State Capacity and the Rise of the Modern Nation State with Mark Koyama

My guest for this episode is Mark Koyama of George Mason University. Our topic is a recent paper titled, “States and Economic Growth: Capacity and Constraints,” which Mark coauthored with Noel Johnson.

As stated in the paper, “state capacity describes the ability of a state to collect taxes, enforce law and order, and provide public goods.” That said, state capacity does not mean big government. A state may have the power to impose rules across its territory, but it doesn’t have to use that power in a tyrannical way. Another way of saying that is to say that having a high state capacity is compatible with Adam Smith’s desire for “peace, easy taxes, and a tolerable administration of justice.”

One metric that researchers use to measure state capacity is tax revenue per capita. But as Mark is careful to point out, a state with less state capacity can still sometimes achieve a relatively high income through tax farming. This is the practice in many pre-modern states of auctioning off the right to extract tax revenues to local elites in different regions.

We discuss the rise of modern nation-states in various regions, and why some states developed more state capacity than others going into the twentieth century. In particular, we discuss Europe’s transition away from a feudal system ruled in a decentralized way by monarchs who held power based on their personal relationships with local lords. England’s Glorious Revolution of 1688 allowed it to develop its state capacity earlier than other European nations, with a centralized tax system controlled by parliament.

Per Capita Tax Revenues

By contrast, continental powers like the French Ancien Régime and the Hapsburg Empire were legally and fiscally fragmented, leading them to develop their state capacity much later than England.

We also discuss the development of state capacity in Asia, and why Meiji Japan was able to develop its state capacity much faster than Qing Dynasty China.


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