Paul Collier - Wars, Guns, and Votes

by Democracy in Dangerous Places (pdf)

  the country, the mass of emigrants across the Channel nostalgically

  naming their new home Brittany.

  So this is our beginning: post-Roman chaos. It took Britain, and

  indeed the rest of Europe, centuries before local thugs coalesced into

  miniature states, each able to keep a degree of order within its own

  territory but fearful of its neighbors. By 1555 the German-speaking

  territories still had no fewer than 360 states. Gradually the states

  became more frightened of one another than of threats from within

  their own societies. To defend against neighbors they needed a large

  standing army. Big defense costs money, and the only sources were

  taxation or borrowing on a scale not seen since the days of the Ro-

  man Empire. Taxation has its limits. If people are taxed beyond their

  willingness to pay, they will take evasive action, conniving with the

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  tax collectors so that they bribe the collector instead of paying the

  state. Ultimately, if taxes get too onerous, people retreat into activi-

  ties that cannot be taxed.

  Borrowing is even more of a potential minefield for the state.

  Whereas taxation is basically coercive, borrowing depends upon

  people actually volunteering to lend the state their money. Even if

  they are prepared to lend it, they demand interest, and if the interest

  rate is high the borrowing becomes unsustainable, the military ef-

  fort collapses, and the state is defeated.

  The first European state to discover how to raise money on a

  sustainable basis through taxation and borrowing was the tiny com-

  mercial state of the Netherlands. This tiny society had a territory

  badly suited to defense: recall that mountains come in handy. The

  Netherlands is the least mountainous country in the world. Worse,

  its citizens were disproportionately urban and bourgeois, not groups

  with a strong fighting tradition. The Netherlands was facing a mas-

  sive war machine: the Hapsburg Empire. In this David-and-Goliath

  struggle, David was sufficiently desperate that it had to evolve one

  advantage: the ability of the state to raise money. Even here it was

  up against a huge disadvantage: the Hapsburg Empire had the gold

  and silver mines of Spanish America.

  The critical invention of the Dutch was political accountability.

  People were only prepared to tolerate high taxation if the govern-

  ment of the state became accountable to citizens. Not all citizens,

  of course, but the rich citizens who were paying the taxation. Fur-

  ther, with an accountable state the government was able to borrow:

  people were prepared to lend once they saw that the government

  was being forced to conduct its finances in such a way that it would

  always be able to pay them back. The Hapsburgs found that gold

  and silver were not quite enough, and so they too decided to bor-

  row. But nobody had forced them into accountability. And so the

  battle for the Netherlands turned into a battle of interest rates. The

  power of compound interest to gradually gut the finances of a prof-

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  ligate borrower ensured that final victory would go to the state with

  the better credit rating. The Hapsburgs had a huge empire and the

  bullion mines of Spanish America as collateral, and the Dutch had

  a tiny area and political accountability. The power of compound in-

  terest takes time, but the Dutch were able to borrow for around 6

  percent whereas the Hapsburgs were paying up to 22 percent. That

  is, when they could borrow at all: before the end of the war they had

  gone bankrupt and were shut out of the credit market. David beat

  Goliath.

  Gradually, other states learned the Dutch lesson. Those that

  didn’t got swallowed by those that did. Interstate warfare had two

  consequences. One was the sentiment of nationalism. It was to ra-

  tionalize these sentiments that the educated, urban romantics of the

  nineteenth century conjured up the notion of deep ethnic roots that

  defined the nation. The clash of states became the clash of ethnici-

  ties: the myth of a common ethnic identity was forged on the battle-

  fields. The sense of a common enemy and the myth of shared ances-

  tral origins unified the inhabitants of the state into the people of a

  nation. The result was potent. As a benevolent force it provided the

  bonds that, via protest, enabled the ample provision of public goods:

  probably for the first time in history the collective action problem

  was overcome for the common good. As a malevolent force it gener-

  ated vilification of the other: for example, in the First World War

  the British press was routinely describing Germans as Huns.

  The other consequence of warfare was the spread of fiscal ac-

  countability: governments had to become accountable to the rich,

  otherwise they could not raise sufficient taxation and debt. But at

  this stage states still had not reached anything that looked remotely

  like the modern liberal state. It was not yet democracy and it was

  certainly not yet the use of taxation for social spending. The states

  of the mid-nineteenth century were run by the rich, and their pri-

  ority was national security. The road from there to the present is

  paved with political protest from the excluded. Gradually, little by

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  little, to avoid worse, the rich expanded the franchise. This enabled

  them credibly to commit to redistributive reforms that became ir-

  reversible without being so drastic that the economy was damaged.

  Nations inched toward democracy, and as they did so the priorities

  of government inched toward the priorities of ordinary citizens—

  the supply of public goods such as health and education instead of

  simply defense. Gradually the state became captured by the interests

  of ordinary citizens: we have arrived at the modern liberal democ-

  racy.

  The evolution of the modern state was, on this analysis, vio-

  lence driven. Step by step, the predatory ruler of the mini-state

  had evolved into the desperate-to-please, service-promising, mod-

  ern vote-seeking politician. Such have been the crooked byways by

  which the modern state has evolved into its role of providing public

  goods.

  Potentially, scale economies in violence permit the continued

  coalescence of states into superstates. The world has repeatedly seen

  the emergence of such enormous military territories: Rome, the

  Mongols, the Hapsburgs, the British, the French, the Portuguese,

  the Russians, and the Austro-Hungarians. Often the process is very

  rapid: technology can permit states to expand explosively. The de-

  velopment of the stirrup in the geographic context of the steppes

  suddenly enabled the Mongols to build the largest land empire ever

  known. Similar expansions occurred during the nineteenth century.

  When the pace of expansion gets sufficiently far ahead of the pro-

  cess of building a common identity, the resulting superstates face

  overwhelming problems in trying to establish
a common identity.

  Instead of becoming nations, by default they become empires.

  Nation building depends upon the choices made by political

  leaders. Their choices influence the pace with which empires turn

  into nations. The Romans took centuries but eventually began turn-

  ing their empire into a nation by granting rights of citizenship to

  its inhabitants. At the other end of the spectrum of leadership in-

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  competence, Haile Selassie was so besotted with the idea of being

  an emperor that within a decade he turned the new federal state of

  Ethiopia and Eritrea into an Ethiopian Empire with Eritrea as its

  colony. By the time he did this, his strategy was doomed: the age of

  empires was over.

  The age of empires came to an abrupt end for a variety of rea-

  sons, but probably the most powerful was the rise of America to

  primacy and its resolute antipathy to them. The seeds were sown

  by President Wilson at the Paris Peace Conference after the First

  World War. Wilson committed himself to the principle of self-de-

  termination of peoples, a concept entirely revolutionary to the then-

  established principles of international relations. Self-determination

  implied that instead of identity continuing to adjust to political

  borders, borders would be adjusted to wherever identity formation

  had been reached: the music had stopped and peoples rushed to sit

  down on the chairs. Self-determination was put into practice in the

  Versailles Treaty, most notably in the territorial mosaic that in due

  course yielded the catastrophe of the Balkans, but it really came into

  its stride after the political showdown between America on the one

  side and Britain and France on the other that constituted the Suez

  crisis of 1956. Following Suez the British rapidly dismantled their

  empire, creating precedents that forced the French and Portuguese

  to follow. Ultimately self-determination even dissolved the Russian

  Empire. As a result, during the second half of the twentieth century

  the number of independent states increased massively.

  This process of state formation was entirely different from

  state formation Mark I. With rare exceptions, the new states did not

  emerge as the solutions to struggles to provide security. It is usually

  said that the boundaries of the new states were arbitrary. This is not

  entirely fair to the colonial authorities that faced the task of turning

  a vast multitude of ethnic communities into manageable countries.

  The fundamental problem was that neither of the two processes that

  had happened in the formation of modern states had taken place:

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  there had been neither the emergence of territories viable in terms

  of security, nor the retrospective creation of an imagined commu-

  nity among the inhabitants of these security-defined spaces. In Af-

  rica alone there were some two thousand ethno-linguistic groups.

  Yet if each were made a nation, its territory and population would

  be far too small to reap adequate scale economies of security: they

  would be insecure both internally and externally.

  Thus, although the instant states that came into being with

  the dissolution of the colonial empires were ancient societies with

  a multiplicity of strong ethnic loyalties, usually they lacked national

  loyalty: people’s primary allegiance was to their ethnic group. As I

  have argued, this severely impeded the provision of public goods.

  Anything public was simply up for grabs: a common pool resource,

  the control of which depended upon winning the political struggle

  between the various ethnic groups. Much the surest way of over-

  coming this problem would be to follow the earlier model of nation

  building: gradually erode ethnic identities and replace them with a

  national identity.

  One reason that ethnicity is considered an embarrassing topic

  by many Africans is that it is seen as a throwback, the antithesis

  of modernity. As modernization proceeds it will surely fade with

  time. This is a comforting proposition, but as is repeatedly the case,

  being comforting does not make a proposition true. There is no sub-

  stitute for evidence. The evidence from recent surveys of attitudes

  across nine African countries by Afrobarometer is not encouraging.

  It found that if people are educated they are more likely to iden-

  tify themselves through their ethnicity. The same is the case if they

  have a wage job as opposed to the traditional occupation of farmer.

  The same is the case if they have experienced political mobilization.

  So development, with the attendant education, jobs, and electoral

  competition, is increasing the salience of ethnic diversity rather than

  erasing it. Perhaps this is because it is in the modern economy rather

  than the traditional economy that the ethnic political contest is being

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  played out. Farmers can stay semidetached from the consequences

  of ethnic politics, but if public sector jobs are assigned on the basis

  of ethnic allegiance, then education and wage employment would

  indeed make ethnicity more important.

  Yet if the many disparate ethnic communities had been pack-

  aged together into a few states large enough to be secure, they would

  have faced a horrendous task of giving their inhabitants the emo-

  tional identity necessary for a state to function. In the event, the

  two thousand ethnic groups inhabiting Africa were bundled into

  fifty-four national territories. Was this too few states, resulting in

  unmanageable ethnic diversity, or too many, resulting in a lack of

  security economies of scale?

  The decolonization of the bottom billion produced a patch-

  work of little states not utterly different from the situation of post-

  Roman Europe. But from then on the stories diverge. To a large

  extent borders of the bottom billion have been frozen: they did not

  face powerful challenges from their neighbors, at least not to the ex-

  tent of fearing that they would be absorbed. I can think of only two

  mergers between countries in the past fifty years, both in 1989: the

  East German ambassador to North Yemen was uniquely unfortu-

  nate in becoming doubly redundant. The general trend has been the

  opposite, a further splitting of already small nations as rights of self-

  determination became recognized. And so, despite the arms races in

  Lilliput, the governments of the bottom billion have not engaged in

  international wars to anything like the same extent as did the Euro-

  pean states of the nineteenth century. The resulting reduced need to

  tax has been reinforced by aid: in the typical country of the bottom

  billion the government gets around a third of its expenditure met by

  aid. The combination of modest military spending and high aid has

  left the tax burden quite light: often around 12 percent of GDP. This

  level of taxation has been too low to provoke citizens into demand-

  ing accountability.

  I began to think more
rigorously about how a corrupt ruler

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  might view taxation. Suppose, say, that you were President Mobutu,

  how heavily would you have taxed your society? It struck me that

  the lightness of the taxation may have been a deliberate strategy.

  Mobutu clearly wanted money, and he was also periodically pretty

  short of it. Mobutu did not amass a huge fortune; the revenues he

  grabbed from the Zairean state were used to buy loyalty from his

  enormous entourage. His first and foremost source of revenues had

  been to bleed the companies that were extracting natural resources.

  But once he had ravaged these companies to the point of ruin he did

  not turn to heavy general taxation, instead he turned to the printing

  press, the same solution that President Mugabe has hit on.

  Hyperinflation is a very high-yielding form of taxation, and

  what is best about it is that people do not recognize it as a tax. In

  fact, it is a tax on holding money. If prices double every month, as

  they did at one stage in Zaire and are doing at present in Zimbabwe,

  then effectively the state is imposing a monthly tax of 50 percent

  on all the cash that people are holding. Work out what the state

  gets. Take a typical person who gets paid monthly and spends his

  income evenly through the month. On average he will be holding

  two weeks’ worth of income as cash. So 50 percent inflation grabs

  one week’s worth of income. Since it does this every month, over

  the year it amounts to a 25 percent tax on income. Not bad for a tax

  that people do not regard as a tax! The reason hyperinflation is not

  more common is that the revenues do not last. As people get used to

  high inflation they find ways of holding less money relative to what

  they spend: for example, they buy as much as possible as soon as

  they get paid. That is why hyperinflations are explosive and end in

  tears. Both Mobutu and Mugabe used it only as a last resort. As an

  addendum I will take the opportunity of final revisions to the text

  to update the figure on Zimbabwean inflation. Prices are no longer

  doubling every month: they are doubling every week.

  Corrupt rulers might be wary of explicit taxation because of its

  capacity to provoke opposition. They do not want to tax so heav-

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  ily that they provoke irresistible demands for accountability. It is