Stockholm, June 1 Torsten Persson, IIES, Stockholm...

ABCDE_100601.pdf

Weak States, Strong States, and Development

ABCDE Conference 2010

Stockholm, June 1

Torsten Persson, IIES, Stockholm Universityhttp://www.iies.su.se/~perssont/

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Weak or fragile states

Central concept in development policy community

one of themes in this conferenceweak states cannot support basic economic functions, raisesubstantial revenues, deliver basic services, keep law and order, ...

Quite frequent phenomenon

perhaps 20-30 states failed or seriously weakequally many weak, others in risk zone

concentrated in sub-Saharan Africa, south/central Asia

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Institutions, income and development

Strong links with income (per capita) and violence

weak states in countries with massive povertyand societies plagued by conflicts and violence

developed countries: high income, institutions work,policies in good order, conflicts resolved peacefully, ...

strong clustering of state capacity in different dimensionsfew strong economies with weak states

Multidimensional problem — the development problem?

clustering of low income, violence, and a numberof dysfunctional institutions

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Example of clustering

Two forms of state capacity

extractive capacity: e.g., infrastructure to raise taxesfrom broad bases, like income or value added

productive capacity: e.g., infrastructure to enforcecontracts or protect property rights

Illustrate with two specific measures

alternative measures produce similar resultsfiscal capacity: total taxes as share of GDP,average from the late 1970s onwards (IMF data)

legal capacity: index of protection of property rights,average over the 1980s and 1990s (ICRG data)

strongly positively correlated with each other, incomeper capita, and prevalence of civil war

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Figure 1 State capacity and income

Figure 2 State capacity and civil war

How understand such patterns in the data?

Basically need to pose — and answer — three general questions

(i) what drives building of different state capacities?

(ii) when and why do these capacities move together?

(iii) what drives correlation between institutions, income, violence?

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Report on ongoing research

Joint work with Tim Besley (LSE)

on economics and politics of state building and political violencetry to understand clustering of income, institutions, and violenceaim at building new theory and uncovering new evidencehope to bring state capacity into mainstream of economics

Scope of this talk

give basic idea of theoretical approach and predictionsshow some correlations in the data

details in various research papers, and in future book2010 Yrjö Jahnsson Lectures

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Road map

1. Introduction

2. Origins of state capacity

3. Origins of political violence

4. Putting the pieces together

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2. Origins of state capacityExisting research

State capacity ignored, or assumed, in mainstream economics

(macro) development economics sees income per capita,not state institutions, as central outcome

capacity to raise revenue from certain tax bases basicallyassumed in development, public finance, political economics, ...

as is capacity to enforce contracts or to protect investors

State capacity important in political and economic history

fiscal powers important in themselves, for military successand for state development, more generally

war major motive to build fiscal capacity‘war made the state and the state made war’ (Tilly, 1990)

this work ignores building of legal capacity8

Theoretical approach — Main building blocks

Distinguish institutions and policy

incumbent government’s choice of taxation and regulationlimited by fiscal and legal capacity, and political institutions

Incumbents can invest in fiscal and legal capacity

purposeful decision: current costs vs. future expected benefits

... with uncertainty about futureuse of revenue: spending on public goods vs. redistributionlevels of non-tax revenue: resource rents, or (cash) aidincumbency: takeover by opposition group

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Three kind of states

Common-interest states

government revenue mainly used for public goodse.g., defense against threat of external conflict

any incumbent group invests in fiscal capacity

Redistributive states

government revenue used to redistribute, with incumbent moreor less constrained by political institutions

incumbents invest in fiscal capacity as enough political stability

Weak states

government revenue used for redistribution, but non-cohesivepolitical institutions and high levels of political instability

no incumbent invests in fiscal capacity of the state10

Complementarities

Investment in one type of state capacity reinforces the other

if future fiscal capacity higher, additional fiscal benefitsof legal capacity, which expands market incomes

if future legal capacity higher, market incomes and taxbases higher, which raises motive to invest in fiscal capacity

Implications of complementarity

natural way to think about forces behind observed clusteringdeterminants of legal and fiscal capacity should be common

Which major determinants does this approach suggest?

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Legal capacity Fiscal capacity

Common vs. redistributive interests

State capacity and use of public revenue

A look at the data — External conflict

Partial correlations: common-interest spending and state capacity?

Gauge past demand for public goods by prevalence of war

time in external war 1816/independence — now (COW data)

Illustrate results for tax share and property rights index

same variables as in Figures 1 and 2(correlations robust also for other proxies)

hold constant other determinants, such as cohesivepolitical institutions, plus legal origins, and continental location

data consistent with prediction — see Figure 3

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Figure 3 External war and state capacity



Cohesive political institutions

State capacity and political institutions

A look at the data — Political institutions

Partial correlations: cohesive institutions and state capacity?

Measure cohesive political institutions by constraints on executive

time with high(est) score 1800/independence — now (Polity IV data)similar results for prevalence of parliamentary democracy

control for same variables as earlieragain, data conform with prediction — see Figure 4

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Figure 4 Political institutions and state capacity




State capacity and political stability

Political stability




Resource or (cash) aid independence

State capacity and economic structure

Political stability





Income per capita

State capacity and income

Political stability

Back to clustering of income and state capacity

Low income can cause weak states

low prospective market incomes and tax bases reduce motivesto invest in legal and fiscal capacity

Weak states can cause low income

low legal capacity makes incumbents unable to support marketslow fiscal capacity leads to inefficient forms of redistribution

Virtuous or vicious circles

can produce clusters of strong state capacities in strong economiesor weak state capacities in weak economies

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Income per capita

Summary of argument so far

Political stability

Road map

1. Introduction




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3. Origins of political violenceMotivation — Conflict and state building

Risk of external violence

by earlier argument, such conflict can promote state buildingboosts common interest vs. redistributive (group) interest

How about internal political violence — civil war, repression?

not common interests — rather, extreme redistributive strugglemay entail radically different incentives to invest in statewe want to (partly) endogenize political instabilityi.e., becomes only a proximate determinant of state capacity

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Basic facts about civil war and repression

Sadly, widespread phenomena

civil war, two-sided violence (government and insurgent group),above 10% of all country-years since 1950 (Uppsala/PRIO data)

repression, one-sided violence by governments (outside civil war)prevalence about 8 % for stark form of purges (Banks’ data)

Main patterns in the data

prevalence of both forms of violence vary greatly over timeboth correlate systematically with income, as well as state capacityhint of substitutability between them — see Figure 5

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Figure 5 Prevalence of civil war and repression

Existing research

Theory of civil conflict

little role for institutions, including state capacities

Empirical work on civil war and repression

weak connections to theory, so difficult to interpret resultstakes income as given, though violence and income likely havesimilar determinants — e.g., parallel ‘resource curse’ literatures

separate literatures on civil war and repression, though bothreflect that institutions fail to resolve conflicts of interest

Analytical approach to address these issues

build framework to analyze political violence, thenembed in earlier framework for state capacity

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Theoretical approach to political violence

Investments in violence by incumbent and opposition groups

opposition can mount insurgency to take over, financed inside groupincumbent can invest to stay in power, financed by public pursesoldiers hired at market wage

Both groups face a trade-off when investing in violence

costs vs. higher probability to control policy andredistribute in group’s favor

Main drivers of conflict?

when do we observe violence, and of what type?which economic, political and institutional variablesdetermine one-sided and two-sided violence?

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Three alternative, ordered regimes

1. Peace — no group invests in violence

real wages high, resource rents or aid low, public goodsvaluable, or political institutions cohesive

too expensive to arm, not enough redistribution to fight over,or winner’s share not much larger

2. Repression — incumbent, but not opposition, takes to violence

real wages lower, resource rents higher, public goods lessvaluable, or lower protection of minority interests

incumbent has lower violence threshold than opposition(because of cost advantage)

3. Civil war — both groups take to violence

even more at stake so both parties choose to fight

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Determinants of political violence?

Which roots of repression and civil war?

largely common factors — confirmed in empirical work

How related to determinants of legal and fiscal capacity?

factors that diminish motives to invest in stateraise motives to invest in violence — see analogous graph

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Repression Civil war




Income per capita

Determinants of political violence

Revisit investments in state capacity

Should see negative correlation state capacities — political violence

these outcomes have similar rootsmagnification effect: higher risk of internal conflictraises political instability for incumbent, further diminish motivesto build strong institutions, in redistributive or weak states

patterns in data consistent with these ideas — see Figure 6

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Figure 6 Different types of war and state capacity

Road map

1. Introduction




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4. Putting the pieces togetherSummary of main ideas

Recall three basic questions — hint at answers

(i) what drives building of different state capacities?

have suggested some "proximate" and "ultimate" determinantsof investments in the state

(ii) when and why do these capacities move together?

when state-capacity investments are complements

(iii) what drives correlation between institutions, income, violence?

state capacity and violence share some political and economicdeterminants, including incometwo-way feedbacks between income and state capacity,and between income and political violence

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Income per capita

Summary of main ideas

Political stability





Income per capita

Summary of main ideas

Repression Civil war

Application 1 — Why weak states in sub-Saharan Africa?

Several factors contribute directly to weak states

dependence on resource rents and aid, low threat of externalconflict, and non-cohesive political institutions

Same factors raise risk of internal conflict

societies become plagued by political violence; instability furtherweakens motives to build state capacities

invest in violence rather than in strong state

Weak states hamper development

cannot support markets due to low legal (productive) capacitypursue inefficient policies due to low fiscal (extractive) capacity

Feedbacks from low income

foster conflict and weak incentives to build the state25

Application 2 — Lessons for foreign intervention?

Effects depend crucially on type of intervention, and type of state

six examples

(i) Development support — cash aid to government

may help raise state building, if common-interest stateno effect on state building and higher risk of repressionor civil war, if state is redistributive or weak

(ii) Infrastructure or project assistance

can work like legal capacity: raise private incomesstrengthen motive to build the state, and lessen risk of violence

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Lessons for foreign intervention (continued)?

(iii) Military assistance to government

further advantage to incumbent in financing army or higherreturn to incumbent’s investment in violence

raises risk of violence and expands range of outcomeswith government repression, except in common-interest states

(iv) Post-conflict settlement

like cohesive political institutions (minority protection): cutsgain to winner of conflict, in redistributive or weak state

may cut conflict risk, and (indirectly) strengthen motives for statebuilding, but only if credible (expected by everybody) ex ante

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Lessons for foreign intervention (continued)?

(v) Direct assistance in capacity building

may be helpful in common-interest states that already do investbut investments likely not sustainable in weak states,where it is the most needed

(vi) Conditionality of assistance on free, multi-party elections

may raise political instability (from viewpoint of incumbent)can raise the risk of repression and weaken state building,unless combined with reform to stronger executive constraints

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Research ahead?

Integrate other aspects of state capacity

e.g., capability to provide basic health care, or educationfurther insights into clustering of institutions

Study motives for political reform

so far, political institutions taken as givenwhen is better (worse) accountability, representation introduced?quid pro quo for significant expansion of taxation?interaction with risk of political takeover by opposition?

complementarity fiscal capacity — political institutions?

Just first steps

simple framework, but helps think about data in new ways

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