Cooperation Emerging: Institutional Diversity and the History of the West

|Peter Boettke|

Tyler Cowen linked to this economic job market paper by Raul Sanchez de la Sierra (Columbia University).  And indeed it is an interesting project, and I strong agree this sort of reeach should be encouraged in our discipline (including the field work) even though the interpretation of the theoretical importance and the historical evidence on the importance of centralized states for economic growth and development is more contested than appreciated.  Can someone tell me when the idea of fractured and decentralized states competing with one another resulting in the "European miracle" was replaced by centralized and formal state capacity theories of economic growth and development?  Was there a memo to stop reading Eric Jones and Nathan Rosenberg respective discussions of the birth of modern economic growth that I didn't receive?  Some evidence that suggests that the earlier theories about "how the west grew rich" were overturned?  People certainly are reading a lot of Charles Tilly (and that is a good thing), but Jones and Rosenberg should be on that list.

States capacity is required for tax collection, but the emergence of property rights and their enforcement predate both the formal state and the establshment of a taxing authority.  Tyler gives a nod to Franz Oppenheimer in his link --- Oppenheimer's The State was a classic discussion of the conquest origins of formal government.  The state is violence, the state is war.  At least that is one way to put it.  But does that conquest theory of the origins of the state undermine or support the state as essential for modern economic growth hypothesis?

An alternative hypothesis is that rules that enable individuals and groups to realize the gains from social cooperation under the division of labor can arise outside of the formal apparatus of the state, and be supported through a diversity of institutional arrangements.  I already linked to my close colleague Dragos Paul Aligica's new book on Institutional Diversity and Political Economy, but today I was pointed to (ht: Angel Martin) to a new project among younger scholars in Europe focusing on the question of institutional design and institutional diversity influenced by Douglass North, Avner  Greif, and Elinor Ostrom.

Many years ago I edited a volume for NYU Press, The Collapse of Development Planning (1994), which includes some fantastic essays contrasting the decentralized and diverse institutional path to development in Europe, with the centralized and orchestrated efforts to construct development in India, Asia, Latin America, and Africa.  Though the book was published in paperback and widely available at that time, it has since seemingly disappeared from the world of ideas.  But while that particular book failed to leave the impression desired when it was conceived, there have been a variety of efforts to assess the ideas of top down versus bottom up development (think Easterly) as well as the economic role of the state in human affairs (think pretty much everything that Ed Stringham or Peter Leeson has written over the past decade).  Development with, or without, the state is a major theme of our working group in comparative political economy at GMU, see, e.g., the special issue of the RAE 25 (1) 2012 on James Scott's The Art of Not Being Governed.

Comments

[Mark Lutter]

I don't think state capacity and competition between states are mutually exclusive. During the middle ages there existed growth inhibiting organizations and institutions other than the state, guilds for example. State capacity essentially ensured sufficient power to stop local barriers to trade.

Another aspect in which state capacity could lead to economic growth requires thinking about optimal tax theory. Certain types of taxation inhibit growth more than others. Increasing state capacity allowed the state to collect taxes using distortionary mechanisms.

[Curtd]

@Mark Lutter

The way to articulate and therefore understand these abstract processes is to refer to their causes not effects: free-riding and rent seeking.

The statement "State capacity essentially ensured sufficient power to stop local barriers to trade" is correct, but would be causally articulated as the state forced the centralization of rent seeking.

This is the same purpose that the federal governments provides: negotiation of terms for access to markets. In other words, they force market prices to be free of rent seeking. The question is whether the multiplier from central rent seeking or the multiplier from distributed rent seeking is superior. I think that's very hard to prove. In fact, all we can prove is that the state centralizes rent seeking. I don't think we can prove that there is much benefit to the centralization of rent seeking. It appears only that stability in rent seeking is superior to volatility in rent seeking, because stability in rent seeking forces all individuals to compete in the market now that the capacity to seek rents is put at a distance. Conversely, the concentration of rents creates a rental economy that generates rent-based wealth. (Washington DC). But there isn't any evidence that rent based wealth has an particular value to a society other than generating wealthy consumers. The entire problem remains the same: how to force out rent seeking and free riding such that all individuals are participating in the market for goods and services.

This is the necessary foundation for any economy, and the necessary foundation of property rights: property rights are a prohibition on rents and free riding, forced from the family to the individual, as rents and free riding are forced upward into the state at the expense of the family.

If you grasp that this is what is being done, then you will grasp the causal nature, not the descriptive nature, of the process of developing states.

[Curtd]

@PeterB

"Can someone tell me when the idea of fractured and decentralized states competing with one another resulting in the "European miracle" was replaced by centralized and formal state capacity theories of economic growth and development?"

(a) Napoleon and total war necessitated german consolidation.
(b) World communism and marxism
(c) Keynes, Unemployment and Credit Capacity
(d) Democratic socialism and intergenerational redistribution
(e) Post Communist state Corporatism (China) and modernization.