Prosperity and Violence

During my recent flight from Brussels to DC, I got through a few books, including Prosperity and Violence: The Political Economy of Development (New York: W. W. Norton & Co., 2001), by Robert H. Bates. It’s full of interesting thoughts about the need to tame violence and redirect it from predation to the protection of the institutions and practices conducive to creation of wealth, as well as insights into economic practices to reduce risk, establish low-transaction costs networks, and the like. It’s marred, however, by several odd assumptions and claims:

1. Bates assumes that there is a constant of power in the hands of the state and that when non-state institutions act, it is on the basis of a “delegation” of power from the rulers to those actors. He reads the charters of medieval European cities as “investments” of power by monarchs in their subjects, which is very strange. (Augustin Thierry, the great historian of the medieval communes, effectively refuted that understanding of the medieval charters, which were more often assertions of the authority of the cities than “grants” of power by rulers.*) Thus, according to Bates, “By delegating to the citizens of the towns the power to govern their affairs, the monarchs empowered them to form economic organizations capable of promoting the growth of the urban economy — and thus the government’s revenue base.” (p. 61) It’s a very strange view, especially when you consider that these grants were allegedly taking place in the process of state-building, which entails that the rulers of the state did not possess the power that they were, in Bates’s view, “delegating.” Moreover, subsidies and privileges that could be explained on the basis of simple swaps of loot and privilege for political support are construed, instead, as conscious government policies to “strengthen incentives for investment” (p. 71) and “to promote development” (p. 72, p. 74, etc.). No doubt those were among the reasons of some, but giving money to your friends has another, simpler, and more basic explanation, and it has nothing to do with promoting development.

2. Bates accepts, without any argument (and in the face of some fairly obvious objections) a highly contested account of the role of mercantilist policies in European economic development. Thus,

Under what is called “mercantilism,” ruling lineages actively promoted the growth of manufacturing in towns. They limited the importation of finished goods, thus protecting local manufacturers from competition from abroad. By imposing tariffs and quotas on the import of textiles, cloth, fabrics, and other items, they allowed the prices of these goods to rise. Governments also limited the exportation of raw materials; by placing barriers on the export of wood, iron, copper, fibers, and other items used in manufacturing, they reduced the domestic price of the raw materials used by urban industry. These mercantilist policies — raising prices for finished products and reducing the costs of production — increased the profits that could be earned by manufacturers in towns.” (p. 59)

Furthermore,

Governments…intervened in agricultural markets in ways that lowered prices to urban consumers and enhanced the fortunes of those employed in urban industry. (p. 60)

But then Bates correctly points out what cannot be compatible with his account:

The rise of manufacturing promoted the growth not only of towns, but also of rural economies. (p. 62)

Precisely so, as Jean-Baptiste Say demonstrated, when the relations are those of voluntary exchange. But he also showed that the growth of rural economies promoted the growth of towns, and for the same reasons. (See also Say’s First Letter to Thomas Malthus.) But Bates accounts for the growth of towns through acts of royal coercion to harm rural populations. He can’t really have it both ways. A more sophisticated view would have shown how such protectionism harmed the ability of rural people to buy the products of the towns, as well as limiting the division of labor among manufacturing centers. (It’s also worth noting that protectionism stimulated the growth of another industry: smuggling. The fact that the English parliament had to pass protectionist acts year after year suggests that they were not very effectively enforced.)

Given the disastrous results of such policies of “import substitution” in the twentieth century, Bates should have questioned whether that narrative offers a good explanation of the growth of prosperity in Europe and north America in preceding centuries.

Bates could benefit by reading about the “Lerner Symmetry Thesis” as it applies to international trade (a tax on imports has, in the aggregate, the same impact as a tax on exports), not to mention Douglas Irwin’s quite good Free Trade Under Fire, Razeen Sally’s New Frontiers in Free Trade: Globalization’s Future and Asia’s Rising Role, or Frédéric Bastiat’s “What Is Seen and What Is Not Seen.” Protectionism doesn’t add to productivity; the limitation of imports diminishes what Adam Smith called “the extent of the market,” thus lowering the value that could be added by specialized production. (Imagine what would happen to the US automobile industry if parts could not be imported from Canada, or what would happen to Chinese industry if components could not be imported from abroad.)

3. Bates seems to accept some odd views about the motivations of people involved in various economic reform programs around the world, from Brazil to Chile to South Africa to Ghana. I did not find his assertions of why reformers did what they did at all convincing and no evidence was offered for his “just so” stories.

All that said, I think that this is an interesting, provocative, and useful little book. And it makes a great airplane read.

*Augustin Thierry’s works, which I first discovered when an undergraduate at St. John’s College, the library of which had an ancient copy of his History of the Conquest of England by the Normans that had not been checked out in roughly 100 years (making it feel a bit funny to stamp in the withdrawal date on the line below a date of a century earlier), are a treat. They do contain errors, as the examination and verification of historical documentation was progressing rapidly at the time, but that is true of all historical works. His pioneering work in documenting the emergence and growth of the communes of France represents a great advance in scholarship and in our understanding of the nature of civil society. His The Formation and Progress of the Tiers État, or Third Estate in France is a good read. I once had the chance to buy the volumes of his collected charters of the communes [Recueil des monuments inédits de l’histoire du Tiers Etat] in a used book shop in Annapolis and asked them to hold them until I could go to the bank and get out $100 to buy them; I returned the same day and found that some other person had bought them!)