Posts Tagged ‘State Capacity’

Everyone likes the idea of “state capacity,” at least when it means competent, honest government rather than dysfunctional, corrupt government.

But the consensus disappears when some folks argue that you achieve this goal by making government bigger.

It’s especially disappointing when international bureaucracies such as the OECD and IMF argue that poor countries somehow can become richer by imposing higher taxes and increasing the burden of government spending.

At the risk of understatement, that’s nonsense.

But this is not just an issue in developing nations.

In his New York Times column, Ezra Klein worries that his fellow leftists do not pay enough attention to what he perceives to be insufficient state capacity in the United States.

He starts by citing one of Biden’s top economists.

You can’t transform the economy without first transforming the government. …Brian Deese, the director of Biden’s National Economic Council, gave an important speech on the need for “a modern American industrial strategy.” …For decades, the idea has been disreputable, even among Democrats. You don’t want government “picking winners and losers,” as the adage goes. …But societies have richer, more complex goals. …So I won’t say markets failed. We failed. …Deese, in his speech to the Economic Club of New York., declared the debate over: “The question should move from ‘Why should we pursue an industrial strategy?’ to ‘How do we pursue one successfully?’”

He then describes how government fails.

…we need a liberalism that builds. Scratch the failures of modern Democratic governance, particularly in blue states, and you’ll typically find that the market didn’t provide what we needed, and government either didn’t step in, or made the problem worse through neglect or overregulation. …At the national level, much can be blamed on Republican obstruction and the filibuster. But that’s not always true in New York or California or Oregon. It is too slow and too costly to build even where Republicans are weak — perhaps especially where they are weak. …What we have is a government that is extremely good at making building difficult.

And he gives examples of government failure.

The Transit Costs Project tracks the price tags on rail projects in different countries. …the United States is notable for how much we spend and how little we get. It costs about $538 million to build a kilometer of rail here. Germany builds a kilometer of rail for $287 million. Canada gets it done for $254 million. Japan clocks in at $170 million. …The problem isn’t government. It’s our government. …When a government can’t…build the sign-up portal to its new health insurance plan or construct the high-speed rail it’s already spent billions of dollars on, that’s a failure of state capacity.

Klein quotes Nicholas Bagley, a law professor at the University of Michigan, about the “adversary legalism” that makes government slow and inefficient in the United States.

…a way that America differs from peer countries… “Inflexible procedural rules are a hallmark of the American state,” he writes. “The ubiquity of court challenges, the artificial rigors of notice-and-comment rule-making, zealous environmental review, pre-enforcement review of agency rules, picayune legal rules governing hiring and procurement, nationwide court injunctions — the list goes on and on.”

Klein concludes by stating that his side needs to focus not just on ideas, but also on how to reform government so that those ideas can be implemented.

When I go looking for ideas on how to build state capacity on the left, I don’t find much. …health, climate and education plans depend, crucially, on a state capable of designing and executing policy effectively. This is true at the federal level, and it is even truer, and harder, at the state and local level. So this is what I have become certain of: Democrats spend too much time and energy imagining the policies that a capable government could execute and not nearly enough time imagining how to make a government capable of executing them.

In the column, Klein does not offer any concrete solutions, but he does acknowledge that cutting back on “adversary legalism” will cause divisions on the left.

Which sound potentially amusing, but it’s important to acknowledge that libertarians are not united on this topic, either.

Though I’m very skeptical.

As I noted two years ago, my view of state capacity libertarianism is the same as my view of national conservatism. And compassionate conservatismkinder-and-gentler conservatismcommon-good capitalism, and reform conservatism as well.

Before I embrace any trendy new idea, someone needs to show me the tiniest shred of evidence that further reducing economic liberty can lead to more prosperity.

I suppose that’s possible, just as it’s possible I might be playing for the Yankees in the World Series later this year. But neither of those outcomes is likely for those of us who care about real-world evidence.

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If we want more prosperity, what’s the ideal size of government? Anarcho-capitalists would say it shouldn’t exist at all, while some hard-core leftists want something like North Korea, where the state is everything.

The rest of us want something between those extremes, but that still leaves plenty of room for disagreement.

I think limited government is the recipe for economic dynamism, which is why I’m a big fan of the  U.S. Constitution, which was designed to limit the powers of Washington.

Others believe that government should be bigger, in some cases much bigger, with international bureaucracies often advocating this view.

There are even some libertarians who believe that more government spending can lead to economic growth by boosting “state capacity.”

What is state capacity, in case you’re wondering? It’s the notion that the private economy is more likely to flourish if government is sufficiently large that it can competently fulfill certain functions.

Writing for Econlib, Professor Bryan Caplan explains one of the problems with the literature on state capacity.

In the last few years, social scientists have started heavily appealing to “state capacity” to explain the wealth of nations.  Why do some countries prosper?  Because they have great state capacity.  Why do others flounder?  Because they have crummy state capacity.  What do floundering countries need to do in order to prosper?  Build state capacity, naturally. …Weak and question-begging empirics aside, the whole literature is conceptually confused. …the coronavirus crisis plainly shows that Western democracies have overwhelming state capacity. …What’s going wrong?  Simple: Despite fantastic state capacity, the U.S. government has absurd state priorities!  Instead of squandering trillions on poorly-targeted relief, the U.S. government could have spent a few hundred billion on testing and vaccine research.  Better yet, it could have offered hundreds of billions in prizes for progress in these areas – prizes open to anyone on Earth to win. So why didn’t this happen?  Simple: Because the people in charge in virtually every country are irresponsible, disorganized, innumerate, impulsive, and emotional.

Professor Caplan points out that supporters of bigger government don’t have a coherent response to this problem.

I don’t think I’ve ever heard a fan of state capacity research acknowledge this obvious point, much less try to fairly adjudicate it. …I’m tempted to say that appeals to state capacity are tautological, but even the tautologies are half-baked.

If you want an example of how proponents go awry, check out a new study on this topic from Brink Lindsey of the Niskanen Center.

It certainly seems like he wants readers to blindly accept the notion that bigger government means competent government means more prosperity.

The concept of state capacity – “the ability of a state to collect taxes, enforce law and order, and provide public goods” – was developed by political scientists, economic historians, and development economists to illuminate the strong institutional contrast that parallels the economic contrast between rich and poor countries. Rich countries are all distinguished by having large, strong, and relatively capable states; poor countries, by contrast, are generally characterized by weak and frequently ineffective states.

This is a remarkable anti-empirical excerpt. Let’s look at two reason why Lindsey’s argument doesn’t hold water.

First and most important, it ignores the fact that today’s rich countries in the North American and Western Europe got rich – and achieved high levels of state capacity – when they had very small governments (and no redistribution programs) back in the 1800s and early 1900s.

This is a very inconvenient fact for who argue bigger government is needed to boost state capacity.

Second, it also ignores the fact that there are countries today with very high levels of state capacity and very modest-sized governments. Consider, for example, the “Asian Tigers” of Singapore, Hong Kong, and Taiwan. These jurisdictions rank very highly for public goods, yet the burden of government is very small by modern standards.

This is a very inconvenient fact for those who argue bigger government is needed to boost state capacity.

Here’s the bottom line: Does anyone actually believe more government spending will make Washington more competent and effective?

For instance, is there any reason to think Biden’s tax-and-spend policies will improve the federal government’s performance?

Or let’s shift to the developing world, places that don’t do a good job providing actual “public goods.”

These are place that would benefit from (properly defined) state capacity, but who thinks bigger government will lead to better government in Honduras? Or Pakistan? Or Malawi?

Simply stated, it is highly unlikely that bigger government leads to more competent government. Indeed, all the evidence points in the other direction (with the pandemic response being a painful example of how bloated governments do a bad job of responding to genuine problems).

Which is why I developed the Seventh Theorem of Government.

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