Update: Read Martin Wolf’s response to readers’ comments

It is summer - a good time to ask a big question. So I intend to ask the biggest question in political economy: what is the role of the state?

This question has concerned western thinkers at least since Plato (5th-4th century BCE). It has also concerned thinkers in other cultural traditions: Confucius (6th-5th century BCE); China’s legalist tradition; and India’s Kautilya (4th-3rd century BCE). The perspective here is that of the contemporary democratic west.

The core purpose of the state is protection. This view would be shared by everybody, except anarchists, who believe that the protective role of the state is unnecessary or, more precisely, that people can rely on purely voluntary arrangements. Most people accept that protection against predators, both external and internal, is a natural monopoly: the presence of more than one such organisation within a given territory is a recipe for unbridled lawlessness, civil war, or both.

Contemporary Somalia shows the horrors that can befall a stateless society. Yet horrors can also befall a society with an over-mighty state. It is evident, because it is the story of post-tribal humanity that the powers of the state can be abused for the benefit of those who control it.

In his final book, Power and Prosperity, the late Mancur Olson argued that the state was a “stationary bandit”. A stationary bandit is better than a “roving bandit”, because the latter has no interest in developing the economy, while the former does. But it may not be much better, because those who control the state will seek to extract the surplus over subsistence generated by those under their control.

In the contemporary west, there are three protections against undue exploitation by the stationary bandit: exit, voice (on the first two of these, see this on Albert Hirschman) and restraint. By “exit”, I mean the possibility of escaping from the control of a given jurisdiction, by emigration, capital flight or some form of market exchange. By “voice”, I mean a degree of control over, the state, most obviously by voting. By “restraint”, I mean independent courts, division of powers, federalism and entrenched rights.

This, then, is a brief background to what I consider to be the problem, which is defining what a democratic state, viewed precisely as such a constrained protective arrangement, is entitled to do. My short answer is that this is precisely what politics must be about. Continue reading "What is the role of the state?"