Suppose I proposed the following theory of economic development:
The root cause of economic development is social capacity. Highly-developed societies have immense social capacity, as evidenced by their countless achievements. Backwards societies lack social capacity, as evidenced by their countless problems.
You’d probably be unimpressed. At first glance, this is a circular theory that explains nothing: Why are things so good in X? Because X has great social capacity. How do we know X has great social capacity? Because things are so good in X!
On closer consideration, though, the social capacity theory is not utterly empty. It makes one grand empirical prediction: Good social outcomes correlate. Income, wealth, happiness, health, culture, entertainment, leisure, and safety will all go together. And in point of fact, this prediction is true: Good social outcomes do tend to go together. Saying, “Society X has good health because it has high social capacity” is comparable to, “Person A is good at learning math because he has a high IQ.” In both cases, we legitimately use good general outcomes to predict good specific outcomes.
Still, using social capacity to explain the world seems deeply unsatisfying, for two main reasons:
First, informed observers are already well-aware that good outcomes correlate. A conceptual framework that predicts the standard findings is better than nothing, but it’s hardly a triumph of the human intellect.
Second, once you understand the concept of social capacity, you can immediately articulate an obvious critique: “The question we really care about is not whether social capacity varies widely between countries, but why!”
Why bring this up? In recent years, many social scientists – including several of my colleagues – have fallen in love with the concept of “state capacity.” GMU economic historians Noel Johnson and Mark Koyama provide a nice overview in Explorations in Economic History:
State capacity describes the ability of a state to collect taxes, enforce law and order, and provide public goods…
State capacity can be thought of as comprising two components. First, a high capacity state must be able to enforce its rules across the entirety of the territory it claims to rule (legal capacity). Second, it has to be able to garner enough tax revenues from the economy to implement its policies (fiscal capacity). State capacity then should be distinguished from either the size or the scope of the state. A state with a bloated and inefficient public sector may be comparatively ineffective at implementing policies and raising tax revenues. Furthermore, historians agree that the eighteenth century British state had high state capacity even though it played a very limited role in the economy. Similarly, state capacity requires a degree of political and legal centralization, but it should not be identified with political centralization per se. The rulers of feudal society in which many legal and fiscal choices were devolved to local lords indeed had low state capacity. But the concentration of political authority in the center may cause inefficiencies and thereby undermine state capacity…
This seems like a fine description of what state capacity researchers think they’ve discovered. But I reject Johnson and Koyama’s approving tone. Read them closely. You can’t measure “state capacity” by the size or scope of government; that’s a no-no. If the public sector is “bloated and inefficient,” that’s not high state capacity either. Concentration of political authority is causing inefficiencies? Well, you just undermined state capacity in the process of trying to increase it! To my mind, this is scarcely better than saying, “Good government is good; bad government is bad.”
Matters would be different, admittedly, if the state capacity literature showed that good government is the crucial ingredient required for success. But researchers rarely even try to show this. Instead, they look at various societies and say, “Look at how well-run the governments in successful countries are – and look at how poorly-run the governments in unsuccessful countries are.” The casual causal insinuation is palpable.
More careful researchers, to be fair, make the extra effort to try to explain the origins of state capacity. Johnson and Koyama name “state antiquity,” “culture,” and “civil society.” But at this point, why not just ditch your premature focus on “state capacity” in favor of an open-minded exploration of social capacity? Good government might be the crucial ingredient for success. But maybe good government is a byproduct of wealth, trust, intelligence, freedom, or some cocktail thereof. Or maybe there’s a complex feedback loop. We can readily verify that all these good things tend to go together. Untangling that tangled causal web of success, in contrast, is a labor of Hercules.
If I’m right, why has “state capacity” become such a fashionable explanatory concept despite its pervasive conceptual weaknesses? Here’s a short list of stories.
1. One simple theory of development gives overwhelming credit to government. But a theory this simple is open to devastating counter-examples. “State capacity” has the same psychological appeal without this empirical vulnerability. Why not? Because while we can observe states, we can only infer their “capacity.” Thus, anytime government leads to disaster, you can say, “Too bad they didn’t have higher state capacity.” Anytime government leads to good results, in contrast, you can say, “Hooray for state capacity!”
2. “State capacity” sounds a lot less tautological than “social capacity,” even though the latter concept is much cleaner. “State capacity causes social success” sounds profound. “Social capacity causes social success” – not so much.
3. “State capacity” splits the ideological difference between libertarians and statists – and thereby appeals to a broad academic spectrum. State-sympathizers can emphasize the wonder of government. State-skeptics can emphasize the danger of badly-run government.
4. Don’t forget sheer faddishness. Academia’s full of it.
I freely admit that the state capacity literature has much to teach us. But that’s largely despite its conceptual framework – not because of it. Readers must constantly guard against intellectual sleight of hand that pervades this research. While good social outcomes all tend to go together, the state capacity literature fails to show that government is the crucial factor that makes all the others possible. Indeed, as far as I can tell, existing empirics are quite consistent with Sutton’s Law that people rob banks because “that’s where the money is.” Perhaps rich societies have big governments because it takes a colossal host to sustain colossal parasitism. Think of San Francisco or New York City before you scoff!
READER COMMENTS
Mr. Econotarian
Jun 5 2018 at 5:26pm
My big question is why do countries with low levels of economic freedom have…low levels of economic freedom.
It does seem that different cultures have different levels of acceptance of economic freedom (go to San Francisco, for instance!). However I really wonder whether that culture is being truly reflected in the political/legal outcome, or if there are other mechanisms at work.
Highly regulated economies are always ripe for corruption, as you have to pay bribes to do “business as usual”, thus the political selectorate might either consciously or unconsciously drive over-regulation.
If I were independently wealthy, I’d travel the world doing a documentary on the status and causes of economic freedom and lack thereof.
Philo
Jun 5 2018 at 7:48pm
The distinction between ability and willingness is useful in application to individual people, although even there it is often not clear-cut. (Bryan has recently written about the difficulty of applying it to addicts.) It is quite a bit harder yet to apply the distinction to collective entities such as governments, to which our psychological vocabulary applies only metaphorically. When a government is not doing something, is that because it lacks the ability (or power), or because it lacks the will (or desire)? To apply the concept of “state capacity” we must be able to answer such questions definitively, but often we cannot do this.
For example, why does the U.S. government not enforce its rules against the sale and use of various drugs to a greater degree–is it from lack of power (the first, “legal,” component of “state capacity”) or lack of will? Some of the more enthusiastic drug warriors, e.g., Jeff Sessions, have plenty of extra will for enforcement, but they are only part of the government; maybe *as a whole* the government is unwilling (though able) to do more. But the will of the government is like Rousseau’s “General Will”: it is quite obscure how we are to identify it.
As for the second, “fiscal,” component of “state capacity,” which seems to be the power of the government to raise revenue (in the long run?), this will be very strongly positively correlated with the wealth of the nation. (But do Johnson and Koyama mean this power not *absolutely* but rather *relatively to the policies that the government is trying to implement*? In that case, the less the government was trying to do, the greater would be its “fiscal capacity.”)
Cameron
Jun 5 2018 at 10:52pm
how do you think immigration can play a role in the “social capacity” of a developing state? Should developing state offer greater incentives to promote high-skill immigration? Do you think countries could follow the Pareto Principle as well due to good outcomes correlating? How should developing countries fight an uphill battle if they lack social capacity?
Daniel Klein
Jun 6 2018 at 2:48am
This post is tremendous.
I mostly agree with it.
Erik Matson and I have completed a paper, hope to have it online soon, on liberty in David Hume. It pays special attention to Hume’s History of England. Mark and Noel would presumably say that Hume narrates England’s development of state capacity. But I share Bryan’s reservations about putting it that way. On the other hand, there are elements of the story, as Erik and I tell it, that I think Mark and Noel would agree with, and that will rub Bryan’s niche-libertarianism the wrong way.
Bryan quotes Mark and Noel including “enforce law and order” in their definition of state capacity. Sometimes “rule of law” and “general rules” are named as a feature of state capacity (Mark and Noel do so in their paper). But if we excavate “law and order” and “rule of law” we find that such concepts interpenetrate Hume’s natural conventions of commutative justice and its flipside, liberty. Bryan is right to say that “state capacity” accommodates a certain liberal strain of thought.
Again, a tremendous post.
Daniel Klein
Jun 7 2018 at 4:12am
In my comment immediately above I referred to a paper by Erik Matson and me. Now it’s online here at SSRN.
Quite Likely
Jun 8 2018 at 2:38pm
“1. One simple theory of development gives overwhelming credit to government. But a theory this simple is open to devastating counter-examples like Stalinist Russia and Maoist China. “State capacity” has the same psychological appeal without this empirical vulnerability. Why not? Because while we can observe states, we can only infer their “capacity.” Thus, anytime government leads to disaster, you can say, “Too bad they didn’t have higher state capacity.” Anytime government leads to good results, in contrast, you can say, “Hooray for state capacity!””
Hmm this makes me think there is a decent sized distinction between “state capacity” and “good outcomes” in the form of high capacity states doing bad things. Nazi Germany probably would score pretty high on “state capacity” metrics, the issue is what they did with that capacity.
To me the main contribution of the state capacity discourse is just to point out “state ability to actually do things” as an important metric we should be thinking about to understand conditions in different times and places, alongside or instead of the simplistic “size of the state” metric that gets so much attention.
Daniel Klein
Jun 9 2018 at 6:42am
The term state capacity seems to bespeak of a variable that posits a “state” and then gauges its capaciousness, ranging from low capaciousness to high capaciousness.
But does that very ranging relate to the actuality of the very thing posited, a “state”?
Places in historical context said to feature “low state capacity” might be so described, not so much because they are states of low capaciousness, but because they are low on a different scale: that of nation-state-ness: They are relatively low on the composite of features that we would say define nation-state.
The point relates to the “sleight of hand” issues that Bryan raises. When economic historians use “state capacity” as an explanation, is it the state-ness or the capaciousness or some combination that accounts for the explanandum? If it is the state-ness, then Bryan’s point about invoking something very general (he spoke of “social capacity”) especially has great force.
Bryan’s connection to Willie Sutton is brilliant. Are we trying to understand why people rob banks? Or, Why people rob banks? Similarly, is the “state capacity” explanation one of state capacity or of state capacity?
SaveyourSelf
Jun 12 2018 at 12:38pm
This is a devastating critique. Well done, Bryan.
J
Jun 22 2018 at 5:19am
State capacity is simply war making capacity. Nazi Germany has impressive technical and military capabilities, yet the Soviet Union was able to mobilize the people, tax them to famine and arm them to win. That is the ultimate test of State Capacity. On the other extreme, there are States that barely exist as such, although they have the vote in the UN general assembly.
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