State, society, and the narrow corridor to liberty

Daron Acemoglu and James Robinson show a constant economic tussle between society and the state in the hot pursuit of liberty.

Daron Acemoglu and James Robinson (2019)

 

The narrow corridor: states, societies, and the fate of liberty

 

Authors of the book Why Nations Fail, Daron Acemoglu and James Robinson show a constant economic tussle between the state and the society in the fate of liberty. The state maintains socioeconomic order but may inadvertently grow oppressive. The society pursues liberty but cannot sustain order. The constant conflict between society and the state spans much of human history. Acemoglu and Robinson offer practical examples over human history from Gilgamesh to Donald Trump, and over geography from the city state of Athens to Hawaii and the Zulu nation. Specifically, Acemoglu and Robinson address one of the biggest questions for humankind: how can liberty become sustainable against the dangers of disorder, on one hand, and oppression on the other hand? Their definition of liberty follows John Locke: liberty reflects perfect freedom of most ordinary people to order their social and economic actions as these people think fit. This basic human right of liberty is a fundamental long-term aspiration. No one should harm another person in his or her life, health, liberty, and possessions. Innovation requires creativity. In turn, creativity calls for liberty.

The fate of liberty often hinges on a delicate balance in a relentless tussle between society and the state. Society wants liberty but finds it difficult to solve the collective action problem of maintaining order in law enforcement, social violence control and prevention, and the state provision of public services such as infrastructure, health care, and education etc. For better social order, society needs to build a stronger state. Society further controls and shackles the stronger state to avoid the fear and repression by despotic leaders. The latter is another collective action problem.

A stateless society (or Absent Leviathan) can degenerate into total disorder. When social norms and beliefs serve as a cage, these norms and beliefs often constrain actions and behaviors, favor some in society over others, and inhibit creativity and innovation for technological progress. The state takes over the task of maintaining order to relax the cage of social norms and beliefs. However, the state sometimes becomes oppressive (or Despotic Leviathan), serves its own interests, levies hefty and arbitrary taxes, and restricts freedom of thought and expression in many ways. These state pursuits are bad for economic growth, development, and technological progress. Between the 2 extreme cases is the narrow corridor where governance allows the state to harness enough power to maintain order, but not so much as to be oppressive. A better balance between state control and social peace preserves liberty and then facilitates economic growth and development.

 

What is the Red Queen effect in the power conflict between society and the state?

Acemoglu and Robinson borrow the anecdote of the Red Queen effect from Lewis Carroll’s Through the Looking Glass to refer to the basic truth that the 2 rivals (Alice and the Red Queen in Alice’s Adventures in Wonderland) should be running at the same pace in order to remain in the same place relative to each other. In business administration, the Red Queen effect reflects consistent increases in competitive forces for each technology platform to adapt faster just to survive in the game. This technological progress arises as a result of improvements in the evolutionary pace of rival technology solutions (Barnett and Hansen, 1996). This basic biology notion helps explain the co-evolution of alternative rival platforms over time: some basic platforms may eventually decline from the current game in town if these platforms cannot adapt fast enough in comparison to rivals and competitors. As the general pace of adaptation of one rival technology solution increases, this pace puts much greater pressure for rivals and competitors to further boost their pace of adaptation just to remain in the game.

Society and the state constitute the whole polity in a dynamic game. Each chooses how much the constituents should invest to increase power. The power levels are like capital stocks that depreciate over time. Investments are then like flows of the capital stocks. The investment costs are functions C_k(I_k, X_k) with increasing returns in the economic sense that the marginal cost C_k of investment I_k declines with the capital stocks X_k. In each period, economic output serves as a production function F(X₁, X₂) of the power levels of society and the state. A more capable state and a stronger civil society can both enhance economic output. The incentives for each side to invest more are highest for both sides when their power levels are equal. A fresh contest happens in each period, and success is independent across periods. In the long run, the division of cumulative output arises from the respective power levels X₁ and X₂ and their probabilities of occurrence.

As Acemoglu and Robinson (2017) prove mathematically, the polity can converge to one of 3 types of steady states with respect to the initial conditions. These types of steady states are the Absent Leviathan, Despotic Leviathan, and narrow corridor. The Absent Leviathan arises from the polity where the state is non-existent in light of social disorder. This stateless disorder poses a constant threat to life, property, and a society that strives to avoid total disorder by developing internal social norms and beliefs into the metaphorical cage. The Despotic Leviathan emerges from the polity where civil society is powerless and the state is strong and oppressive. The power levels reach a better balance in the narrow corridor. In this third steady state, each side finds it optimal to make sufficient investment to retain this balance. This Red Queen effect manifests in the relentless tussle between society and the state in the hot pursuit of liberty (as each side strives to ramp up its social and economic power). Through the narrow corridor, both power levels grow and eventually reach the third steady state of maximum power levels for both.

However, if both power levels are initially small, it would be costly for both society and the state to invest more. Scale economies can reduce both investments to the point that a small discrepancy in power levels shakes the delicate balance between society and the state. For this reason, the corridor is extremely narrow. A transition from disorder to despotism can happen with no transit through the narrow corridor. Acemoglu and Robinson provide anecdotal examples where society and the state shift, change, or manipulate the initial conditions in the dynamic power game. This transformation can lead some polity to enter the narrow corridor.

 

What are the extreme versions of society and the state?

The Acemoglu-Robinson basic picture is of civil society: a collectivity of individuals who are unanimous in their desire to protect liberty for all members. Most societies almost everywhere and at all times are split by wide and deep crevasses along key dimensions such as race, class, wealth, income, economic ideology, nationality (or ethnic origin), or most importantly and most disastrously throughout human history, religion. In practice, the world has never built a multi-ethnic democracy where no particular ethnic group is in the majority with complete political equality and social harmony. Acemoglu and Robinson recognize that it would be a huge simplification for political scientists and economists to ignore human conflicts within each given society. For example, the Indian caste system originates from ancient history, and its de facto continuation causes pernicious effects of the cage of social norms and beliefs on economic growth and development. Indian politicians on all sides have strategically exploited the caste divisions to retain their own power. These societal rifts have crucially altered the dynamic power game between society and the state. Moreover, Acemoglu and Robinson delve into similar societal rifts in America with respect to the Supreme Court interpretation of the Constitution, as well as private-public partnerships for public services such as transport, health care, infrastructure, and education etc. In America, Democrats and Republicans keep alive and exploit racial and cultural biases, prejudices, and conflicts within the U.S. society.

The state is not a single actor. Most importantly, the state faces agency problems. At a minimum, the elite have to hire large numbers from the non-elite to implement their oppression and extortion of society. Despots often reward these agents well enough to buy their services in acting against their fellow non-elites. Ensuring the quality of their work is a severe agency problem. For instance, Joseph Stalin of all dictators had powerful incentive schemes (sticks but not carrots) to force all Soviet citizens to generate huge surpluses for his social plans of investment and growth. The Stalin monitoring apparatus was noisy and thus relied on arbitrary state control, favoritism, and denunciation by socio-economic monitors subject to severe agency problems. Nowadays, most other despotic states (such as Congo and Venezuela) are even worse in terms of both long-term social decline and economic stagflation. The despotic state often attempts to increase the rate of taxation (or extortion) to excessive and counterproductive levels (i.e. the Khaldun-Laffer curve). At the top level, corruption is often an inherent characteristic of Despotic Leviathans. At lower levels of government, corruption is a pervasive agency problem.

 

Are the powers of state and society complements or substitutes?

On their path to despotic power, elites often strategically exploit societal conflicts. These elites interfere with the internal game of solving the collective action problem. For this reason, society cannot be given an exogenous investment cost function in the Acemoglu-Robinson model. In the real world, polity has many dimensions from economic growth and cultural heritage to race, religion, and ideology etc. Different dimensions show different salience for different segments of society. So elites can strategically exploit these differences in the dynamic power game between society and the state. Here elites contest for greater power against most other elites. Elites even create and foster fissures within each given society toward the same goal.

In America, Republicans have exploited the racial, cultural, and xenophobic anger and frustration of white rural citizens to get them to vote against their own economic interests. Specifically, Donald Trump’s presidential campaign and victory in 2016 gave these white rural citizens both pride and satisfaction that their country could become great again. In Britain, similar socioeconomic forces were important in the Brexit movement. In India, regional parties exploited caste divisions to sustain their local kleptocracies. Some regional Indian parties exploited anti-Muslim attitudes of many among the majority Hindus. In Europe, many right-wing xenophobic parties and leaders gained power, gained a share of power, or consolidated power into an illiberal democracy as a result of the refugee and immigration crisis of 2015. These examples help explain why elites often strategically exploit societal rifts in order to sustain power in the economic tussle between society and the state. When push comes to shove, the basic law of inadvertent consequences counsels caution.

In the zero-sum Red Queen contest between state and society, elites often need to recognize a basic set of universal rights and values (life, liberty, and the pursuit of happiness). A broad coalition of civil society should oppose any encroachment on these universal rights and values at any given point in time. Thus the state often plays an important role in resolving conflicts and fissures between elites and other members of the society. When state and society retain approximately equal power levels, the collectivity of members enters the narrow corridor with greater economic growth, development, and technological progress in due course. In this fresh light, the narrow corridor represents the best steady state of economic growth and social harmony.

Are the powers of state and society complements or substitutes? In the Acemoglu-Robinson model, should we expect to observe the second-order partial derivative dF/dX₁dX₂>0 or dF/dX₁dX₂<0? A major role of state capacity is to relax the societal cage of norms. This claim suggests the former, and the powers of state and society should be complements. However, Acemoglu and Robinson further delve into the development of parliaments in Europe, the subsequent Industrial Revolution, and economic progress along the narrow corridor. The analysis suggests the latter, and the powers of state and society should be substitutes. Which case seems to prevail can depend on the history, culture, and circumstances of individual policy regimes. From time to time, there is no one-size-fits-all solution. There are often many ways for political scientists and economists to skin the cat, and all roads eventually lead to Rome. Yet, no one can build Rome in one day.

In the Acemoglu-Robinson case of strategic complements, the model focuses on the positive-sum Red Queen effect. Both sides ultimately strengthen as a result of their competition. By encouraging the other side to invest in power, society and the state collectively promote greater economic surplus. Thus, this special case differs dramatically from the alternative special case of zero-sum Red Queen.

The Acemoglu-Robinson model leads to a first-best optimal steady state (the third way) at the northeast corner of the narrow corridor. In this third steady state, both state and society retain their maximum power levels. The particular steady state is a stationary equilibrium attractor for movements along the narrow corridor of liberty. In the earlier book Why Nations Fail, Acemoglu and Robinson (2012) place greater emphasis on the role of contingency. The divergent patterns of economic evolution depend on the interplay of both critical historic junctures and inclusive institutions. However, the economic outcome is not necessarily historically path-dependent but contingent on specific circumstances of domestic institutional arrangements. In the historical episodes, the exact path of institutional development often depends upon which of the competitive forces succeed, which groups can form effective coalitions, and which leaders are able to structure political events to their advantage. Inclusive institutions help promote better long-term economic growth and development from the colonial era to the modern age ceteris paribus. This important insight tends to help complement The Narrow Corridor in painting tiles in the complete mosaic of longer-term economic growth, development, and technological progress in mutual state-society interactions.

 

Can we reach the better delicate balance between society and the state in America, Australia, Britain, Canada, China, Europe, Japan, Singapore, and Taiwan etc?

Liberty has multiple dimensions. Acemoglu and Robinson and most outside liberal observers would take a broad view of liberty in America, Australia, Britain, Canada, and Europe. However, some societies may care a lot about some dimensions and little about other dimensions. These liberal observers find it reasonably satisfactory to enjoy economic material progress, and willingly sacrifice freedom of thought and expression to that end. This narrower view of liberty often seems to prevail in China, Hong Kong, Japan, Singapore, South Korea, and Taiwan etc. In this special case, a central state often seems to be oppressive in matters that many foreigners regard as important aspects of liberty. But this state capacity meets societal approval. The extant Acemoglu-Robinson model of the narrow corridor between state control and societal approval cannot address several dimensions of liberty in some alternative context. Do the Rohingyas and Rakhines have liberty in Myanmar? Do the Uighurs and Tibetans have liberty in China? Do Arabs and Muslims enjoy liberty in Israel? Should we include the West Bank in that context? Should immigrants enjoy liberty as natural citizens can? Some group of these societies maintain that their citizens enjoy great liberty. However, others may complain that the state seems oppressive. Should political economists take the average, or some Rawlsian criterion (in order to emphasize the worst-off)? In America, Britain, Canada, and parts of Europe etc, conservative members insist on the freedom of gun ownership. At the same time, these conservative members often tend to deny the freedom of choice for women with respect to abortion rights. In these western countries, liberal members tend to favor the opposite policy choices.

Acemoglu and Robinson view the political and economic development of almost the whole world over several thousand years through the lens of the state-society model. With economic insights, Acemoglu and Robinson offer new interpretations, especially about Europe and China. In the thousand years since Emperors Clovis and Charlemagne, most European polities struck a good delicate balance between the Roman institutions of a central state with its legal and administrative apparatus and the bottom-up Germanic traditions of both social norms and assemblies. This combination, and an ongoing tussle between the 2 European systems, led to some movements along the corridor, created incentives for investment, innovation, and creativity, and culminated in the modern economy with high-skill productivity, major scientific and technological progress, and better economic development in Europe. The Acemoglu-Robinson accounts of the different economic development paths of different European countries sometimes seem a bit ad hoc. Although the complex European institutional arrangements tend to involve a lot of culture, history, religion, and even ideology, Acemoglu and Robinson strive to connect many political events and economic advances to the overall framework of state, society, and the narrow corridor.

Acemoglu and Robinson further offer historical accounts of economic development in China. These accounts feature dual philosophies for governance. Confucianism esteemed the people, whereas, legalism favored domination by a strong ruler over society. All the time for just over 2 thousand years from the Qin dynasty to the Qing, Chinese rule was basically despotic. Successive rulers oscillated between the dual philosophies without ever striking a delicate balance between society and the state. For this reason, there were relatively few northeast movements along the narrow corridor throughout Chinese history. This general observation accords with the key Acemoglu-Robinson model of state, society, and the corridor in the hot pursuit of liberty.

The fate of liberty often hinges on a delicate balance in a relentless tussle between society and the state. Society wants liberty but finds it difficult to solve the collective action problem of maintaining order in law enforcement, social violence control and prevention, and the state provision of public services such as infrastructure, health care, and education etc. For better social order, society needs to build a stronger state. Society further controls and shackles the stronger state to avoid the fear and repression by despotic leaders. The latter is another collective action problem.

A stateless society (or Absent Leviathan) can degenerate into total disorder. When social norms and beliefs serve as a cage, these norms and beliefs often constrain actions and behaviors, favor some in society over others, and inhibit creativity and innovation for technological progress. The state takes over the task of maintaining order to relax the cage of social norms and beliefs. However, the state sometimes becomes oppressive (or Despotic Leviathan), serves its own interests, levies hefty and arbitrary taxes, and restricts freedom of thought and expression in many ways. These state pursuits are bad for economic growth, development, and technological progress. Between the 2 extreme cases is the narrow corridor where governance allows the state to harness enough power to maintain order, but not so much as to be oppressive. A better balance between state control and social peace preserves liberty and then facilitates economic growth and development.

 

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