Prosperity and Violence: the Political Economy of Development

Why is the West rich and the Third World poor? More precisely, why has the West experienced unprecedented economic growth in the last five hundred years, and the rest of the world has not? In Prosperity and Violence: the Political Economy of Development Robert H. Bates, a Harvard academic, addresses this question. Bates's answer is simple and brilliant. I will here attempt to summarize the argument, hopefully so that you are intrigued enough to go and read it for yourself. You will not regret it. Prosperity and Violence provides a unique insight into one of the most difficult political problems of our time, and is also written in beautiful English.

Bates presents us with a compelling account of the history of the European state. Monarchs needed increasing amounts of money as the costs of warfare in early modern Europe escalated. To gain revenues, the monarch had two options. He could predate on his people, or he could encourage them to engage in commerce and industry and then tax them. The absolute monarchy often resorted to predation. See Louis XIV for the classic example. The absolute monarchy taxed the population as much as it could. In such an environment, there was not much of an incentive to invest in commerce, since the profits would be taken by the state.

The most important alternative to the predatory absolute monarchy was the English constitutional monarchy. The supremacy of Parliament was asserted after the Glorious Revolution. Bates argues that by giving power to property owners, the monarch traded political power for revenues. In a parliamentary system, the monarch's powers were checked. This created a much more suitable environment for economic development, which was exactly the monarch's intention. A buoyant economy was needed to finance wars. This was best achieved by creating an environment where it was relatively safe to invest. In other words, the creation of parliamentary systems ensured that the monarch would not steal the property of the investor, and people with property were therefore much more likely to invest their money.

While the monarch traded some of his power for economic gain, he also consolidated the state as the only legitimate source of coercion. According to Bates, the powerful noblemen of early modern Europe were 'seduced' by the centre (for a version of this argument in the case of Louis XIV, see Norbert Elias). The nobility, which had had real military power, increasingly played politics at the court, seeking the monarch's favour. A major reason for this was the 'military revolution', which meant that the costs of warfare became much higher than before, and only the sovereign could afford to wage war (for a general discussion of this see Paul Kennedy). This part of the argument is based on Max Weber's conception of the modern state. Weber argued that the distinguishing feature of a modern state is that it succesfully claims a monopoly on the legitimate use of force within a given territory. Bates argues that it is exactly this which is necessary to create the political stability needed for economic development.

The modern state combines a monopoly of the use of coercion, and a limitation to the use of its powers. England was so succesful economically because the nobles were 'tamed' by the centre, and because the powers of the monarch were curtailed by Parliament. In this environment, one was to an unprecedented degree free from both the fear of violence and the fear of theft. Such an environment is needed for investment. And, according to Bates, investment is the key to economic development. This part of the argument can be compared with Marx's notion of the capitalist state. According to Marx, the modern state is a tool with which the bourgeoisie advance their economic interests. Bates concedes that this is to an extent what the state is, but he is opposed both to communists and libertarians in thinking that the state's role in promoting economic prosperity is both necessary and beneficial.

What is the relevance of this to understanding the Third World? To simplify, Bates argues that those countries which have a modern state have developed, and those without one have not. The actual policies followed by countries are not nearly as important. Conventional arguments often focus on whether poor countries should follow free trade or protectionist policies, whether they should invest in education or infrastructure. Bates's insight is that the problems of Third World countries run deeper than this. The central point is that Third World countries do not have a state which succesfully claims a monopoly on the legitimate use of violence within its borders, and they do not have a state which has traded off political power so that the economy can flourish. This means that there often is no incentive to invest. In his lecture, Dr. Leftwich used the example of Somalia. Somalia is what may be called a 'failed state' - a country where central control has effectively broken down. In such an environment, who would want to invest? Certainly not foreign investors. And most probably not even Somalis themselves. The risk is simply too high. Were one to invest in, say, a factory, there is no guarantee that it would not be seized or destroyed by some armed faction or another.

In addition to lack of central control in some Third World countries, what is missing in many is a state which has struck a deal with business interests. There is a historical reason for this. Bates thinks that in many ways the newly independent Third World countries faced a similar developmental challenge as European countries faced in early modern times. The important difference is that revenues from outside the country were available to developing countries in the twentieth century. The Cold War rivalry of the Soviet Union and the United States meant that Third World countries could secure economic benefits by aligning with one of the superpowers. Crucially, they did not have to gain the support of the population, or the middle class, to remain in power. Aid given by the US or the USSR was sufficient to uphold military regimes in many a developing nation. This meant that the other component needed to stimulate investment, the guarantee that the state would not steal the property of private individuals, has not existed in many Third World countries.

This brings us to the third theoretical premise of Bates's argument. This is rational choice theory. This is the theory of politics which asserts that people are rational actors, and in all activities act in their rational self interest. People try to maximise the benefits they can derive from different actions, and minimize the harm. It is thus not rational to invest in Somalia, or in any country which does not guarantee property rights. Therefore people do not invest in them.

Bates does not give easy answers to the problems of Third World countries. The fundamental problem is the lack of the institutions needed to create significant economic growth. On the basis of his argument, it seems that any attempts at development are futile until modern states in both the Weberian and the Marxist sense are established in Third World countries. Until then, it is not rational to invest in Third World countries. As rational actors, investors will therefore spend their money elsewhere. And economic development will not happen in the Third World.

Bates, Robert H. Prosperity and Violence (2001)
Leftwich, Adrian. Lecture on Prosperity and Violence (2004)