From the archives: The entrepreneurial state
How state competition – through war – can drive institutional progress
David Schönholzer writes about state development for Issue 13. Read it online here.
One of the most fundamental facts of life is that where you are born is a huge determinant of how your life will turn out. Someone’s chance of leading an economically secure life is vastly higher if they happen to be born in Zurich, Seattle, or Kyoto rather than Mumbai, Nairobi, or Caracas.
But why are some places much better at providing an environment for the development and adoption of technology than others? Much of the divergence between rich and poor places can be traced back in time to the emergence of a set of institutions in Europe, which have partially spread around the world. Northwestern Europe was already substantially richer than other world regions well before the Industrial Revolution, but there is an ongoing debate in economic history on the reasons for Europe’s divergence from the rest of the world.
While geography and culture have likely played some role, as well as expropriation through colonialism, the nature and the development of the state is the most important factor behind economic fortunes. ‘Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice: all the rest being brought about by the natural course of things’, wrote Adam Smith back in 1755.
He was right. Secure property rights and a limited state monopoly on violence have withstood the test of time (although after the experience of the twentieth century we may add a welfare state to this list). This stability fostered the investment and invention that drove living standards higher.
In striking contrast to Smith’s peace as an essential ingredient for states to foster prosperity, however, one popular explanation comes from Charles Tilly, who stressed the centrality of war as a driver of state formation: ‘War made the state, and the state made war’. After all, since 1400, more than 1,000 wars have taken place in Europe, with millions of casualties and thousands of leveled towns.
Why would war, an inherently destructive activity, foster development? One story sees wars as the bitter ‘Gifts of Mars’ that helped to propel Europe to early riches by decimating its population and thereby increasing each surviving farmer’s land available for cultivation. Another claims the constant threat of war drove farming households to seek refuge in walled cities, leading to urban growth, and in turn to development.
Even put together, these explanations cannot be complete, since they imply more war is always good. The benefits of war came, of course, at an enormous cost: as well as the deaths of countless soldiers and peasants, European wars also cut short the lives of future inventors, engineers, and statesmen who might otherwise have driven technological progress more quickly. (To give one example, the astronomer William Gascoigne, inventor of the telescopic sight, was killed at the age of 32 at Marston Moor during the English Civil War.) And they ruined prosperous cities that would have served as nexuses of trade and progress. Any explanation for the emergence of wealth that relies on conflict needs to generate a sufficiently big benefit to counterbalance this.
War acting as a selection mechanism for more effective states might provide this counterbalance. While wars had costs, more effective states tended to win out from them, leading to a virtuous cycle of more effective institutions.
You can read the rest of the piece here.