The political economy of state building

Abstract

Externally assisted state-building efforts cost trillions but typically fail to produce states capable of providing public goods and services on their own. Drawing on the public choice literature and evidence from historical state-building processes, we argue that political self-sufficiency depends on political institutions that allow for self-governance, reasonably high levels of fiscal and administrative capacity, economic institutions that encourage wealth creation, and social institutions that reinforce political and economic freedom. Importantly, we do not expect that democracy is a critical determinant of political self-sufficiency. Our theory explains why state building in Afghanistan in the two decades since 2001 did not produce a more functional state. Despite massive international investment in blood and treasure, the state-building effort prioritised national elections over institutional reforms that encourage local self-governance, failed to establish meaningful constraints on national political decision-makers (especially the president) and disregarded customary private property rights and customary processes to adjudicate land disputes.