Some preliminary thoughts on state capacity

The following two pictures show two very different sides of the Chinese system:

This shows a mass banquet in Wuhan. The government held a number of such celebrations in Wuhan during January 2020, and this helped spread the coronavirus. The second shows a new hospital in Wuhan, built in just a couple weeks:

These pictures show us several aspects of the “state capacity” of the Chinese government. On the negative side, the Chinese system has little freedom, which often leaves the Chinese government uninformed of dangerous situations that need to be addressed. The Chernobyl incident in the old Soviet Union is another example of this problem.

So perhaps “freedom” is one aspect of state capacity, as it allows states to be better informed.

The second picture shows that the Chinese government is good at getting stuff done quickly. For instance, they built a large high-speed rail system in a fairly short time.

The Brazilian government has not built much infrastructure in recent years. Is this due to a lack of “state capacity”, or have they (much like New York City) simply chosen to use that capacity to pay large pensions to middle class people, instead of building infrastructure.

I suspect that the difference between China and Singapore on the one hand and Brazil and New York on the other has to do with more than just preferences. I am fairly confident that China can build infrastructure at lower cost than Brazil, and Singapore can do so more cheaply than New York.

So perhaps low cost production by the state is one aspect of state capacity. But I’d be even more specific. It doesn’t do much good for a state to be able to produce haircuts at a lower cost than other states, as this activity is almost always (rightly) done in the private sector.

So what really matters is the ability to produce goods that are usually produced by governments at low cost. (I mean cost holding quality constant, as you’d obviously prefer high quality public goods.) I recall reading that Sicily has more forest rangers than all of Canada, so I’m going to go out on a limb and assume that Canada has more state capacity to produce forest ranger services at low cost.

The Brazilian example also hints at another issue, is the state doing the right thing? Perhaps state capacity depends at least in part on the state’s ability to ascertain and then undertake the things it should be doing.

In my 2008 study entitled “The Great Danes”, I discovered that once the intellectual climate moved in favor of free markets during the 1980s and 1990s, those countries with a high level of “civic virtue” (basically low corruption) moved toward free market regimes much faster that those countries with less civic virtue. Thus Denmark and New Zealand moved rapidly toward free market policy regimes, Greece and Italy much less so.

So one aspect of state capacity is the ability of countries to act in a way that is seen as desirable by a consensus of people who don’t have a special interest to inhibit change. A government that is able to “do the right thing” has more state capacity than one that does not, even if somewhere between 1% and 40% of the time the “right thing” turns out to be wrong. (If experts are usually wrong, then things are pretty hopeless. You might as well just flip a coin.)

In my paper on neoliberalism I described three models; moral, political and economic. Utilitarianism was the right moral system. Maximize aggregate utility. Neoliberalism was the right economic system, best able to implement utilitarian moral values. And hyper-democracy (meaning decentralized democracy with referenda) was the best political system, the best way to referee disputes about exactly how to construct the optimal policy regime.

Denmark, Singapore and Switzerland were the models of utilitarianism, neoliberalism and hyper-democracy. The best way to answer these questions:

1. What are the appropriate goals?

2. What economic system best achieves those goals?

3. What political systems best referees disputes over how to implement policy?

Thus any discussion of state capacity involves an ethical dimension, a technical dimension, and an epistemic dimension. Governments need the right moral values and the information needed make intelligent decisions about policy. The economy needs an incentive structure (i.e. technique) that will facilitate getting things done.

Even though Denmark, Singapore and Switzerland all have a great deal of economic freedom, they are also high in state capacity. Maybe it’s partly because they have a lot of economic freedom?

PS. In a January 1 post on state capacity libertarianism, Tyler Cowen specifically mentioned the success of Denmark, and indirectly alluded to the success of Singapore. Today he described the Swiss system as highly successful. I believe the three models in my 2008 paper are pretty close to what Tyler has in mind by “state capacity”. (Perhaps he’d add “scale”, which allows big countries to do extraordinary things like exploring space or confronting China. I wouldn’t.)



29 Responses to “Some preliminary thoughts on state capacity”

  1. Gravatar of Christian List Christian List
    7. February 2020 at 18:28

    These countries have another important characteristic in common: they are all relatively small. So forget about them.

    You should compare the US to countries in the same ball park, and here the US does really well. All other countries over 100 million residents are much worse off, except maybe Japan and Ethiopia.

  2. Gravatar of Matthias Görgens Matthias Görgens
    7. February 2020 at 18:47

    Christian, if size is a detriment, perhaps we should just break up the US? You probably don’t even have to have a secession, just weaken the federal government in favour of the counties (and perhaps states).

  3. Gravatar of ssumner ssumner
    7. February 2020 at 22:15

    Christian, Do you actually think you are funny?

  4. Gravatar of Benjamin Cole Benjamin Cole
    7. February 2020 at 23:17

    Interesting topic. Japan is another example of a successful nation, in which there is solid infrastructure, a good healthcare system, a respected education system.

    It is a curiosity that we see increasing globalization alongside increasing political repression, from China to India to Southeast Asia. In Mexico, politicians murder journalists as a hobby.

    I suspect that mainland China’s model will prevail, that of high state capacity. China manufacturing is up 600% since 2004 while US manufacturing is about back to 2007 levels. In the meantime China has built out a high-speed rail network, more buildings than we can count. And harbors and airports and millions of housing units.

    The United States can’t build infrastructure or more than a million net housing units a year.

    In 2020 US voters will put a socialist (Sanders) or a populist (Trump) in the White House. Perhaps the US will join the rest of the New World in banana republicanism, but without the Latin charm.

  5. Gravatar of Saturday markets in everything – Marginal REVOLUTION Saturday markets in everything - Marginal REVOLUTION
    7. February 2020 at 23:28

    […] 6. Scott Sumner on state capacity. […]

  6. Gravatar of Ray Lopez Ray Lopez
    8. February 2020 at 00:05

    @BC – you realize that the constant in Sumner’s list is ethnic homogeneity? Japan, Denmark, New Zealand (pace the Maori) China (largley Han), are homogeneous. Arguably Singapore enforces homogeneity, as does Switzerland de facto (read about the recent ouster of Tidjane Thiam (African) at Credit Suisse). By contrast, Brazil, Italy (north and south) are heterogeneous. Greece? Well they are a product of Ottoman rule, where Balkan-ization was done (Turks employed the ‘millet’ caste system for occupations, not unlike India in a way). A study once found about the only country that’s done well with a heterogeneous culture and capitalism is the USA. Africa is a case in point about the dangers of heterogeneity (tribal warfare).

  7. Gravatar of Phil H Phil H
    8. February 2020 at 02:27

    I vaguely agree with TC’s idea of state capacity, I suppose, but I can’t shake the feeling that it’s a bit lacking in content. Does his theory of state capacity libertarianism imply anything more than:
    a) the state exists and does things
    b) in general it is better to do things better rather than badly?

    Scott’s argument looks like it is more specific: “what really matters is the ability to produce goods that are usually produced by governments at low cost” But is it any more than just the same argument? Given that the state exists, it is better that it be an efficient state than that it be an inefficient state?

    I’m not yet convinced there’s any meat to this idea.

  8. Gravatar of Victoria Wilson Victoria Wilson
    8. February 2020 at 08:15

    I think the term ‘state capacity libertarianism’ represents a measure– the ability or capacity of a governing body to produce goods. As Scott points out there are traditional economic angles to this such as the ‘cost of a haircut’ and there are preference sides to this as to which sector should provide haircuts.

    The old measures like GDP or aggregate wealth fall short, and this new measure incorporates intentions of the populace. It’s a measure of the capacity of the state to respond to the needs (contagion control) and desires (better transit) of its citizens. I don’t think it’s a difficult leap to understand that the freer the participants are to express themselves, the higher the capacity in the provision of their care. Hence it is a libertarian concept.

    In order to observe and replicate high capacity bodies, I think it is necessary to spend some time throwing off old assumptions of what we consider private and what we consider public. I’ve written about this here.

    For instance there is a program in destitute schools where barbers come in and give all the kids a free haircut. Feeling better about yourself most definitely contributes to higher productivity. So be cautious to quickly dismiss a product as only private.

  9. Gravatar of Michael Rulle Michael Rulle
    8. February 2020 at 09:05

    Complex topic, but a great one. State Capacity is not only doing things better, but doing the right things better, as you demonstrate (NYC versus Singapore). Singapore can do infrastructure cheaper than New York in large part because of what is politically valued in New York versus Singapore. It raises the issue of the definition of state capacity, not easy to define—-not sure teacher pensions qualifies. In fact, NYC has very low state capacity——(building the new World Trade Center another example).

    Interestingly, when Robert Moses somehow managed to take almost full unelected control of the NY infrastructure and zoning enterprises he had high state capacity. How good he was in outcomes—-don’t know—-but your 60-99% right could be true.

    One of the issues which seems clear today in the US is 1) severe differences of opinion on what is “good”; and 2) unwillingness to let one side or the other get “credit” for what might be agreed upon.

    But, sometimes the analysis, such as you have outlined, can be unintentionally cherry picked. Meaning, these issues are gigantic optimization problems which cannot be “solved” easily. Various systems of governments, culture, values and laws combined with “wisdom (or lack of) of crowd behavior” in totality can be better than others, even when specific examples are clearly not. We could never build a hospital as fast as China. But what do they give up for being able to do so.

    This is a great topic.

    We have some examples among States. One example is the cost of building Met life Stadium (2.2 billion) versus Dallas Cowboy stadium (1.2 Billion). The latter is far better and far cheaper. These were joint public/private enterprises. I assume it is “union capture”——or some hard to perceive corruption difference between Texas and NY Metro.

  10. Gravatar of Gene Frenkle Gene Frenkle
    8. February 2020 at 09:48

    One thing we discovered in the aftermath of the Financial Meltdown was big shovel ready infrastructure projects are very difficult to get off the ground and thus suboptimal for stimulus. So the reason for this is actually because democracy has empowered so many interest groups like historic societies and (ironically in Obama’s case) community activists and environmental activists. So once government and public land and public funds are involved then the political/judicial process must weigh in and rarely does that move quickly in America. And with the Obama stimulus federal politics was involved which is very cut throat due to our hyper partisan federal politics. So Obama actually awarded central Florida a multi billion dollar high speed rail line but partisan politics for better or worse undermined the project. And even in very liberal California the big high speed rail project initially designed as stimulus proved an unmitigated disaster.

    In America the Obama administration had more success with the smaller dollar projects at the municipal level because the mayors were less likely to be hyper partisan like governors and senators. That program was the TIGER program and it was successful although I don’t know how much stimulus it produced…but cities need infrastructure so it needs to be built at some point.

    Now what really moved our economy forward was fracking for oil (although once fracking for natural gas was proven economical in 2009 our economy was fine because a quiet energy crisis is what made the 2001-2008 economy dysfunctional). So fracking for oil was fueled in part by QE but it involved private lands regulated by sympathetic state governments like Texas and North Dakota. So a lot of money was thrown at a real problem and thankfully is produced very positive results.

  11. Gravatar of ssumner ssumner
    8. February 2020 at 09:50

    Ray, You said:

    “you realize that the constant in Sumner’s list is ethnic homogeneity?”

    Welcome back. I see nothing has changed. Switzerland has four languages and Singapore is one of the more diverse small countries in the world. Those are situations that generally create discord. Greece is fairly homogeneous. But hey, don’t let facts get in the way of your preconceptions.

    Phil, Yes, but I’m saying a bit more. It’s not enough for Brazil to be able to build infrastructure cheaply. It also needs a state that can decide to build infrastructure rather than spend on lavish pensions. And China needs a state that can understand the needs of its country.

    Victoria, We have a food stamp program in the US, but I consider the food production industry to be largely private. Even if we give free haircuts in school, they should be done by private barbers.

    But yes, there are many aspects to this problem, governments both directly produce goods and engage in redistribution of privately produced goods.

    Thanks for the link.

    Michael, You are right that these are very complex systems and one cannot just choose one off the menu. Otherwise Afghanistan would pick “Switzerland”. (Both are multilingual, Caucasian, land-locked, mountainous countries, after all. And yet the differences . . . )

    Still, it’s worth thinking about success stories, as a sort of model for the direction countries might try to wish to move, at least slightly.

  12. Gravatar of Jacques René Giguère Jacques René Giguère
    8. February 2020 at 12:26

    Canada doesn’t need much « state capacity «  Forest Rangers as most forests are physically unreachable…

  13. Gravatar of P Burgos P Burgos
    8. February 2020 at 12:49

    Don’t economists have pretty good definitions of public goods, positive externalities, and negative externalities? Do they have good ways of categorizing what things fall into each of those categories? I would think if the answer to both those questions are “yes”, then you just need look at how a country and its government manage all those things. China seems good at building public infrastructure (definitely a public good) but it doesn’t seem so good at managing negative externalities like pollution, or in providing public goods like education and a robust public healthcare system. Just as an example.

  14. Gravatar of ssumner ssumner
    8. February 2020 at 13:12

    Jacques, Canada likely has at least 10 times as much “reachable” forest as Sicily.

    Burgos, Why is public infrastructure “definitely a public good”? Hong Kong’s (private) subway system is one of the world’s best. Scandinavia has lots of private infrastructure.

  15. Gravatar of A Throwaway1 A Throwaway1
    8. February 2020 at 13:46

    The Chinese system has a lack of democratic impluses at the top level, but highly democratic at the local level. Additionally, the Chinese government has many faults, but they are committed to meritocracy. That is why the infrastructure gets built faster than in Brazil, which just has atrocious government at the local level.

    I’m also sure that IQ plays somewhat a role, but not in the way people think. Ron Unz wrote an excellent article that the Chinese were relatively immune to socioeconomic deprivation than other people in the world. The Brazilians at the improvished local, poor level, have cognitive deficiencies, and therefore cannot outsmart the corrupt middle class and upper class politicans in politico. This means that they do not get the leaders that they need. In contrast, the three countries you discussed have either been majority Chinese, or developed for a long time.

    In America, those problematical factors do not exist in States like Texas, where the near plurality Hispanic population easily builds infrastructure. If you visited Dallas or Austin, you would not be very impressed with Singapore’s infrastructure as much. China does it better, due to having more land.

    PS: I visited a manufacutring complex in Central Texas, it was amazing. If it weren’t for our savings deficit and our smaller population, we would easily beat China at manufacturing. Oh well…

  16. Gravatar of Victoria Wilson Victoria Wilson
    8. February 2020 at 16:47

    One clarification in the barber example: The barbers are not getting paid for their work at the schools. So they are not performing a service that is accounted for in the private market. Hence they are not providing a private good.

    The purpose of state capacity is to measure work that could be done in order to improve an agreed upon public objective such as increasing performance in elementary schools.

    So neighborhoods with barbers who are able to show up at school and cut hair will be given a numerical value that is higher than neighborhoods that have none. This is true despite (or in addition to) the barbers earning a living in the private goods market where their wage shows up on their tax returns and is filed away in service sector production.

    Presently there is no record of their performance in cutting hair at school when it is organized amongst neighbors. Nor is there an estimate of their availability to do so.

    The argument that differentiates this activity from charity will have to wait for another time.

  17. Gravatar of P Burgos P Burgos
    8. February 2020 at 20:18

    I had genuinely never heard of a private subway system? But then again, how did they secure the rights to even build such a thing? A transportation system well managed and engineered should at least have large and positive externalities. I think my original point about state capacity still stands; it is about provision of public (non-rival, difficult to exclude, etc.) goods, fostering positive externalities, and minimizing negative externalities.

  18. Gravatar of Saturos Saturos
    9. February 2020 at 00:16

    I’ve come to agree with (average rule) utilitarianism much more over the years. But I disagree with Scott’s point #3. Political systems don’t exist to deliberate over wise policy. That’s for philosophers and academics and technocrats. Political systems exist to manage the visceral conflict over access to power, which exists always and everywhere.
    (I think I learned this mainly from Robin Hanson. But see also this nice video I like to show my friends:

    So I think truly decentralized democracy would lead to disaster. Also, is Singapore really *that* neoliberal?

  19. Gravatar of Carl Carl
    9. February 2020 at 07:58

    Aren’t decentralized democracy and utilitarianism at odds?

  20. Gravatar of ssumner ssumner
    9. February 2020 at 09:27

    Victoria, Thanks, that makes sense. I was not aware of that program.

    Saturos, You said:

    “So I think truly decentralized democracy would lead to disaster.”

    When I say decentralized democracy, I am referring to the Swiss system, which is not a “disaster”.

    Carl, No, one is about goals, the other about how to achieve them.

  21. Gravatar of Ray Lopez Ray Lopez
    9. February 2020 at 14:05

    @Sumner – facts about racial homogeneity

    1) “Racial Harmony Day is a day in Singapore to celebrate its success as a racially harmonious nation. It is observed on 21 July every year, with most activities organised by schools and grassroot organisations, including religious groups” – ‘Nuff said

    2) Switzerland is homogeneous, they don’t like outsiders (Credit Suisse fiasco, though I also hear T. Thiam was cold, paranoid and that was a factor in his dismissal)

    3) Greece is not homogeneous. Every village for itself, after all, they invented the word “Balkans” here.

    But hey, don’t let facts get in the way of your narrative! 🙂

  22. Gravatar of Benjamin Cole Benjamin Cole
    9. February 2020 at 16:42

    The link above is actually to the Financial Times. It is interesting to ponder Federal Reserve timidity and caution with Scott Sumner’s recent observations that risk aversion has risen all around the world in all regards.

    The article above posits that the Federal Reserve will move to an average 2% inflation target rather than a plain 2% inflation target. But evidently this move may be a bridge too far for some Federal Reserve board members.

    Sadly, nominal GDP targeting does not appear on the agenda. For that matter, even an inflation band, such as the 2% to 3% band targeted by the Reserve Bank of Australia, is a bridge too far.

    With interest rates so low, and with the world defined by globalized capital markets, I’m not sure the Federal Reserve has the tools necessary to stimulate growth within a defined geographic area, such as the United States.

    Adding to that concern, the Federal Reserve again appears much more concerned with minute changes in the rate of inflation than with economic growth.

  23. Gravatar of ssumner ssumner
    10. February 2020 at 11:55

    Ray, That’s perhaps the most stupid comment I’ve ever read. A racially homogenous country is diverse because they have villages? And a highly diverse country is homogenous because their government encourages cohesion?

    Are you trying to be funny, or are your really that stupid?

  24. Gravatar of Christian List Christian List
    10. February 2020 at 15:57


    I’m not saying size is a detriment, I’m saying it’s apples and oranges. So it’s very questionable to compare such small countries like Denmark, Singapore and Switzerland with the US.

    What can the USA learn from these countries? This is very difficult to answer. In most cases, the countries themselves do not even know why they are so successful. In Switzerland there are so many different political parties and probably every party will tell you a different story of what makes Switzerland so successful. Others even doubt that they are that successful, at least when variables like “luck” and “history” are taken into account.

    I honestly think the US can learn most from its 50 states, which already have a lot of freedom. Comparability is much better between those 50 states.

    Comparisons between the USA and Switzerland look interesting at first glance, but when you see the many different variables, it is a nightmare. It’s kind of a Gordian knot that you can never untie.

    It’s also very similar as the discussion about Sweden: people like Bernie Sanders will tell you that it’s a socialist paradise, and people like Scott will tell you that it’s a neoliberal one. And of course they are both right, each one in his own subjective way.


    Ray expresses himself a bit clumsily here. Race is always the wrong approach. He should say culture. The Swiss are extremely convinced of their culture. So are the Danes, by the way.

    The Swiss conservatives will tell you immediately why the Swiss are so successful: The Swiss have believed since at least 1291 that they are God’s chosen people, the successors of ancient Israel. If you wanted to look for a “manifesto destiny” in Europe, you will find it in Switzerland, among other places.

    Of course, this narrative has very big loopholes and errors, just like your narrative, just like any narrative, but that’s what people believe and tell themselves. And that’s what it comes down to in the end: myths, lies, legends and fairy tales.

  25. Gravatar of ssumner ssumner
    10. February 2020 at 19:04

    Christian, You said:

    “Ray expresses himself a bit clumsily here.”

    Why aren’t you ever this kind when I say incredibly stupid things?

  26. Gravatar of Christian List Christian List
    10. February 2020 at 20:25


    First of all, I’m pleasantly surprised (not to say shocked) that you admit that you (sometimes) say incredibly stupid things.

    Second, you’re not Ray, you are part of the intellectual elite, easily in the top 1% of America’s smartest people, so the standard is a bit higher here.

    Third, you are right of course, I will try to be nicer in the future. I’m sorry if I wasn’t in the past. I never mean it personally. Sometimes I’m just angry about what you wrote, sometimes I’m just belligerent, but hopefully always in relation to the issue. Well…eh…mostly.

  27. Gravatar of Ryan Ryan
    10. February 2020 at 21:42

    I feel like this is scratching the surface of a very Weber type argument: societies with a strongly cohesive sense of purpose and strong institutions can govern themselves well either through laws or norms. This probably also goes with a strong sense of identity as well. And they can make big decisions about major issues and act on them.(This is perhaps trying to generalise the Switzerland and Singapore example. I don’t know Denmark as well.)

    Maybe put this another way – a strong state/society is largely comfortable with the institutions to resolve issues, and its citizens abide by the outcome of those processes. They can also have productive conversations about the merits of those arguments.

    For instance, if I’m Swiss and I want to change a law, I know how to propose the question, and whether it passes or fails I’m not about to undermine the institutions to get what I want. As opposed to maybe a developing country where those institutions aren’t as strong or I feel like they don’t represent me, and if I don’t get what I want I’ll just find a different way to do it – or not comply with an institution when it asks me to do something I don’t want to do.

    As for size – I think it’s the minimum size of the government that’s the problem. The Swiss are famous for having highly disaggregated politics to the Canton. This is important because it means that in a region of perhaps a few hundred thousand people you can decide lots of your own affairs, which confers a sense of ownership over your own governance to people in those regions. This is unusual around the world, where the smallest level of government of any meaningful form is typically of at least a few million inhabitants. In larger states you may still legally have a vote, but you don’t have nearly as much sense of ownership in your own body politic. Making decision making much much more local may be a good way of building state capacity, but at the expense of scale.

  28. Gravatar of ssumner ssumner
    11. February 2020 at 12:28

    Ryan, Good comment.

  29. Gravatar of Peter Peter
    14. February 2020 at 09:58

    I just wish the USA had enough state capacity to let me fill out my tax return directly on the IRS website, rather than use some paid service to allow me to file online. As a bonus, I’d take enough state capacity to allow me to not fill out the form at all, and just approve the numbers the government already has.

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