1/17/2020

State Capacity, Economic Growth, and Reverse Causality

"Why question the relationship between state capacity and generalized prosperity? To start, the concept itself does not make sense as a social-scientific mechanism. It is difficult to see how state capacity, as used by Cowen and others, could be a causal explanation of growth. When we assess national well-being, whether in the form of high living standards or some other welfare metric, we must answer two questions: what incentives did agents on the ground have to promote those outcomes?

And from where did they get the information that enabled them to do so? These are inherently institutional questions, but those questions cannot be answered with recourse to mere institutional structure. State capacity may be a useful concept in economic history, but in terms of its explanatory capability, it is little more than institutional morphology. 

Pointing out that governance institutions became centralized and hierarchical cannot explain why those governance institutions were used to “good” ends. To explain the role of states in e.g. fostering economic development, we need to invoke “something else” to explain why political elites in control of the state found it incentive- and information-compatible to promote the general welfare, rather than their own welfare narrowly. This “something else” has to be a deeper institutional property than state capacity."