Navigating scarcity and scale: The case for mixed economy systems in small Island developing states over centralized socialism

Abstract

Small Island Developing States (SIDS) face unique economic constraints including limited resources, small domestic markets, high import dependency, and acute vulnerability to external shocks. This paper examines the debate between Centralized Socialism and Mixed Economy systems as development strategies for SIDS, using Seychelles as the primary case study. Framed by Institutional Theory, Resource Dependence Theory, and Self-Determination Theory, the study argues that a "strategic mixed economy" offers a more effective framework for SIDS compared to centralized state control. The paper traces Seychelles’ experience from 1977-1991 under centralized socialism to the post-1991 liberalization period, analysing outcomes in terms of resource allocation efficiency, innovation, fiscal sustainability, and citizen welfare. Findings indicate that while centralized socialism achieved early equity gains, it resulted in low productivity, shortages, and brain drain due to the suppression of market incentives. Conversely, the mixed economy model enabled tourism growth, foreign investment, and improved living standards, provided the state maintained strong regulatory and social protection functions. The study concludes that SIDS require market mechanisms for efficiency and entrepreneurship, combined with active state intervention to correct market failures, provide public goods, and ensure social equity. Policy implications include the need for transparent governance, targeted social safety nets, and institutional capacity building to manage the complexities of a mixed economy in small states.