State-Building:The Missing Dimensions of Stateness

Francis FukuyamaJohns Hopkins University

School of Advanced International Studies

Functions of the StateAddressing market failure Improving equity

Minimal Functions Providing pure public goodsProtecting the poor

DefenseAntipoverty programs

Law and Order Disaster reliefProperty RightsMacroeconomic managementPublic Health

Intermediate FunctionsAddressing externalities:

Regulating monopoly:

Overcoming imperfect information:

Providing social insurance

Providing social insurance:

education utility regulation InsuranceRedistributive pensions

environmental protection anti-trust Financial regulationFamily allowances

Consumer protectionUnemployment insurance

Activist FunctionsCoordinating private activity: Redistribution:

Fostering marketsAsset redistribution

Cluster initiatives

Source: World Bank, World Development Report, 1997

The Scope of State FunctionsM

inim

al F

unct

ions

Inte

rmed

iate

Fun

ctio

ns

Act

ivis

t Fun

ctio

ns

Prov

idin

g pu

re p

ublic

goo

dsD

efen

se, L

aw a

nd o

rder

Prop

erty

righ

tsM

acro

econ

omic

man

agem

ent

Publ

ic h

ealth

Impr

ovin

g eq

uity

Prot

ectin

g th

e po

or

Add

ress

ing

exte

rnal

ities

Educ

atio

n, e

nviro

nmen

tR

egul

atin

g M

onop

oly

Ove

rcom

ing

impe

rfec

t edu

catio

nIn

sura

nce,

fina

ncia

l reg

ulat

ion

Soci

al In

sura

nce

Indu

stria

l pol

icy

Wea

lth re

dist

ribut

ion

X-axis

Two Dimensions of StatenessSt

reng

th o

f Sta

te In

stitu

tions

Scope of State Functions

State Capacity

Defens

eLa

w and O

rder

Propert

y Righ

tspro

tectin

g the

poor

Macroe

conom

ic man

agem

ent

Public

Health

educ

ation

finan

cial re

gulat

ion

redist

ributi

ve pe

nsion

s

envir

onmen

tal pr

otecti

on

unem

ploym

ent in

suran

ceas

set re

distrib

ution

Fosterin

g mark

etsCluste

r initia

tives

state function

capa

city

Stateness and EfficiencySt

reng

th o

f Sta

te In

stitu

tions

Quadrant I Quadrant II

Quadrant III Quadrant IV

Scope of State Functions

The Stateness MatrixSt

reng

th o

f Sta

te In

stitu

tions

France

JapanUnited States

USSR

Turkey

BrazilSierra Leone

Scope of State Functions

Change over TimeSt

reng

th o

f Sta

te In

stitu

tions

Japan 1980

Scope of State Functions

USSR 1980

Japan 2001

New Zealand 1981

New Zealand 1995

Russia 2000

Reform PathsSt

reng

th o

f Sta

te In

stitu

tions

Path IPath IV

Path III

Path II

Scope of State Functions

Tax Extraction Rates v. Per Capita GDP

Components of Institutional Capacity

component discipline transferability

Organizational design and management

management; public administration; economics high

Institutional designpolitical science; economics; law medium

Basis of legitimation political science medium-lowSocial and cultural factors sociology; anthropology low

Weak States and the Black Hole of Public Administration

• Central issue of all organizational theory is delegated discretion

• Underlying issue in socialism debate (Hayek), corporate structure (Chandler), federalism

• Contemporary approach brings this under a principal-agent framework

Principal-Agent Theory

• Coase, theory of the firm 1937• Alchian and Demsetz, firms as nexus of

contracts 1972• Williamson, opportunism and bounded

rationality• Jensen and Meckling, agency costs 1976• Fama, markets for managers 1980

Domains of Organizational Uncertainty

• Ambiguity of goals• Impossibility of erecting formal system of

monitoring and incentives• Inability to determine appropriate degree of

delegation ex ante

Public Sector OutputsLo

w

Spec

ifici

ty

Hig

h

Quadrant I Quadrant II

Quadrant III Quadrant IV

Low Transaction volume High

Monitorability of Public Sector OutputsLo

w

Spec

ifici

ty

Hig

h

Central banking

Aircraft maintenanceTelecoms

RailroadsHighway maintenance

Foreign affairs Court systemsPrimary school teaching

University educationPreventative medicine

Guidance counseling

Low Transaction volume High

Consequences of Organizational Ambiguity

• Need to understand better where different public sector activities fall in the matrix– Seek to fix problems that are actually solvable

• New approaches to activities for which there are no “best practices”

• Need to teach development differently

What follows if public administration is not a science?

• Need for metis (Scott)• Does not necessarily imply leaving local

institutions in place• Requires rather contextual judgment about

applicability of foreign models• Need to think about the structure of

decision-making rather than content of decisions

Applications

• Japan: MacArthur’s decision to keep the Emperor– versus the clean break in Germany

• Iraq: disbanding the Iraqi Army• Iraq: tribalism in the Sunni triangle

Making Things Worse

• IFIs and donor community complicit in destruction of institutional capacity

• Contradiction between objectives of capacity-building and provision of services

• Need to rethink aims and emphasis of Phase II nation-building

Implications for Democracy Promotion

• Need to rethink 1990s emphasis on civil society– Good theory but questionable allocation of

resources• Need to deal first with problem of weak

states– Party-building ahead of civil society promotion