A Model of the Alternative Perspective
Thursday, September 18, 2014
Daron Acemoglu and James Robinson

In the last two posts, here and here, we have argued that neither the classic Hobbesian line of the benefits of a Leviathan nor James Scott’s perspective of disadvantaged groups always fleeing the authority of the state are fully satisfactory. Instead, it appears that though the state is often an instrument of repression and extraction in the hands of economic or political elites, there are at times important benefits from state centralization (as we have also argued in Why Nations Fail), and the state can even be a useful instrument for the disadvantaged in their struggles against the local elites.

We are not aware of any comprehensive approach that models or successfully integrates these different ideas. But Daron’s paper from 2005, “Politics and Economics in Weak and Strong States,” takes one baby step in this direction.

The key idea from this paper is that of a “consensually strong state”. It is meant to stand apart from strong states that are useful because they can provide socially useful public goods and from weak states cannot or will not provide such public goods. But strong states are also difficult to control for the citizens, so they will often turn their strength against the citizens, for example, expropriating them.

The observation this paper makes is that if we were trying to interpret the cross-country variation in the political and economic strength of the state, taxes and spending using such a dichotomy between weak and strong states, much of the OECD and certainly Scandinavia would just appear as massive outliers. Here are states that are “politically weak” in that those who control the state and its capacity — politicians and political parties as well as bureaucrats — can be easily replaced and removed from power, but are also “economically strong” as they have a much greater capacity to regulate, tax and keep records about all sorts of economic activities than the states we see in much of the developing world. Moreover, this economic strength is not imposed on the citizens against their will, but largely demanded by the citizens.

So how to interpret this? The interpretation that the paper offers is based on the concept of consensually strong states. Precisely because politicians and political elites are weak, citizens are happy giving them a “long leash” in the economy, consenting to high taxes, regulation and involvement by the state, with the expectation that the politicians in power and the bureaucrats will use this capacity mostly for things that the citizens like. And what if they don’t? This is where the political weakness of the state is key. Because of this weakness, citizens know that they can easily kick out the current crop of politicians, thus making it incentive compatible for them to use the huge resources they control for the benefits of the citizens, for example for public good provision and control of monopoly, rather than for their own or their cronies’ benefits.

Putting it formally, what the paper describes is a subgame perfect equilibrium of a repeated game, in which citizens are willing to allow high taxes because they have the punishment strategy of kicking the incumbent politician out of power if he or she uses the resulting tax revenues for rents or projects that they do not value. Crucially, it is the ability of citizens to easily kick out the politicians that makes this subgame perfect equilibrium possible. If the state were politically too strong (say like an absolutist monarch), such subgame perfect equilibrium arrangement would not be possible.

So according to this model, the problem of the Hobbesian state is not just that it is strong, but that it is a Leviathan emboldened by his own might, rather than empowered by the consent of society at large.

Perhaps a different way of putting this would be to say that the state’s strength has the capacity to be useful for society ­— or at least large parts thereof — because this strength emanates from the consent of civil society rather than as an imposition on that society, by arms or tradition.

Article originally appeared on Why Nations Fail by Daron Acemoglu and James Robinson (http://whynationsfail.com/).
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