House of War

The Westphalian state represents a relatively new equilibrium of state formation: the nation-state. According to the insight of Ronald Coase, via Douglass North, states exist and are required where transaction costs are greater than zero, and according to the insight of Charles Tilly, “war makes the state and the state makes war”. Vigorous internal and external competition amongst European states drove the evolution of the Westphalian nation-state. As a generic type, this category of state became very powerful and was able to partake of what we might describe as economies of scale of power projection. The existence of this new equilibrium raised transaction costs for other actors (for example, protecting one’s subjects from invasion became more expensive).

Therefore, non-Westphalian states have become clients of Westphalian states. Client status has affected a kind of price fixing in the international arena. The large operating costs, which the existence of the Westphalian nation-state creates, set a high barrier to entry into this market. In response, Westphalian states effectively chose to subsidise their favourite companies, reducing the influence of Schumpeterian pressure and preventing market-style competition from honing the efficiency and composition of their clients. The same hyper-competitive regional “market-mechanism” that brought forth the nation-state is unable to function.

I’m currently thinking of these newer, post-Westphalia “market barriers” as a variety of binding and non-binding price floors, in that the binding price-floors determine the market outcome, and the non-binding do not. Where a state is unable to produce (war) at the level of the price floor, it is prevented from entering the market. In the Middle East, this means that, because of Western state interventions pursuing Western state interests at the expense of Arab nationalists, regional violence is very expensive. For example, the high cost of acting against the interests of the Great Powers defeated Ali Muhammad of Egypt in the 19^th Century. Where those price floors are close to the market price, they are irrelevant. In terms of being able to administer internal violence at the discretion of the leader, Middle Eastern states have, even today, a large degree of freedom. For example, the ease with which Assad put down the Muslim Brotherhood rebellion in Hama reflects a general lack of interest and of constraint from the international order. In addition, the price floors still operate at a national level, and therefore are binding for some insurgent forces within the state. Internal rebellion is consequently more expensive and difficult to undertake. For example, the failure of the Egyptian Islamists to overthrow Nasser and Sadat was, at least in part, thanks to the patronage of the Powers, who provided the regimes with aid, weapons and other assistance.

All of this is an unfair advantage from the perspective of a “free market” where the regime and challenger compete for power and legitimacy. We have effectively institutionalised a system whereby we guarantee the state against internal overthrow but prevent the state from engaging in cross-border wars of conquest. Violence can flow downwards but not across.

Bruce Bueno de Mesquita, Alastair Smith, Randolph M. Siverson, and James D. Morrow, in their highly cynical book The Logic of Political Survival, state that when referring to categories of regime (and all other organisations, in fact) we should consider two institutional dimensions:

The selectorate, the group of people with a meaningful ability to choose the government or leadership;

The winning coalition, a subset of the selectorate that “backs” the leadership, whose support is essential for the incumbent, if they are to remain in power;

Selectorates vary according to type. In a democracy, the selectorate is the electorate. In an autocracy, the selectorate is the elite, like generals, important merchants, administrators and so forth. In a monarchy, the selectorate is the aristocracy. In North Korea, for instance, the nominal selectorate is the Korean Workers’ Party, but the real selectorate is a much smaller group within that. Selectorates vary greatly in size.

Winning coalitions also vary according to type. In the British parliamentary system, the winning coalition must be at least half the MPs, each with half the vote in their districts, or at least twenty-five percent of the vote. In a directly elected presidential system, you need fifty-one percent of the vote. In America, thanks to the vagaries of the Electoral College, you could potentially secure the presidency with as little as nineteen percent of the vote. Proportional representation can give even smaller winning coalitions, many with as little as ten percent of the vote, according to Bueno de Mesquita et al. In a rigged, autocratic system like North Korea’s, you can win with the support of one in every ten thousand, if they are the military leaders. Winning coalitions, too, vary greatly in size.

The example of North Korea is different from those that preceded it in an important way: in an electoral system, the selectorate and winning coalition (i.e. the voters) are essentially anonymous; in all other systems, they draw from a known set.

All governments want to survive, and all have the same basic functions: to set the tax rate, which generates revenue, and to keep their constituents happy, by allocating resources in the form of public goods, which benefit everybody, and private goods, which benefit the winning coalition. Private goods might be monopoly access, access to corruption, access to superior material goods. Democratic systems are no different. Republicans use tax policy to benefit their constituents, the relatively wealthy people who tend to vote Republican, and the Democrats do the same, using tax policy to benefit the relatively poorer people who tend to vote Democrat. The logic of political survival dictates this. The government must satisfy its winning coalition to maintain power, by definition. In this theory (correct, IMO), cronyism is inevitable. “It was written”.

Democracies differ from dictatorships only in terms of scale. They follow the same logic according to the same two institutional predicates. We need not be idealistic regarding the limits and true nature of democracy. It is abundantly clear that it is superior to dictatorial systems, because it guarantees a far larger group is involved in selecting and maintaining the government, because large absolute size of the selectorate contributes to more public goods and because large relative size of winning coalition (relative to the size of the selectorate) contributes to less private goods. A government that is supported by a large winning coalition will find it more efficient to reward that coalition by producing public goods, which can be consumed by all. A government that is supported by a small coalition willl find it much more efficient to reward that coalition with corruption. But, as Richard L. Stroup writes,

In democratic politics, rules typically give a majority coalition power over the entire society. These rules replace the rule of willing consent and voluntary exchange that exists in the marketplace. In politics, people’s goals are similar to the goals they have as consumers, producers, and resource suppliers in the private sector, but people participate as voters, politicians, bureaucrats, and lobbyists. In the political system, as in the marketplace, people are sometimes (but not always) selfish. In all cases, they are narrow: how much they know and how much they care about other people’s goals are necessarily limited.

The narrowness of the competing self-interests is a fundamental fact be it democracy or dictatorship. It is impossible not to be narrow. (Hayek wrote a great paper about this, probably one of the greatest papers I have ever read – The Use of Knowledge in Society). Thus, a government might want to pick the best policy for the national interest, but there is no reason to suppose that it will be able to, simply because its knowledge is so limited. And in any case, there are various groups to keep satisfied, whose support is more important than picking the best solution to any given problem. In America, for example, there are policies to protect a handful of super-rich sugar farmers, which keeps sugar prices high, stifles innovation in that sector and keeps developing world producers from accessing American markets. It is so because protecting American industry is popular both with the general population, who suffer as a result, and with the sugar manufacturers, who make lots of money and no doubt form part of a winning coalition somewhere or other.

This piece is mostly based on Russ Robert’s excellent interview with Bueno de Mesquita at EconLog.

Cross-posted at Dissensus.