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This paper of mine is now available online in Constitutional Political Economy. It empirically investigates competing theories of how fiscal federalism constrains government. The main conclusion is that different federal systems conform roughly to different theoretical models, with the U.S. – a bit surprisingly – coming closest to “market-preserving federalism.” Some of the early findings from this paper were blogged here at Pileus some time ago.

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“The state,” wrote sociologist Max Weber, “is a relation of men dominating men.” I agree. Furthermore, no human being should dominate another human being. Therefore, the state should not exist.

But I’m not an anarchist. How can that be? We have to distinguish between “governments” and “states.” Anarchy is the absence of formal government, and I do not advocate the abolition of formal government.

Governments of all sorts are all around us. Companies and nonprofits have boards of directors with the authority to decide policies for their organizations.

“Very well,” the anarchist may say, “but they do not have direct coercive authority over their members, which is what I oppose.” Yet other “private governments” do have coercive authority of some kind: private security and arbitration companies.

“Very well,” the anarchist may say, “but they do not have a territorial monopoly over the legitimation of the use of coercion, which is what I oppose.” Yet any kind of supposedly private security and dispute resolution system will end up having a territorial basis. Imagine that, per David Friedman’s Machinery of Freedom, you and I are represented by different dispute resolution agencies, A and B, respectively. We end up in a dispute, and we call in our agencies. How will they resolve the dispute? By themselves settling on a third arbitrator. Therefore, any competitive private justice system will end up becoming a single, connected network, with a definite process for appeals beyond a single agency. That network is a territorial monopoly over the legitimation of the use of coercion: a formal government.

“But then what if two networks come into conflict?” the anarchist may respond. “Then you are committed to a global network, a global government, which is obviously undesirable.” Actually, a global government of this kind already exists to some extent and seems obviously desirable. Global governance includes organizations adapted to serve specific dispute resolution functions: the World Trade Organization’s Dispute Settlement Mechanism, various international investment tribunals, United Nations peacekeeping (which the evidence suggests works very well when invited by both sides in a dispute), and so on. Global governance does not constitute a world state, because it exists at the pleasure of the contracting parties: any government may secede from the WTO or the UN whenever it wishes. Yet it is a kind of highly decentralized, functionally differentiated “world government.”

“Very well,” says the anarchist, “I may concede that a loose governance network is necessary, but I still think that membership in the `primary’ dispute settlement agency should be non-territorial. You shouldn’t automatically have to deal with a particular court because of where you live.” Yet territorial exclusiveness is the way that dispute settlement has always evolved historically. There must be a reason for that. If nonterritorial coercive governance has never been stable for long periods (e.g., medieval Iceland and contemporary Somalia), then on what basis can anyone confidently predict that nonterritorial governance must be superior to territorial governance? Only a constructivist rationalist, Adam Smith’s “man of system,” who thinks he can design a new society from scratch, could be confident that some idealized legal system could efficiently replace the only one any of us have ever known. And if we are men of system, then we might as well design a centrally planned economy while we are about it. You can’t confidently claim that anarcho-capitalism will work, while sneering at the idea that socialism ever could.

So if government refers to some kind of integrated, territorially exclusive system by which security can be provided and disputes settled, I advocate government — of a particular kind. But what then is a state, and how does it differ from a government?

If government can be a (more…)

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“Why did the autonomous city-state die?” asks political-economic historian David Stasavage in a new American Political Science Review article. He finds that new autonomous city-states enjoyed higher population growth rates than nonautonomous city-states, up to 108 years. After that point, their population growth was lower than that of nonautonomous city-states. His argument is that the fusion of political and guild power within autonomous city-states at first promoted growth, but as technology changed came to suppress growth, relative to more “inclusive” institutions.

A better interpretation is that political institutions deteriorate with age, the law of political entropy. After all, if changing technology meant that constant institutions became less efficient, then population growth in autonomous city-states should vary by century, not by age of the city-state. Since in fact population growth varies by age of the city-state, we have evidence that the institutions were not constant: they became less efficient.

HT: Chris Blattman

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This term I have been teaching a new seminar entitled, “State Making and State Breaking.” It’s basically about state formation and capacity building from medieval Europe to contemporary Africa (“state making”) plus secessionism, irredentism, de facto statehood, and other challenges to sovereignty (“state breaking”). We’ve now reached about the halfway point, having dealt with the “state making” component of the class.

Here are a few evocative quotations from the authors we have read on state making.

“Like the political institutions historically preceding it, the state is a relation of men dominating men, a relation supported by means of legitimate (i.e. considered to be legitimate) violence. If the state is to exist, the dominated must obey the authority claimed by the powers that be.” – Max Weber, “Politics as a Vocation” (1919)

“The larger the state and the greater the discrepancy between the [geographic] distribution of coercion and that of capital, however, the stronger the incentives to resist central control.” – Charles Tilly, Coercion, Capital, and European States, AD 990-1992, p. 24.

“The transition to direct rule [after the French Revolution] gave rulers access to citizens and the resources they controlled through household taxation, mass conscription, censuses, police systems, and many other invasions of small-scale social life. But it did so at the cost of widespread resistance, extensive bargaining, and the creation of rights and perquisites for citizens. Both the penetration and the bargaining laid down new state structures, inflating the government’s budgets, personnel, and organizational diagrams.” – Tilly, p. 25.

“Except for the relative urbanization of Muslim lands, the correlation between size of states and density of cities was negative [in the Middle Ages]: where cities swarmed, sovereignty crumbled.” – Tilly, p. 40

“[K]ings generally sought to limit the independent armed force at the disposition of townsmen, for the very good reason that townsmen were quite likely to use force in their own interest, including resistance to royal demands. . . By the nineteenth century, states had succeeded in arming themselves impressively, and in almost disarming their civilian populations.” – Tilly, pp. 55-56

“Europe’s bottom-up [commercial] hierarchies long remained more complete, connected, and extensive than its top-down structures of political control. That was a major reason for the failure of the many post-Roman attempts to build empires spanning the continent.” – Tilly, p. 129

“[In the eighteenth century,] the British state governed by means of a relatively small central apparatus, supplemented by a vast system of patronage and local powerholding. . . [B]efore the Napoleonic Wars, only customs and excise had substantial numbers of regularly appointed officials. Until then, Britain did not maintain a standing army. . . While Britain maintained local authorities to a larger degree than many of its continental neighbors, during the nineteenth century national officials involved themselves as never before in policing, education, factory inspection, industrial conflict, housing, public health, and a wide range of other affairs. Incrementally but decisively, the British state moved toward direct rule.” – Tilly, pp. 157-8

“Bishops, kings, lords, and towns all signed treaties and waged war [in medieval Europe]. There was no one actor with a monopoly over the means of coercive force. The distinction between public and private actors was yet to be articulated.” – Hendrik Spruyt, The Sovereign State and Its Competitors, p. 12

“[T]here are three main reasons why states survived and displaced other forms of organization. First, the internal logic of organization of the sovereign state had less [sic] deficiencies than its rivals. Sovereign, territorial states were better at rationalizing their economies and mobilizing the resources of their societies. Second, state sovereignty proved to be an effective and efficient means of organizing external, interunit behavior. Sovereign states could more easily make credible commitments than their nonsovereign counterparts. Third, sovereign states selected out and delegitimized actors who did not fit a system of territorially demarcated and internally hierarchical authorities.” – Spruyt, p. 28

“[T]he issue of relative efficiency and effectiveness is actually one of efficiency of institutional makeup rather than size. For example, the revenues of some Italian city-states were equivalent if not higher than those of rival states. The Netherlands and England managed to defeat far larger and more populated enemies by virtue of their ability to raise revenue, stemming from well-defined property rights, and their overall economic strength. Size is an imperfect predictor of success in military competition.” – Spruyt, p. 84

“Aside from having to pay the taille, rural laborers [in France] were also subject to other taxes and feudal exactions. The ability to evade such forms of taxation, by moving to a chartered town and by paying a fixed taille to the chartering king or lord, must have seemed attractive. . . The towns were eager to capitalize on this newfound opportunity for freedom. Because of their growing importance and because of the competition between rival lords, they could make considerable demands. They often formed communes, sworn associations of equals. One of the most important demands of the communes was the decrease in burdensome taxes and exactions. The privileges granted in the Charter of Lorris by King Louis VII in 1155 were imitated throughout northern France. . . The [taille] became a fixed incidence rather than an irregular levy. . . [T]owns would negotiate for the right of self-assessment. The distribution of the tax burden would lie with the town leadership.” – Spruyt, pp. 90-1

“Since German towns were of intermediate size and wealth — Lubeck and Cologne to some extent being the exceptions — they could not survive on their own. They needed some form of authority to help pool their resources. And indeed, we will see that one of the main objectives of the city-leagues was mutual defense.” – Spruyt, p. 112

“French towns sacrificed full independence because sovereign kingship provided them with many benefits. The German towns, by contrast, had no such incentive to sacrifice their liberties.” – Spruyt, p. 120

“The development of [Italian] cities toward oligarchical republics or despotism proved [in the late Middle Ages] another barrier to league formation [in Italy]. . . The turn to more despotic regimes reflected a move toward a greater reliance on landed interests as compared to the mercantile interests of the republics, such as Lucca, Siena, Florence, Genoa, and Venice. Among the towns of the Hansa, by contrast, there was a stronger political and social homogeneity. In all towns a mercantile patriciate dominated.” – Spruyt, p. 144

“[T]he Hansa proved to be less efficient in reducing transaction costs and providing collective goods than the sovereign state. It did not manage to provide standardization of weights and measurements, enforce centralized justice, establish a general system of coinage, or establish a regular means of raising revenue for a general fund. The confederated nature of the Hansa led to continuous freeriding and defection. . . Defection from international agreements, for example, by engaging in piracy, led to deterioration of relations with trading partners such as England.” – Spruyt, p. 163

“Due to low population densities and the large amount of open land in Africa, wars of territorial conquest. . .have seldom been a significant aspect of the continent’s history. In precolonial Africa, the primary object of warfare, which was continual in many places, was to capture people and treasure, not land which was available to all. In contrast to European states that, at least at some points in their histories, needed to mobilize tremendous resources from their own populations to fight wars and were therefore forced to develop profound ties with their own hinterlands, precolonial African leaders mainly exploited people outside their own polity because the point of war was to take women, cattle, and slaves.” – Jeffrey Herbst, States and Power in Africa: Comparative Lessons in Authority and Control, p. 20

“Migration to escape from social or political problems was also common among the Yoruba, the Edo, the Fon, and many others. A.I. Asiwaju notes, for example, that the reign of Oba Ewuare of Benin, in the mid-fifteenth century, was so unpopular that it generated, ‘waves of protest migrations which ostensibly led to the foundation of many communities of closely related groups.’ Similarly, Thomas J. Barfield notes, ‘the powers of the Dinka chief were weak. . .because rather than submit to his authority, dissident groups could move to a new territory if they were dissatisfied.'” – Herbst, p. 39

“[R]oads were vital to the exercise of formal authority because they allowed for the quick movement of troops and bound the territory into a relatively coherent economy.” – Herbst, pp. 41-2

“The common colonial failure to extend the infrastructure of power probably outweighs whatever differences in colonial practice suggested by the different theories when it comes to the spatial reach of the state.” – Herbst, p. 87

“Africans continued to subvert the [colonial] state for many years by simply moving. . . [T]he presence of open land and weak administrative structures outside the cities made it only natural that many Africans responded to abuses by simply escaping to an area that was not under the direct control of the European power.” – Herbst, p. 88

“Domestic security threats, of the type African countries face so often, may force the state to increase revenue; however, civil conflicts result in fragmentation and considerable hostility among different segments of the population.” – Herbst, p. 126

“[T]he presence of a palpable external threat may be the strongest way to generate a common association between the state and the population.” – Herbst, p. 127

“In an extraordinary use of diplomacy, African leaders were able to arrange a state system that reinforced their own biases to retain the states that the colonialists had demarcated. This success in preserving units and boundaries has been phenomenal from the perspective of leaders. . . The international system tolerated, and to a limited degree even encouraged, a particular political economy that was biased in favor of providing revenue for patronage and funded the political perquisites of leaders rather than consolidating the state apparatus.” – Herbst, p. 135

“[T]he type of decline experienced by small countries is different from that of large countries because even in decline, small countries can exercise considerable authority over their populations.” – Herbst, p. 155

“[S]tate consolidation is not necessarily a good thing for the population in the short-term. Rwanda’s exceptionally high road density. . .undoubtedly made the quick killing of almost eight hundred thousand Tutsi in 1994 possible.” – Herbst, p. 169

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Libertarians often bemoan the expansion of the federal government over the centuries and cite Thomas Jefferson’s quotation, “The natural progress of things is for liberty to yeild [sic], and government to gain ground.” Of course, there have been important advances for liberty in the U.S. in the 20th and 21st centuries too, yet overall, government’s impact on the economy has increased dramatically. In his book, The Rise and Decline of Nations, political economist Mancur Olson theorized that the simple passage of time permitted the accretion of more and more interest groups (“distributive coalitions”), who would lobby government to increase their share of the economic pie at the expense of the total size of the pie. Therefore, more stable societies would see relative economic decline.

I have always been skeptical that the mere passage of time was an important predictor of interest-group power and bad economic policy. Indeed, all of Olson’s data came from the post-World War 2 period, and he had good things to say about France and Japan, particularly in relation to Britain, that do not ring true 30 years after he wrote the book.

However, as I investigate the economic history of early modern Europe, I am struck by what looks like a “law of political entropy,” that is, a tendency for relatively “associational” governments that act as agents for the taxpayer to become ossified, oligarchic, “predatory” states that exploit the taxpayer. Consider the Dutch Republic and Switzerland, probably the two most “associational” states in early modern Europe.

During the Dutch Golden Age, the highly decentralized federation acted as an agent of the provinces, who in turn were federated associations of the towns. The towns were ruled by the principal merchants. There was a semi-hereditary “stadtholder” position at the central level, demanded by the monarchical ideology of the day, but the real political power lay with the great taxpayers.In fact, during the period of the Republic’s most rapid economic growth, there was no stadtholder, just an elected “grand pensionary,” the proto-liberal Johan de Witt, who supported free trade, republicanism, and religious toleration, opposed imperialism and military meddling, and strongly endorsing the doctrine of provincial (and town) sovereignty over Republic-level control.

Unfortunately, after the French and English launched a combined sneak attack on the Republic in 1672, de Witt was overthrown and lynched, and the stadtholders returned. Although the Dutch escaped that war with their independence, over time the political system became more ossified, and by the end of the 18th century English GDP per capita had caught up with Dutch. According to Wikipedia,

At first the lower-class citizens in the guilds and schutterijen could unite to form a certain counterbalance to the regenten, but in the course of the 16th, 17th and 18th century the administration of the cities and towns became oligarchical in character, and it became harder and harder to enter their caste. From the latter part of the 17th century the regent families were able to reserve government offices to themselves via quasi-formal contractual arrangements. Most offices were filled by co-option for life. Thus the regent class tended to perpetuate itself into a closed class.

Similarly, Switzerland started off as an extremely loose confederation of republican cantons in the late Middle Ages (individual cantons could even declare war). The cantons themselves were originally established by peasants who had thrown out the Habsburg aristocracy, winning a bloody victory over their knights at the Battle of Morgarten:

When the Confederates attacked from above with rocks, logs and halberds, the Austrian knights had no room to defend themselves and suffered a crushing defeat, while the foot soldiers in the rear fled back to the city of Zug. About 1,500 Habsburg soldiers were killed in the attack. According to Karl von Elgger, the Confederates, unfamiliar with the customs of battles between knights, brutally butchered (more…)

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Having finally turned the corner on a brutal, 11-day (and counting) cold, I feel up to getting back to my blogging routine. First up: a followup to last month’s post, “Why So Little Decentralization?”

To review, that post posed a puzzle (a problem for political scientists to ponder, you might say). The puzzle is this: developing countries are far more centralized than developed countries. That is so despite the fact that some developing countries are much larger and more diverse than developed countries, and many of them have now been democratic for quite some time. Furthermore, if decentralization were simply a relict of post-medieval state-building (some might venture that sort of claim about Switzerland, for instance), then the fact that developing countries have lower state capacity and a more recent independence than almost all developed countries deepens the puzzle.

I went through two explanations that do not actually explain the puzzle very well: shallow local talent pools and illiberalism. In particular, they cannot explain why developing countries are often very decentralized along some dimensions (allowing discrimination against goods and workers from other regions, linguistic and cultural rights, etc.), but not others (chiefly tax policy).

I think there are two explanations that actually work: secession prevention (in ethnic federations) and excessively personalist electoral systems (in nonethnic federations). In this post I’ll talk about secession prevention.

Some developing democracies are ethnoregionally diverse, that is, they contain minority ethnic homelands that could form the basis of independent states. Examples include (more…)

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McCutcheon

There has been much coverage of last week’s Supreme Court decision on campaign finance (McCutcheon v. Federal Election Commission), most of it negative (insert shocked surprise here) given that it will provide more opportunities for the wealthy to shape public policy. As Senator Tammy Baldwin (D-WI) observes:

“It is far too often the case in Washington that powerful corporate interests, the wealthy, and the well-connected get to write the rules and now the Supreme Court has given them more power to rule the ballot box by creating an uneven playing field where big money matters more than the voice of ordinary citizens.”

Perhaps one should not be too quick to fault the “powerful corporate interests, the wealthy, and the well-connected.” They are only being rational. They clearly understand that there are largely two ways to thrive economically: (1) produce more of the things that people value or (2) seek a variety of policy-related privileges that allow you to lay claim to what others have produced and/or create impediments to what your competitors might produce. Over time, the second of these paths—rent-seeking or transfer-seeking has grown in importance in shaping economic outcomes. It is effective, often invisible, and the costs are borne by taxpayers and consumers. As long the elected officials of both parties are in the business of selling privileges, there will be buyers. The rent seeking society will thrive, even as it throttles growth and economic dynamism and contributes to our long-term fiscal problems.

One should not be surprised that the critique of the McCutcheon decision has begun to merge with the attack on the Koch brothers. This morning, a Google search for “McCutcheon and Koch” generates 364,000 hits (I am assuming this number will grow rapidly). Apparently, some believe the best way to frame the decision is to connect it to the Koch brothers, creating a compelling tale of a new plutocracy. (more…)

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