Notes - Chapter 1: Development Clusters

Little else is required to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice; all the rest being brought about by the natural course of things.

- Adam Smith, 1755

Adam Smith. Wikimedia Commons

Influential contemporary commentaries on government policy (national andinternational) in developing countries include Collier (2007), Easterly (2006), Sachs (2005) and Stern, Dethier and Rogers (2005). The different perspectives offered in these works serve as useful background reading to the debates reflected in this book. Collier and Gunning (1999) and Sachs et al (2004) discuss the origins of Africa's poor economic performance.

A long-standing debate concerns the proper role of the state in economic development. Chenery (1975) nicely summarizes the discussions that shaped development policy in the post-war period, identifying a set of important structural features of developing economies where state intervention could,in principle, generate better economic performance. A fervent critic of this view and its implications for aid was Bauer (1972).

Myrdal (1968) saw the problem of weak institutions early on; the "softstate" - facing a multidimensional problem with lacking legislation, weakenforcement, collusion, and corruption - is indeed a recurring theme in his Asian Drama. Bates (1981) offers a perceptive account of how government failure lies at the heart of many policy problems in Africa. Nowadays, it is common place to put politics at the heart of our understanding of development, seeing economic and political development proceeding in step. Recent works on development that put political economics at centre stage include Acemoglu and Robinson (2005), Bueno de Mesquita, Morrow, Siverson and Smith, (2003), and North, Weingast and Wallis (2009). Also related is Bockstette, Areendam and Putterman (2002), Chanda and Putterman (2004) and Putterman (2008) which link state antiquity to contemporary economic performance with an emphasis on institutional factors. A strong statement about the importance of institutions for development can be found in Rodrik, Subramanian and Trebbi (2004).

State failure has become a central concept in discussions about development.Collier (2008) focuses on the consequences of trying to introducedemocracy in poor countries. Bates (2008) and Bates (2009) discuss the problems encountered in building effective states in Africa. As discussed at the outset of the chapter, an extensive policy literature deals with the problems of weakand failing states - see ERD (2009), OECD (2010a), Rice and Stewart (2008)and USAID (2005).

The economic-history literature has produced numerous explanations for development patterns. A major concern has been to explain the rise in incomes in Western Europe from the beginning of the nineteenth century. A series of largely complementary explanations have emerged, which stress the importance of different factors. Thus, North and Thomas (1973) offer an explanation based on institutions, Landes (1998) and Clark (2008) give greater weight to cultural change, while Mokyr (1990) emphasizes the role of technology. Rosenberg and Birdzell (1986) stress flexibility of market organization, but also the interplay between economics and politics.

Strayer (1970) is an important contribution to our understanding of the central role played by fiscal and judicial institutions in the development of European states in Medieval times. Dincecco (2011) looks at weak and strong states in historical perspective and Ma (2010) provides an account of state development in China based on incentives to build state capacities. An influential account of sources of power and the development of the state froma sociological perspective is Mann (1986) and Mann (1993). Gellner (1983) is a classic to_be_inserted emphasizing the importance of nationalism in preceding state development.

As mentioned in the text, Posen (1993) argues that European states strategicaly developed common nationalistic interests so as to facilitate warfare against rival states. Asmentioned in the text, fiscal capacity and state building more generally and their relation to war has been a major theme in the literature on economicand political history, like Hintze (1906), Tilly (1985), and Brewer (1989). However, weak states were late to enter the academic economics literature. Acemoglu (2005) develops a formal model, where rulers in weak state have short time horizons and spend too little on productive public goods, which raise the ability to raise future taxes, while rulers in strong states have blunt accumulation incentives due to their security of tenure. Besley and Persson (2009a) study fiscal and legal capacity building as a joint investment problem, and derive a general complementarity result. Acemoglu, Ticchi and Vindigni (2010) study the role of bureaucracies in creating (in)effective states.