State Capacity in Historical Political Economy: What, How, Why, and Why Not?

By Mark Dincecco and Yuhua Wang

Several recent Broadstreet posts have been about state capacity, including conceptualizations, historical roots, and effects. In light of this, we think that it might be helpful to briefly take stock of what the historical political economy literature has to say in response to the following four questions: 1) What is state capacity? 2) How to measure it? 3) Why might society want a capable state? 4) Why might the level of state capacity in society fall short? Our post draws on a chapter that we have written for the forthcoming Oxford Handbook of Historical Political Economy edited by Jeffrey Jenkins and Jared Rubin.

What Is State Capacity?

The sociologist Michael Mann provides an intuitive definition of state capacity in terms of the state’s ability to attain its intended policy goals, whether they be economic, fiscal, or otherwise. A state with high capacity is thus more likely to produce the policy outcomes that the government wants than one with low capacity. The basic reason why is because a high-capacity state has access to greater fiscal and informational resources that it can exploit to achieve its policy aims.

How To Measure State Capacity?

A state does not always exploit its full capacity for action. In this respect, state capacity is a “latent” feature that we do not directly observe. Practitioners can nevertheless employ a range of visible indicators from which historical levels of state capacity can be inferred. These include measures of the state’s ability to extract fiscal resources and information from society, as well as the extent of the state’s administrative infrastructure.

To gain an accurate picture of a state’s overall capacity, it might be ideal to incorporate capacity measures across major government agencies. This can be difficult in practice, however, particularly when attempting to measure state capacity historically. Fortunately, the fiscal, informational, and administrative indicators noted above should be highly correlated. Thus, exploiting any one of them will likely provide a meaningful proxy of state capacity overall.

Why Might Society Want a Capable State?

The classic thinker Thomas Hobbes argued that chaos and destruction was the only outcome in a society in which the state was absent. Recently, scholars have explained how society can create order even without a state, relying on threats of retaliation, beliefs, and cross-cutting social ties.

While such arrangements can help society avoid outbreaks of violence in the state’s absence, they carry high costs. The logic of revenge promotes a hair-trigger society. To provide order, individuals must publicly bear arms and imply their willingness to use them. Poverty is one negative outcome that derives from the hair-trigger logic of society in the absence of a state. To reduce the incentive of individuals to engage in criminal activity, which can devolve into a cycle of violence, members of society may opt to limit material consumption and production.

The most basic way in which a capable state can enhance development outcomes is by providing what North calls the “rules of the game”: law and order, private property rights, and external defense.

A high-capacity state may support development in several additional ways besides the rules of the game. One way is through the provision of a competitive market for the exchange of goods and services. The provision of transportation infrastructure (e.g. roads, bridges, railways, airports) and communications networks (e.g. postal service, internet connectivity) is another way. A further way is through the provision of mass education. Providing selective incentives to individuals and monitoring society – both of which can help social groups overcome collective action problems – are two additional ways.

The stylized evidence is consistent with the view that a capable state may improve development outcomes. Taking a historical perspective, Figure 1 below shows evidence for a strong positive correlation between the state’s ability to extract revenue – a basic measure of fiscal capacity for which historical data are available – and economic performance in Western Europe from the early modern era to the start of World War I.

Figure 1: Fiscal Capacity and Development in Western Europe, 1650-1913

Notes: Average log real per capita GDP is in 1990 international Geary-Khamis dollars. All data are averaged over 1650-1913. Sources

Figure 2 depicts a similar pattern in the modern data. To measure the fiscal capacity of the modern state, we use the share of income tax revenue in total tax revenue, as the collection of the income tax calls for high administrative capacity to ensure compliance.

Figure 2: Fiscal Capacity and Development Today

Notes: Log real per capita GDP is in constant 2011 national prices (in millions of 2011 US dollars). Income tax share is the ratio of income tax revenue to total tax revenue. All data are averaged over 2000-9. Nations with populations of less than one million in 2000 are excluded. Sources

Finally, Figure 3 plots an index of information capacity averaged between 1789 and 2000 against economic performance today. We observe a strong positive correlation between the two variables.

Figure 3: Information Capacity and Development Today

Notes: Log real per capita GDP is in constant 2011 national prices (in millions of 2011 US dollars). The GDP data are averaged over 2000-9. Information capacity is an aggregate index of information capacity computed via a hybrid two-parameter and graded item response model according to five component indicators: an index of the state’s census ability; an index of the state’s statistical yearbook ability; whether there was a civil register in place; whether there was a population register in place; and whether there was a statistical agency in place. The information capacity data are averaged over 1789-2000. Nations with populations of less than one million in 2000 are excluded. Source 1, Source 2

There is robust econometric evidence linking higher state capacity with long-run economic development. See for example here, here, here, here, and here.

Why Might State Capacity Fall Short?

If a high-capacity state is beneficial, then why don’t all societies establish capable states? Western Europe is the birthplace of the modern state. However, the historical record indicates that the state development process there was arduous and drawn out over several hundred years. There are arguably several reasons for this, including problems of geographic scale in governance, resistance by traditional elites to centralizing reforms, and economic underdevelopment.

A variety of factors have obstructed the historical development of high-capacity states in other parts of the world. In imperial China, the localization of social networks turned elites away from the central state, producing a powerful opposition interest group. In early twentieth-century India, high-caste elites preemptively weakened the state’s ability to tax, since they feared that the extension of voting rights to the lower castes would increase the demand for public goods and thus place a higher tax burden on them. In the Ottoman Empire, the sultan exploited a divide-and-rule strategy that pitted different elite groups against one another, hindering the ability of elites to act collectively. In Sub-Saharan Africa, central governments have long faced the challenge of extending authority over broad swaths of territory, due both to difficult geography and low population density. In Latin America, vested elites thwarted reform efforts by central governments to project greater power. Rulers themselves have often had weak incentives to increase state capacity, due both to the historical availability of international finance and an emphasis on trade exports of raw materials.

Further, European colonization has played a significant role in impeding the development of high-capacity states by establishing “artificial” borders, promoting patronage, weakening bureaucratic capacity, and driving political violence.

Striking the Right Balance?

Thus far, we have focused on the benefits that derive from a capable state. By virtue of the same authority from which such benefits can flow, however, a high-capacity state can also act despotically. It can ignore, repress, or predate on society.

How, then, to harness the various public goods that a capable state can provide, while mitigating its potential to act despotically? First, any state led by a ruler with a long-enough time horizon – a “stationary bandit” – should have an incentive to provide (at least a modicum of) order and limit the overall taxation of and violence against subjects, to enjoy continual revenue flows (e.g. from agricultural production). Beyond this basic level of constraint that stationary banditry might provide, scholars have emphasized the importance of parliamentary supremacy over the ruler, in particular with respect to budgetary matters. Cultural arrangements which support popular sovereignty are also important – namely, the cultural notion that society delegates power to the ruler on the understanding that the ruler’s actions must align with their policy preferences. Apart from voice, societal actors can threaten “exit” to constrain rulers. Authoritarian leaders will limit their predatory actions when they need cooperation from organized business groups that, while not politically connected, remain in control of valuable mobile assets.

We view high state capacity and meaningful constraints on rulers as integral – and intertwined – components of a well-functioning state. A historical perspective reveals that the challenges of state building will only be met if the ruler, elites, and ordinary citizens all find it in their best interests to support a capable state that simultaneously adheres to rules (de jure and/or de facto) that limit the government’s predatory might. To be achieved, therefore, a strong yet constrained state must comprise an “equilibrium” for all the main political actors.

For a wider discussion of state capacity in HPE and a full list of references, please see our chapter in the forthcoming Oxford Handbook of Historical Political Economy.


  • Mark Dincecco

    Mark Dincecco is Associate Professor of Political Science at the University of Michigan. His research analyzes the long-run historical determinants of the political and economic development patterns that we observe today, with a focus on Europe and Eurasia. Dincecco is the author of numerous peer-reviewed articles and three books including Political Transformations and Public Finances: Europe, 1650-1913 (Cambridge 2011) and State Capacity and Economic Development: Present and Past (Cambridge 2017). His most recent book is From Warfare to Wealth: The Military Origins of Urban Prosperity in Europe (Cambridge 2017, with Massimiliano Onorato). This book won the 2018 William H. Riker Best Book Award. In 2016-17, Dincecco was the Edward Teller National Fellow at the Hoover Institution at Stanford University.

  • Yuhua Wang

    Wang is Professor of Government at Harvard University. He received B.A. from Peking University and Ph.D. from the University of Michigan. His research has focused on the politics of state building, with a regional focus on China. He is the author of Tying the Autocrat’s Hands: The Rise of the Rule of Law in China (Cambridge University Press, 2015) and The Rise and Fall of Imperial China: The Social Origins of State Development (Princeton University Press, 2022).

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