State capacity and charter cities

The development community is shifting their focus to fragile states. The World Bank doubled their fund for fragile states.

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The development community is shifting their focus to fragile states. The World Bank doubled their fund for fragile states. Concurrently, a commission led by David Cameron published a report, “Escaping the Fragility Trap”.

The idea of fragile states is closely linked to the literature on state capacity, which has become a hot topic in economic history over the last decade. State capacity is the ability of a state to achieve its goals. On a fundamental level, this means achieving a monopoly of violence. Other important aspects of state capacity include ability to raise taxes from a wide base and provide public goods.

Here’s an example of personal context about the importance of state capacity, which helps illustrate its importance. Several years ago, I took a bus from Honduras to El Salvador. The bus only left early in the morning. Leaving later in the day would require crossing rural areas in the dark which would increase the risk of robbery. In other words, there were literal highway bandits which restricted the time of day buses were available.

Another way to think about the importance of state capacity is through this graph. Ghana and South Korea had comparable per capita incomes in 1960. In fact, Ghana was slightly higher. However, because of the miracle of compound growth, South Korea has since been able to grow into a developed country.

Through the lens of state capacity, however, this illustration breaks down. Even though Ghana and South Korea were equally materially poor in 1960, South Korea had a reasonably effective state. South Korea already had the necessary conditions for their success

Charter cities can be an effective mechanism to improve state capacity. A Firestone plantation in Liberia during the Ebola crisis illustrates this point. With 80,000 people on 185 square miles, they effectively protected their workers.  Rather than working to reform existing systems, it can be easier to create new systems which can grow as they perform their necessary functions better than the legacy system.