intensive sectors, such as microchips, where the concentration of expertise generates self-reinforcing ecosystem benefits.
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At a time of escalating global turmoil, there is an urgent need for incisive, informed analysis of the issues and questions driving the news – just what PS has always provided.
Subscribe to Digital or Digital Plus now to secure your discount.
Subscribe Now
The agility of small states also translates into regulatory excellence. Unlike their larger counterparts, small states can adjust and even overhaul their regulatory frameworks within months. This enables them to respond to new technologies and business models in a timely manner, creating attractive conditions for emerging industries, such as financial technology, digital assets, and AI.
Given these advantages, small states offer attractive investment opportunities. But individual countries may lack sufficient scale to make a meaningful impact on investors’ portfolios. By integrating these agile economies into a unified investment framework, however, we can unlock opportunities for considerable returns, leverage scalable innovation systems, and create robust hedges against market uncertainty.
Again, the natural world offers a guide. Rather than operate independently, smaller organisms tend to form dynamic collectives to overcome size-related limitations. For example, schools of smaller fish form “bait balls,” moving together to evade predators. Likewise, starling murmurations enable individuals to keep warm, exchange information, and avoid becoming easy targets for predators.
Of course, small states are hardly as homogenous as starlings. On the contrary, they have a broad range of interests, capabilities, and levels of development. This variety offers important benefits, not least portfolio diversification. But it also complicates the creation of a small-state asset class. Past experience establishing asset classes with diverse constituents can offer useful lessons. For example, the creation of the emerging-markets asset class showed that heterogenous countries can be included in a single aggregate, and indices, funds, and institutions that comprise the investment ecosystem can be sector- and region-specific.
Innovative financial structures, including blended finance and first-loss provisions, can support the introduction of a small-state asset class. A dedicated “Small States Investment and Credit Guarantee Facility” could strengthen the class’s appeal, including by managing risk exposure of the most vulnerable states when they are grouped with lower-risk peers.
Formal recognition of the small-state asset class will catalyze interest from investors. Small-state family offices – entities established by wealthy families to provide wealth-management and other services, such as estate planning, to their members – can play a particularly important role in driving the asset class’s development. With their diverse interests and long-term perspectives, a few leading families can often transform an investment ecosystem. When such families find common purpose across regions, the systemic impact is profound.
The emergence of a small-state asset class is not only possible; it is increasingly likely, as the changing dynamics of the global economy alters our understanding of competitive advantages. As existing systems are disrupted, owing not least to accelerating technological innovation, the natural advantages of agile small states have become impossible to ignore. For investors, this implies a golden opportunity to capture significant value while bolstering global economic resilience and agile innovation. Those who lead the way stand to reap the greatest rewards.