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19.12.2018 | Literature Survey

State capacity and public choice: a critical survey

verfasst von: Ennio E. Piano

Erschienen in: Public Choice | Ausgabe 1-2/2019

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Abstract

‘State capacity’ is a term associated with a popular argument in fiscal sociology, history, and political economy regarding the role of the state in the process of economic development. Much of the applied and theoretical work on state capacity already shows some influence from public choice theory, the application of the economic approach to the study of political processes. These commonalities notwithstanding, this paper argues that public choice theory can offer further insights into this literature. In particular, the public choice approach can help illuminate concepts such as those of ‘state capacity’ and ‘governance,’ which are often casually employed in the literature. It can also help us understand the interaction between state capacity and competitive pressures in the ‘market for governance’. Finally, insights from public choice can illuminate the causal nexus between investment in state capacity and economic development.

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I do not mean to claim that all contributors to the relevant literature see themselves as providing a solution to the paradox of government. While that conclusion explicitly is true in the case of some scholars (e.g., North et al. 2009), it may not be so for others. My claim simply is that their arguments and results effectively constitute one possible answer to the paradox.

A growing empirical literature relies on Olson’s model to study the evolution of governance institutions of different societies throughout history (Kurrild-Klitgaard and Svendsen 2003; Vahabi 2011; Salter 2015; Young 2015, 2016).

Olson was a longtime member and president of the Public Choice Society and made many contributions to the field.

Brennan and Buchanan are two major figures in the public choice tradition.

On the relationship between public choice as a positive research program, ideology and normative economics, see Boettke and Piano (2019).

A growing literature within public choice focuses on the possibility of stateless social order. Powell and Stringham (2009) provide an early overview of this work. See Leeson (2007a, 2009, 2012) and Candela and Geloso (2018) for some empirical applications. More to the point, Leeson (2007b) and Leeson and Williamson (2009) investigate the theoretical and empirical conditions under which the very existence of a state is detrimental to economic development.

See Martin and Ruhland (2018) for an attempt to reconcile public choice theory (and Buchanan’s brand of public choice in particular) with state capacity with an application to the Byzantine Empire.

The historical relationship between fiscal and legal capacity seldom has been studied. An important exception is Johnson and Koyama’s (2014b) work on the evolution of the fiscal and legal regime in seventeenth century France. They argue that the decline of witch trials there at the time was symptomatic of the decision of the French government to centralize the administration of its legal system and the introduction of homogeneously enforced, country-wide legal standards. See also Shughart’s (2018) discussion of the adoption of a Civil Law regime in post-revolutionary France.

See North and Thomas (1973) and Jones (2003) for two influential treatments of the “miracle”.

Tax-farming referred to the practice of entrusting private contractors with the task of tax-collection in exchange for an advanced payment to the sovereign.

Salter (2018) uses a similar framework to study the development of the modern Prussian state under Fredrick II.

See Friedman (1977) and Koyama (2012, 2014).

Scott (2017) argues that the very choice of what crops are and are not grown is endogenous to the threat of wealth capture.

While the pre-Reformation Catholic Church was not exactly what people picture when they think of a modern state, neither was any other European sovereignty of the time. Indeed, the Church had the widest encompassing interest and taxing authority beyond the regional level of any sovereign outside of England (Ekelund et al. 1996; Leeson and Russ 2018).

See Acemoglu and Wolitzky (2018) for an alternative theory of the extension of the rule of law to the broader population.

On the effect of jurisdictional competition on public finance institutions in early modern Central Europe see Backhaus and Wagner (1987).

With respect to congestion, nations face similar challenges as those identified in Buchanan’s (1965) theory of clubs.

In the context of Fig. 1, the effect would be represented by a leftward shift in the equilibrium value of competition following the upward shift in the value of capacity. If the former effect is large enough, the equilibrium terms of trade will lie on a less-preferred curve, in other words, a curve that is closer to the origin.

On the economics of revolutions, see Tullock (1974).

One potential example of the inverse relationship between state capacity and the quality of governance supplied by the ruler (or rulers) is that of Somalia after the collapse of its national government in 1991. In the decade that followed, Somalians’ daily lives were governed by a mix of informal norms, traditional customs and local bands. While state capacity was almost non-existent during that period, Leeson (2007a) finds that the welfare of the local population rose under Somalian anarchy. The creation of a federal government in Somalia in 2012 signed the end of more of a decade of statelessness in the region.

The more homogeneous Japan faced a lower cost of centralization than the more diverse China.

Geloso and Salter (2018) provide an alternative, though compatible, criticism of standard arguments about the relationship between conflict, investment in state capacity, and long-run economic performance.

O’Brien’s (2011) study of the evolution of the English fiscal regime between the 17th and early 19th centuries suggests that the framework also could explain some aspects of the rise of a high-state capacity regime in England. According to O’Brien (2011, p. 420), the transformation of the pre-Commonwealth English economy had encouraged the rise of a fiscal state, as the development of “[l]arger and denser zones of production, together with established and regular circuits for distribution and exchange” facilitated tax collection by the English government.

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Titel: State capacity and public choice: a critical survey
verfasst von: Ennio E. Piano
Publikationsdatum: 19.12.2018
Verlag: Springer US
Erschienen in: Public Choice / Ausgabe 1-2/2019
Print ISSN: 0048-5829
Elektronische ISSN: 1573-7101
DOI: https://doi.org/10.1007/s11127-018-00631-x

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