Also consistent with the evidence is an alternative view, that the state is primarily extractive. Based on the possibility of reverse causation, the economist Bryan Caplan has argued that state capacity building is mostly wasteful, and richer countries acquire higher-capacity states only because they can afford the luxury of waste.[101] On this view the state is primarily extractive, and greater wealth permits bureaucrats and politicians to extract more rents from society.
Historical data, which make it possible to compare the dynamics of economic development and state building in different countries, generally support a more nuanced conclusion. States that were capable but avoided the excesses of despotism and corruption appear to have fostered early economic development: they complemented the market-economy by suppressing internal and external predators, guaranteeing property rights, and providing public goods.[102] Providing public goods could be called productive, whereas suppressing rent seeking and defending against external predators are protective functions. In research on these lines, however, it is often difficult to separate the productive contributions from the protective ones. The most convincing evidence relates to the protective functions of the state. Various studies have been able to link both state building and economic development to historical experiences of warfare. This suggests that the stimulus to state building was to seek protection from warfare. Notably, the evidence has been drawn from almost every region and period of history—except that of twentieth-century communism.[103]
Geloso and Salter, economic historians, argue that protection is the other side of extraction. Richer countries might invest more in state capacity, not because state capacity is productive, but because it is extractive. In global society, countries with weak states can expect to be plundered by predators, and wealthier countries will provide higher value as targets for plunder. Therefore, wealthier countries must have invested more in state capacity, not because it brought prosperity but because it protected prosperity once achieved.[104]
This view of state capacity would not have surprised the historian Richard Tilly, who famously wrote: “War made the state and states made war.”[105] It would have been endorsed enthusiastically by the nineteenth-century German economist and advocate of German unification, Friedrich List, who responded to the “English” idea that a wealthy economy is more important than a powerful state as follows:
Power is of more importance than wealth because a nation, by means of power, is enabled not only to open up new productive sources, but to maintain itself in possession of former and of recently acquired wealth, and because the reverse of power—namely, feebleness—leads to the relinquishment of all that we possess, not of acquired wealth alone, but of our powers of production, of our civilisation, of our freedom, nay, even of our national independence, into the hands of those who surpass us in might.[106]
I have argued that the experience of communist state building has been neglected by social scientists writing about state capacity. How was communist state building different? The evidence shows two things. First, on basic measures, communist states showed extraordinary capacity.[107] And second, time mattered: communist state capacity was relatively durable.
Figures 2.1 and 2.2 compare the state capacities of the relatively wealthy market economies belonging to the OECD and the somewhat less wealthy economies under communist rule and belonging to Comecon, the Soviet-led Council for Mutual Economic Cooperation. The year is 1980, toward the end of the Cold War, at a time when communist rule was everywhere intact. The figures illustrate two measures of state capacity, the tax share and the state ownership share in the economy. These aspects of state capacity are important in their own right. In addition, at high levels they also imply something about coercive capacity. High tax rates encourage evasion, which must be policed and repressed. High levels of state ownership are likely to have required the forced seizure of private assets in the past and continued repression of private ventures that might weaken public monopolies in the present.
The figures plot these measures against the average real GDP per head of each country. As discussed earlier in this chapter, a country’s state capacity is likely to be increasing in its level of economic development (as noted, the direction of causation remains a matter of debate). Before attributing a country’s higher levels of state capacity to communist rule, therefore, we should check whether greater wealth could be the underlying correlate.
The charts answer this question clearly: communist rule was decisive. On fiscal capacity (Figure 2.1), we see that the Comecon economies had figure 2.1. Communist economies had higher tax shares in 1980, given their level of economic development
Sources and notes: See the Appendix to this chapter and Table 2A.1
generally high tax ratios (the group average is 49 percent of GDP). At first sight this does not look exceptional because a subgroup of market economies in northwestern Europe shows similar tax shares (Austria, Belgium, Denmark, Finland, France, Netherlands, Norway, and Sweden—although many other OECD countries come in below). What the figure demonstrates, however, is that the high tax shares of the Comecon group were exceptional, given their income levels. The Comecon countries were relatively poor in real GDP (6,000 to 8,000 international dollars per head). The subgroup of market economies with similar fiscal capacity were much richer (12,000 to 16,000 international dollars per head). In other words, countries under communist rule had fiscal capacity similar to market economies that were roughly twice as wealthy.
Alternatively, the same chart lets us compare fiscal capacities of the Comecon group with the OECD countries at similar levels of income at the time—Spain and Portugal. By contrast to those countries, the Comecon group show tax shares that were higher by around 20 percentage points of GDP—a very large advantage.
The contrast of the Comecon countries to the OECD countries is even more clear cut in Figure 2.2 (China, not a Comecon member state, is added figure 2.2. Communist economies had higher state ownership around 1980, regardless of their level of economic development
Sources and notes: See the Appendix to this chapter and Table 2A.2. I thank Branko Milanovic for advice on sources and discussion of comparability across countries and systems of national accounts.
to the data). Here the measure is the share of state-owned or public corporations in economic activity in or around 1980. This measure indicates the scope and variety of government activities, over and above the functions of government administration that nearly all states engage in, such as defense, policing, education, and so forth. The differences are stark, and there is no overlap. The Comecon group average for state-owned activities is 92 percent of national income, and for China nearly 80 percent. The OECD group average stands at around 9 percent. The difference cannot be explained away by relative income levels for, if high development were the statistical correlate of high state capacity, it would go the opposite way.
101
Bryan Caplan, ‘“State Capacity’ Is Sleight of Hand,” 5 June 2018, https:// www.econlib.org/state-capacity-is-sleight-of-hand/; “The Underbelly of State Capacity,” 7 June 2018, https://www.econlib.org/archives/2018/06/some_stuff_to_k .html; and “State Priorities not State Capacity,” 29 April 2020, https://www.econlib.org/state-priorities-not-state-capacity/.
102
Dincecco, State Capacity and Economic Development, 4-45; Johnson and Koyama, “States and Economic Growth,” 15-16.
103
Europe before 1914: Dincecco and Prado, “Warfare, Fiscal Capacity, and Performance,” and Dincecco, Political Transformations and Public Finances; Europe today: Bruszt and Campos, “Economic Integration and State Capacity.” North America: Acemoglu, Moscona, and Robinson, “State Capacity and American Technology.” Latin America: Cardenas, “State Capacity in Latin America.” Africa: Dincecco, Fenske, and Onorato, “Is Africa Different?” India before Colonial Rule: Dincecco, Fenske, Menon, and Mukherjee, “Pre-colonial Warfare”; and under colonial rule: Roy, “State Capacity and Colonial India.” China before communism: Ma and Rubin, “Paradox of Power.”
104
Geloso and Salter, “State Capacity and Economic Development.” Koyama agrees (cited at length by Bryan Caplan, “Koyama Responds on State Capacity,” 11 June 2018, https://www.econlib.org/archives/2o18/o6/koyama_responds.html).
107
It is important to this conclusion that we start from description of state capacity, not from a normative concept. For example, the Worldwide Governance Indicators of the World Bank (https://info.worldbank.org/governance/wgi/) are sometimes used as measures of state capacity (e.g., Savoia and Sen, “Measurement, Evolution, Determinants, and Consequences”). These give weight to such aspects of “good” governance as transparency, accountability, and the rule of law. On those criteria, communist states would generally fall short. The point here is that, while the capacities of communist states may not have been normatively good, they were exceptional in scale and scope.