From Poverty to Prosperity: Understanding Economic Development part 1
- Nov 12, 2017
- 2 min read
Module 1 Summary
A centralised state is one in which a single entity controls a territory, which we call a monopoly of violence. We looked at the six steps to transition from anarchy to a centralised state, and discussed a number of reasons why some of these steps might not happen everywhere.
In a rural society, there are two types of economic activities of equal status: production and violence.
Armies manifest as a result of the scale economies of violence.
As armies grow bigger more revenue is needed to sustain them. This created a need for a bureaucracy capable of observing what people have got, in order to extract more from them, which resulted in the emergence of the tax system.
With a tax system in place, there is an incentive for the leader to grow the economy. One way to grow the economy is to encourage trade. However, trade requires people to trust each other, which led to the concept of contract enforcement as a state function, and a provided the base for a rudimentary rule of law.
To encourage more trade, investment in infrastructure is required to connect people from different areas. Infrastructure includes roads, bridges, and markets.
If a leader reaches the maximum revenues that can be extracted by taxation, and still needs more resources for the armies, one possible channel could be to borrow from the wealthy elite. However, the elite are not likely to trust the leader to pay them back. Therefore, at that stage the leader needs to share some of the power with the wealthy elite and give them control over key decisions such as the budget. This typically led to the creation of a parliament whose members are the wealthy elite.
Some of the reasons this did not happen everywhere include:
Population density: in a low-density population with plenty of other farm areas to move to, or in a hunter-gatherer society, people can just relocate run away instead of paying up. In an environment where people can just run away, you don’t get the first step in the emergence of a state.
Land productivity: a lot of territories will just be too unproductive to support the scale of an army to control the territory and the scale economies collide with the economic inability to maintain a big enough army to meet those scale economies.
Tax systems: not all states implemented tax systems and continued with a patronage system.
Trade opportunities: the opportunities for trade depends on ecological variation.
Colonialism: states were created where violence was imposed externally by colonising powers and when colonisation ended, they left behind very unstable territories.
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