Why the West Got Rich, part 1/N: War

Post date: Mar 28, 2017 5:07:47 PM

In my last post, “Why the Middle East Fell Behind,” I overviewed what I believe to be two of the most convincing theories of why the Middle East fell behind Western Europe economically, scientifically, militarily, and technologically. The two theories, one put forth by Timur Kuran and the other put forth by myself, focus primarily on aspects of Middle Eastern political and legal institutions which helped to retard economic growth in the region.

Much more ink has been spilled on the converse question: “Why did the West get rich?” This is really the more appropriate question to ask. Modern economic growth was a unique phenomenon when it first arose in northwestern Europe. Meanwhile, the relative stagnation of the Middle East (and India or China) was hardly an aberration from historical norms. So the real story is one about the West pulling ahead, not the “rest” falling behind (and yes, most of my book addresses Western Europe pulling ahead, not just the Middle East falling behind).

Since the “rise of the West” is the topic of a lively debate, I thought it would be useful to lay out some of the theories that I find convincing, while pointing out where they fall in line with other theories. First things first. The “rise of the West” or the relative stagnation of some other part of the world is a multi-causal event. Due to the nature of academic work, however, most of the best works focus primarily on one cause – my own work included. This means that there is plenty of room for multiple theories to be correct, and I find many of the works discussed below convincing.

This is the reason I included in the title of this post part 1/N. It will certainly take a few posts to adequately summarize the many views that I find convincing. I will try to break these down into themes, which is not as straight-forward as it sounds. These themes will definitely include the subject of this post – war – as well as political institutions and culture. So maybe N will equal 3. But I also may be tempted to write on causes that I do not believe are prime movers, such as colonization, geography, and certain aspects of culture. All of these take a lot of fleshing out and are worthy of individual posts. I’d like to get to them if I have time.

The theme of this post is war. Prior to the 19th century, Europeans were almost constantly at war with each other. How could this possibly be a good thing for economic growth? As many historians and economists have pointed out, the answer lies in the simple fact that wars require money. And acquiring money generally requires the capacity to tax (the term used in this literature is “fiscal capacity”). This is a difficult problem to solve. People generally don’t like paying taxes unless they feel like they are getting something in return (and even then, a major free rider problem exists if it is difficult to enforce punishment of tax evaders). Solving this problem requires institutions that align the incentives of the relevant players: rulers, those who collect the taxes, and those who pay the taxes. Once this problem is solved, however, the state generally has to provide something besides just war – public goods such as transport networks, education, and infrastructure – in order to convince people to pay taxes. Perhaps more importantly, fiscal capacity does not arise in a vacuum. It generally is associated with greater “state capacity”, which is simply the state’s ability to implement policy, render justice, protect its citizens, and so on. So the argument goes war à state or fiscal capacity à long run growth.

Noel Johnson and Mark Koyama have an excellent recent survey on state capacity. They obviously go into much greater depth than I will here, but my point is not to simply recapitulate what they say. My ultimate goal is to place this and other literatures pertaining to the “rise of the West” in a broader context, looking for complementarities in the arguments and pointing out shortcomings where they arise.

It may seem perverse that war could be a good thing – and it certainly was not for those who lived through it – but the argument does make a certain amount of sense. Without institutions to facilitate tax collection, it will be hard to convince people to pay taxes. And setting up these institutions is expensive. So it’s only worth it when there is a great need for tax revenue. That is the view, which I buy, of Besley and Persson.

The dominant figure in this literature is Charles Tilly. His great statement “War made the state, and the state made war” quite succinctly summarizes the view taken on by many in this literature. His book, Coercion, Capital and European States, A.D. 990-1992 argues that there were three paths that modern European states took to become nation-states: a “coercive-intensive” path, a “capital-intensive” path, and a mix between the two.

The coercive intensive path, taken by the large eastern and central European empires of the Habsburgs, Russians, and Poles, was built from and for war. As war machines became stronger, they were able to exert force over a greater expanse of people and demand tax revenue from them. This, however, did not lead to great long run economic outcomes because there was little incentive for individuals to invest in capital in such a regime.

On the other extreme, states on the “capital-intensive” path, taken by many of the city-states of northern Italy, central Europe, and the Low Countries, expanded as their wealth expanded. They generally protected the rights of their citizens, especially those engaging in commerce, and they were thus able to collect tax revenue from the economic elite in return for protections. This view is seconded by David Stasavage in his great book States of Credit, which argues that these small city-states were able to borrow at relatively low rates precisely because they were run by merchants for merchants; these merchants had a vested interest in maintaining the credit-worthiness of the state, and thus the risk of default was low. This is an important finding; access to credit is a necessary feature of the modern state; absent some natural resource windfall, it is impossible to think of a modern state functioning well without the capacity to borrow. Yet, as Stasavage points out in a more recent work, when certain groups dominate the political scene for too long, vested interests eventually undermine further growth, as the world changes in ways that do not benefit those in power. I also argue in my book that this is the most likely reason the Dutch were unable to keep their economic lead of the 16th and 17th centuries and were late to the industrialization game (note: I am not the first to make this argument).

So, for Tilly, the path to the modern economy lay in those states (well, England … but also to a lesser extent France) that employed some hybrid model of coercion and capital intensivity. These states were able to encourage capital accumulation while also acquiring the capacity to tax large swaths of their population. And those with capital were willing to provide taxes in return for protection of their property rights, which states partially built on coercion was able to provide. There are certainly a lot of blanks that need to be filled in here – a job taken on by the likes of MarkDincecco, Kivanç Karaman and Şevket Pamuk, Lisa Blaydes and Eric Chaney, Nicola Gennailo and Hans-Joachim Voth, among many others – but there is a certain amount of sense to this argument, and I buy most of it.

Phil Hoffman present a slightly modified version of the Tilly thesis in his recent book, Why Did Europe Conquer the World?, which builds off insights laid out in Paul Kennedy’s The Rise and Fall of the Great Powers. This thesis also focuses on incessant European warfare as a prime mover of European economic success, but instead of emphasizing its role in state formation, it stresses the role that warfare played in encouraging innovation in military technology. These technological advances, especially when combined with gunpowder, gave Europe a massive upper hand in colonizing the rest of the world via brute force. This too seems like a reasonable argument and I do think that colonization and coercion played an important role in exacerbating the divergence between the “West and the rest” (although, for reasons I hope to get to in a future post, I do not think that colonization is a prime mover).

So, as I see it, there are two paths through which the European lust for war in the medieval and early modern periods unwittingly set it up for success in the long run: by encouraging state formation (and the fiscal capacity associated with it) and spurring innovation in military technology. Both of these are important parts of the divergence story, and – like any good explanation should – they focus on something that was (relatively) unique about Europe.

While war was hardly unique to Europe, Europeans did seem to fight each other much more than most other parts of the world. The common explanation given for why this was the case is that Europe was more fractionalized than the rest of the world. Following the fall of the Western Roman Empire in the fifth century, no power has ever held domain over large swaths of Europe (save very brief interludes under Charlemagne, Napoleon, and Hitler). Meanwhile, China was with some exceptions ruled under large empires, as were large swaths of the Middle East (well, except for the 9th-15th centuries, but who’s counting?). This meant that while these great ‘empires’ fought wars of conquest and regularly attempted to push their boundaries, they were relatively insulated from direct threats to their power. Meanwhile, France, Spain, England, Venice, the Holy Roman Empire, and the other European powers were often at each other’s throats, causing them to build up state capacity and invest in military technology.

All of this seems reasonable to me, but I am left unsatisfied on two fronts (and these are where I think other explanations do a better job). The first is that I have yet to see a convincing reason why Europe was so fractionalized in the first place. Understanding this is key, because it is the reason claimed in this literature why Europeans were so frequently at war. The most convincing explanation I have seen is the one recently presented by Chiu Yu Ko, Mark Koyama, and Tuan-Hwee Sng, which argues that the relative political unity of China stems from it facing a unidirectional threat from the Eurasian (Mongol) steppes, which encouraged the formation of a vast state that could gather resources to defend against that threat. On the other hand, medieval Europeans faced threats from all directions (Vikings and Muslims and Magyars, oh my), which encouraged decentralized states capable of fending off attacks from one of the directions. There is something to this, and I think it helps explains why the “divided Europe, unified China” equilibrium remained an equilibrium for centuries.

But did it have to be this way? Wasn’t the Roman Empire able to conquer a large part of the continent despite also facing threats on their northern and eastern flanks (the latter in part from those same steppe peoples who tortured Chinese Empires)? There seems nothing inevitable about European fractionalization to me. If you want to claim it was an historical accident, that is fine, but I’m not sure I’d buy that either. Maybe there is something about the way post-Roman European governments formed that discouraged large, centralized states? Certainly the spread of the feudal system played a role, but why was no ruler ever successful in conquering Europe? I think the answer lies in part in how European rulers were legitimized (the topic of my book!), but that is fodder for a future post.

Moreover, Europe was hardly the only part of the world in which government was decentralized. The Middle East was highly fractionalized between the decline of the Abbasid Empire in the 9th century to the rise of the Ottomans in the 15th century. India, likewise, has been highly fractionalized for most of its history. So, even if we accept that the “natural state” for Europe is fractionalization and the “natural state” for China is unity (and I am skeptical on this), it is still not clear what was so special about Europe vis-à-vis the Middle East or India. And, importantly, Middle Eastern and South Asian civilizations were well ahead of Europe for centuries following the fall of the Roman Empire. So it’s not as if I’m cherry-picking some fractionalized region of the world that had no chance of birthing the modern economy (such as the modern U.S. prior to 1500). Again, this is not to say that war was not an important part of the story – it simply entails that there is more to it than that.

The second issue I have with the “war argument” is that it is tough to reconcile with the fact that modern economic growth was not a “Europe thing” – it was very much a “northwestern Europe (read: English and Dutch) thing”. By the late 19th century, northern Italian economies were much closer to China than they were to northwestern Europe. And I see little reason why the “war to state capacity and/or military technology to economic success” argument should be confined to northwestern Europe. Indeed, the Dutch were less active in intra-European affairs than many of their rivals. The argument has a particular amount of trouble with Spain, which was one of the most frequent combatants but never really improved its fiscal capacity and was not on the forefront of any technological revolution. Now, of course the literature recognizes this; Mark Dincecco, for example, argues that it is the combination of fiscal capacity and executive constraint that matters for growth, and Alejandra Irigoin and Regina Grafe make the case specifically for Spain.

What this suggests to me is that while the war argument has many merits, it needs to be complemented by other arguments for “why the West got rich.” Specifically, we need to understand i) why Europe was so fractionalized in the first place, and ii) why northwestern Europe pulled ahead first. As I noted at the beginning, I think that combining the war argument with ones that look at other aspects of political institutions (especially legitimacy!) and certain aspects of culture paints a more complete story. How these arguments complement each other will be covered (hopefully soon!) in my next post.