Proposal preview

The Economic Causes and Consequences of the Size of States

Presenters

Philip Hoffman (Cal Tech). “Size, Capacity, and Expenditures of States”

Mark Koyama (George Mason University), Chiaki Moriguchi (Hitotsubashi University), and Tuan-Hwee Sng (National University of Singapore). “Geopolitics and Asia’s Little Divergence: A Comparative Analysis of State Building in China and Japan after 1850”

Jared Rubin (Chapman University) and Debin Ma (London School of Economics). “The Paradox of Power: Principal-Agent Problems and Fiscal Capacity in Absolutist Regimes”

R. Bin Wong (UCLA) “The Size of Modern States: The Importance of State Challenges & Capacities in Early Modern China & Europe”

Yasin Arslantaş (LSE and Anadolu University) “Institutional Survival and Abolition of Ottoman State Confiscations in the Long-Eighteenth Century, 1695-1839”

Abstract

Economists and economic historians have recently become interested in the role that fiscal and legal capacity – the power to tax and provide law – played in the “rise of the West”. This argument in its recent form can be traced to Charles Tilly (1975, 1990), who argues that the need for mutual defense and war created incentives for governments to invest in revenue generation; Tilly’s (1975, p. 42) oft-cited statement is “War made the state, and the state made war.” Besley and Persson (2009, 2010) and Acemoglu (2005) extend Tilly’s argument, noting that investments in fiscal capacity arise endogenously because of common interests in the provision of public goods. Other important works in this literature, especially those of Dincecco (2009) and Karaman and Pamuk (2013), stress the role that representative institutions played in generating fiscal capacity through increased taxation and lower sovereign credit risk.

A related literature attempting to explain the rise of the West focuses on the fact that Europe was relatively fractured into small states that were frequently at war, whereas much of the rest of the world was dominated by large empires that faced less political competition. An important recent contribution to this literature, put forward by Philip Hoffman (2015) in his book Why Did Europe Conquer the World?, argues that competition between European rulers only led to massive improvements in military technology when combined with gunpowder, which came to Europe in the late medieval period. Numerous reasons have been given for the relative fractionalization of Europe, including the presence of outside threats (Alesina and Spolaore 2005; Ko, Koyama, and Sng 2015), trade patterns (Friedman 1977; Alesina and Spolaore 1997), and geography (Diamond 1997).

These two literatures are clearly complementary, and there are many open questions waiting to be answered using these recent insights. These include, but are hardly limited to, why was Europe so fractionalized following the fall of the Roman Empire, and why was the remainder of Eurasia so frequently ruled by empire? Did fiscal, state, or administrative capacity play any role in determining the size of states in Eurasia? What role did state fractionalization – or lack thereof – play in generating the fiscal, state, and administrative capacity so important to the rise of modern states? And, on the contrary, what role did fiscal, state, and administrative capacity play in determining the size of states?

This session includes papers which aim to address precisely such questions. It consists of three papers listed above. All three presenters have agreed to participate.

Organizer(s)

  • Jared Rubin Chapman University jrubin@chapman.edu USA

Session members

  • Philip Hoffman, Cal Tech
  • Mark Koyama, George Mason University
  • Chiaki Moriguchi, Hitotsubashi University
  • Jared Rubin, Chapman University
  • Yasin Arslantaş, LSE and Anadolu University
  • R. Bin Wong, UCLA

Discussant(s)

Papers

Panel abstract

Economists have recently become interested in the role that fiscal and legal capacity—the power to tax and provide law—played in the “rise of the West”. A related literature focuses on the fact that Europe was relatively fractured into small states that were frequently at war, whereas much of the rest of the world was dominated by large empires that faced less political competition. These two literatures are complementary, and there are many open questions waiting to be answered using these insights. These include why was Europe so fractionalized following the fall of the Roman Empire, and why was the remainder of Eurasia so frequently ruled by empire? Did fiscal, state, or administrative capacity play any role in determining the size of states in Eurasia? What role did state fractionalization play in generating fiscal, state, and administrative capacity—and vice versa?

1st half

Size, Capacity, and Expenditures of States

Philip T. Hoffman

In pre-modern states, state capacity seems to vary inversely with state size; government expenditures also seem to vary with state size. This paper seeks to understand why that is so. It looks at the data behind these relationships, explores possible theoretical explanations, and asks why other historical data would help pin down what is happening.

In pre-modern states, state capacity seems to vary inversely with state size; government expenditures also seem to vary with state size. This paper seeks to understand why that is so. It looks at the data behind these relationships, explores possible theoretical explanations, and asks why other historical data would help pin down what is happening.

Geopolitics and Asia's Little Divergence: A Comparative Analysis of State Building in China and Japan after 1850

Mark Koyama, Chiaki Moriguchi, and Tuan-Hwee Sng

We provide a new framework to account for the diverging paths of political development and state building in China and Japan during the second half of the nineteenth century. The arrival of Western powers not only brought opportunities to adopt new technologies, but also fundamentally threatened the national sovereignty of both Qing China and Tokugawa Japan. We argue that these threats produce an unambiguous tendency toward centralization and modernization for small states, but place conflicting demands on geographically larger states. We use our theory to study why China, which had been centralized for much of its history, experienced gradual disintegration upon the Western arrival, and how Japan, which had been politically fragmented for centuries, rapidly unified and modernized during the same period. To further demonstrate its validity, we also apply our model to other historical episodes of state building, such as the unification of Anglo-Saxon England in the tenth century...

We provide a new framework to account for the diverging paths of political development and state building in China and Japan during the second half of the nineteenth century. The arrival of Western powers not only brought opportunities to adopt new technologies, but also fundamentally threatened the national sovereignty of both Qing China and Tokugawa Japan. We argue that these threats produce an unambiguous tendency toward centralization and modernization for small states, but place conflicting demands on geographically larger states. We use our theory to study why China, which had been centralized for much of its history, experienced gradual disintegration upon the Western arrival, and how Japan, which had been politically fragmented for centuries, rapidly unified and modernized during the same period. To further demonstrate its validity, we also apply our model to other historical episodes of state building, such as the unification of Anglo-Saxon England in the tenth century and the rise of Muscovy during the fifteenth century.

2nd half

The Paradox of Power: Principal-Agent Problems and Fiscal Capacity in Absolutist Regimes

Debin Ma and Jared Rubin

Tax extraction is often low in absolutist regimes. Why are absolutists unable to convert power into revenue? Supported by evidence from Imperial China, we explain this puzzle with a principal-agent model which reveals that absolutists, unconstrained by rule of law and unable to commit to not predating on their tax-collecting agents (and the masses), may find it optimal to settle for a low wage-low tax equilibrium, while permitting agents to keep extra, unmonitored taxes. Our analysis suggests that low investment in administrative capacity is a conscious choice for an absolutist since it substitutes for credible commitment to refrain from confiscation.

Tax extraction is often low in absolutist regimes. Why are absolutists unable to convert power into revenue? Supported by evidence from Imperial China, we explain this puzzle with a principal-agent model which reveals that absolutists, unconstrained by rule of law and unable to commit to not predating on their tax-collecting agents (and the masses), may find it optimal to settle for a low wage-low tax equilibrium, while permitting agents to keep extra, unmonitored taxes. Our analysis suggests that low investment in administrative capacity is a conscious choice for an absolutist since it substitutes for credible commitment to refrain from confiscation.

The Size of Modern States: The Importance of State Challenges & Capacities in Early Modern China & Europe

R. Bin Wong

This paper considers the quite distinct challenges that states in early modern China and Europe faced and the capacities they developed to become successful. Success in turn had different economic consequences, both intended and unintended. These contrasting early modern situations shared features that help explain why China of all early modern territorial empires became a 20th-century national state with borders quite similar to those of its 18th-century imperial predecessor and using some of the principles and practices developed by the early modern era. The late twentieth-century creation of the EU represents the first moment since the falls of the Han and Roman empires nearly two millennia ago that the two ends of mainland Eurasia are organized politically on somewhat similar spatial and demographic scales, thus, reminding us of the historical specificity of at least some features of the European state making model in global history.

This paper considers the quite distinct challenges that states in early modern China and Europe faced and the capacities they developed to become successful. Success in turn had different economic consequences, both intended and unintended. These contrasting early modern situations shared features that help explain why China of all early modern territorial empires became a 20th-century national state with borders quite similar to those of its 18th-century imperial predecessor and using some of the principles and practices developed by the early modern era. The late twentieth-century creation of the EU represents the first moment since the falls of the Han and Roman empires nearly two millennia ago that the two ends of mainland Eurasia are organized politically on somewhat similar spatial and demographic scales, thus, reminding us of the historical specificity of at least some features of the European state making model in global history.

Institutional Survival and Abolition of Ottoman State Confiscations in the Long-Eighteenth Century, 1695-1839

Yasin Arslantaş

This paper develops an analytical narrative examining the survival and abolition of confiscation of elite property (müsadere) by Ottoman rulers in the long-eighteenth century, 1695-1839. Nearly from 1453 to 1839, Ottoman rulers confiscated the property of elites upon their death or to punish those who were deemed to be corrupt, though on a selective basis. The intensity of confiscations arguably reached a peak during the second half of the eighteenth century. To explain why, historical accounts claim that rulers were fiscally driven during this period of fiscal bottleneck. This claim, however, does not account for why office-holders and local elites were the most affected and why the central government could confiscate more when it was facing serious challenges to its authority. The same holds true for the timing of the abolition, i.e. why it was officially abolished in 1839. To answer these questions, the narrative presented here combines property rights...

This paper develops an analytical narrative examining the survival and abolition of confiscation of elite property (müsadere) by Ottoman rulers in the long-eighteenth century, 1695-1839. Nearly from 1453 to 1839, Ottoman rulers confiscated the property of elites upon their death or to punish those who were deemed to be corrupt, though on a selective basis. The intensity of confiscations arguably reached a peak during the second half of the eighteenth century. To explain why, historical accounts claim that rulers were fiscally driven during this period of fiscal bottleneck. This claim, however, does not account for why office-holders and local elites were the most affected and why the central government could confiscate more when it was facing serious challenges to its authority. The same holds true for the timing of the abolition, i.e. why it was officially abolished in 1839. To answer these questions, the narrative presented here combines property rights and state capacity perspectives. Though this paper talks about institutional persistence and change, it gives a special consideration to whether it was a change for better. As I will argue, these confiscations were barely detrimental to market economy as the prime targets were rather rent-seekers than productive classes. Thus, it is necessary to add another way of thinking, that is, in the context of the relationship between the state and its fiscal and administrative agents. By the help of this perspective, I suggest that the power and willingness of the Ottoman state to confiscate the property of its agents was closely linked with its capacity to tax, administer and fight. I then argue that given high costs of investment in state capacity caused by the size and heterogeneity of the empire, confiscation remained the best available policy to survive through the eighteenth-century crisis and enabled what I call “controlled decentralisation.” On the other side of the picture, potential targets of confiscation were unable to credibly punish the sovereign due to high costs of collective action. Regarding the question of abolition, I argue that the abolition declared in 1839 was more credible than earlier declarations partly due to the diminishing significance of the practice, such as keeping the agents under control, caused by some advances in curbing their vested interests.