2.3 Differences: A Typology of Natural States

expansion is not the result of military prowess alone, however. Successful expanding states depend on a mix of military, political, economic, and religious factors that make integration of new territories possible. Better ability to coordinate the different elements of their societies – the political, economic, religious, educational, and military systems – gives successful natural states the means to be successful in many dimensions, not just in the military dimension. We illustrate this point with the Carolingian and Aztec examples later in the chapter.

Increasing the size of society creates a third problem for natural states, a problem rooted in an opportunity: the schizophrenic relationship of natural states to specialization and division of labor. Increasing trade and promoting specialization and the division of labor raise productivity and increase the surplus available to elites. As a result, natural state coalitions have incentives to promote trade. However, increasing specialization and division of labor often requires opening entry and access, and doing so dissipates rents, thus threatening the stability of the dominant coalition. Both forces operate in a natural state and, over time, produce ebbs and flows of access and entry. At some times, natural states increase trade and entry at some margins; at other times they restrict trade and entry at others.

2.3 Differences: A Typology of Natural States

Our framework draws a sharp distinction between natural states and open access orders. The distinction does not imply, however, that all natural states are the same. The enormous variation among natural states today ranges from failed states such as Sudan and well-functioning states with the trappings of democracy such as Mexico. Historically, natural states include ancient Rome, Mesopotamia, Egypt, Greece, Mesoamerica, China, the Indus River civilizations, feudal Europe, the Aztecs, and the Incas. How can we call all of these societies natural states and still appreciate the differences among them? Most economic and political development in human history occurred within natural states; how do we explain how natural states develop while still remaining natural states?

In order to draw out the difference among natural states, we characterize three types: fragile, basic, and mature. No sharp borders delineate the different types. Natural states differ primarily in the structure of their state and in the sophistication of the organizations they can support. The most important organization in a natural state is the state itself or, more accurately, the web of relationships within the dominant coalition. Following the idea of double balance, societies capable of supporting complicated private

organizations have complicated and sophisticated public organizations. Societies incapable of governing themselves are also incapable of supporting strong private organizations. Although we draw implications about violence and robustness for the different types of natural states, the types are not defined by outcomes but by their institutional structures. We explain the variety of natural states by looking at the sophistication of organizations inside and outside of the state.

In a fragile natural state, the state can barely sustain itself in the face of internal and external violence. Contemporary examples include Haiti, Iraq, Afghanistan, Somalia, and several other places in sub-Saharan Africa. In a fragile natural state, commitments within the dominant coalition are fluid and unstable, often shifting rapidly, and dependent on the individual identity and personality of the coalition members. The coalition is fragile in the sense that small changes in the situation of the coalition members – changes in relative prices, any number of shocks from climate, neighboring peoples, disease, and so on – can upset the coalition. Shocks can easily lead to violence and the creation of a new coalition. Alternatively, shocks can lead to rearrangements within the coalition.

A fragile natural state is capable of containing violence, but all politics is real politics: people risk death when they make political mistakes. The coalition successfully provides order when the political interests of coalition members are balanced by their economic stakes in the existing order – the double balance. In a fragile natural state, not only is war politics by other means, economics is politics by other means. Wielding power within the coalition is the critical element in economic success, while the distribution of economic privileges is the key to creating incentives for stable relations within the coalition. Resources can be gained by military conquest, and within the coalition, resources can be gained by political success.

Because of their fluidity, fragile natural states are also characterized by simple institutional structures. Members of the coalition cannot credibly commit to rules or constitutions when the month-to-month reality of balance within the coalition is in flux. This does not mean that fragile natural states fail to perceive the potential benefits from institutional structures: members of the dominant coalition would like to implement rules and laws to limit violence. In reality, however, pervasive uncertainty about outcomes prevents the elite from credibly committing to observe the rules or laws in many possible circumstances. For similar reasons fragile natural states cannot support many, if any, private elite organizations.

Patron–client networks dominate the organizations within fragile natural states, and they are usually networks capable of using violence. The

instability of fragile natural states prevents these societies from developing durable forms of public law: public law stipulates and governs the behavior of the state. Fragile natural states also have difficulty constructing and enforcing private law: private law governs relationships among individuals that the state will enforce.10 Durable arrangements last through time. What law does develop is a mix of public and private law: simple laws that govern the relationships among individuals based on social identity and stipulate a set of rules that patrons can use to make decisions. For example, the legal codes in force in the Germanic nations in early medieval Europe, such as the Salic law, consist largely of schedules of compensation for injuries and violations of a variety of types. The Pactus Legis Salicae, the Salic code, includes 15 Solidi cases, such as stealing a castrated pig or cutting off another man’s middle finger; 35, 45, and 62.5 Solidi cases, such as shooting a man with a poisoned arrow that misses; 100 and 200 Solidi cases, such as killing a free girl; 600 Solidi cases, such as killing a long-haired boy or a count; and 1,800 Solidi cases, such as murdering a long-haired boy or a count.11 The penalties serve two purposes: one is a deterrent to violence, and the other is a way of settling feuds among families and groups by substituting a fixed monetary payment for retributive violence.12 These fragile societies cannot sustain a legal system with complicated rules about organizational structures, public or private.

In contrast to fragile natural states, basic natural states sustain a durable and stable organizational structure for the state. The movement between fragile and basic natural states is gradual and marked by an increasing ability to structure durable arrangements within the organization of the state. Basic natural state institutions are largely public law institutions: institutions that structure aspects of the state, its internal relations, and its relations with members of the dominant coalition.

These public institutions serve several purposes. They provide standard solutions to recurring problems: succession of the leader, succession of elites, determination of tax and tribute rates, and division of the spoils of conquest. All of these problems afford an opportunity for violence and

10Justinian’s Code drew the following distinction between public and private law: “There are two aspects of the subject: public and private. Public law is about the organization of the Roman state, while private law is about the well-being of individuals.” Public law provided order for the structures of government and their interrelations.

11Drew (1991), pp. 159–63. In addition, see Rivers (1986) for the Salic law and Drew (1973) for the Lombard laws.

12Berman (1983) emphasizes the peaceful settlement or evasion of blood feuds.

renegotiation within the dominant coalition and are, therefore, potentially dangerous. Institutionalizing the decision process alleviates, but never completely eliminates the danger. Public institutions also enable the creation of some common beliefs about behavior among elites. Widening the set of commonly held beliefs among elites broadens the range of credible commitments that the dominant coalition can sustain.13 Finally, public institutions provide elites with organizational forms, both in the public and private sphere, which they can use to contend with one another.

The origin of the Roman Republic illustrates all three of these aspects of public institutions. From its founding in 753 b.c.e., the city of Rome had been governed by kings. In 535, Sextus Tarquin, the son of King Lucius Tarquin Superbus, raped Lucretia. Lucretia’s husband Lucius Tarquinnis Collatinus and Lucius Iunius Brutus (the king’s nephew) vowed vengeance, returned to Rome, and expelled the king (Livy, 1998, Book I, Chapters 57–60). Rather than establishing one of themselves as king, Brutus and Collatinus were elected by the Senate to the newly created office of consuls, with the understanding that two new consuls would be selected by the Senate from the patriciate every year. Brutus and Collatinus validated the institution by stepping down as consuls at the end of their year. As a public institution, the creation of the consulship transformed the succession problem in the Republic, and it created a set of common beliefs among elites about the nature of political leadership.14

The Roman institutions utilized shared beliefs within elites. Membership in the Senate was limited to patricians who had previously held magisterial offices. Senate membership was determined by rule rather than the pleasure of a group or individual. Consuls possessed wide, but limited consular power. Consular power was further limited by the requirement that consuls step down at the end of each year. The process of senatorial consensus required that individual senators act collectively to discipline any consul who violated the limits. The primary function of consuls was leading the army outside of Rome. The ability to create effective executive control

13Greif shows how a supportable set of beliefs can develop within an institution if the beliefs are consistent with the behavior the institution induces. Successful public institutions create common knowledge, and therefore common beliefs, about how the formal or informal rules will be implemented. The common beliefs can sustain an institution that would otherwise not work. These shared beliefs become focal points, as described by Schelling (1960).

14The problem of succession returned with a vengeance at the end of the Republic and ultimately led to the Imperium.

of their armed forces under the consent of the Senate gave the Romans an organizational advantage. Because consuls controlled armies, however, individual senators had to believe that their colleagues would collectively act to exercise their responsibilities to discipline a wayward consul. If a consul brought his army into Rome, as both Sulla and Julius Caesar did, the Senate as a body could not resist the military power of the consul. The balance of interests within the Senate was upset, and the enemies of the victorious consul could pay dearly. Institutions and shared beliefs were all necessary elements in making the Roman organization of government function. Nothing made it inevitable that consuls would step down; indeed the Roman Republic ended when consuls became so powerful as army leaders that the Senate could not balance their power, and powerful leaders were declared “consul for life.”

As in Rome, the institutions of a basic natural state structure organizations. The second fundamental feature of the basic natural state is that only organizations with direct connections to the state possess durability. Elite privileges are closely identified with the state, and an individual who wishes to pursue a complicated activity that requires a sophisticated organizational structure will use the state as the vehicle for organization. The balance of the interests created by elite organizations maintains order within the elite, and if order is sustained, it generates believable or credible expectations that arrangements will be repeated in the future. In fragile natural states, these organizations are highly personal, but as basic natural states begin to develop, public law, written or unwritten, may shape the formation of more complex organizations. Basic natural state institutions are not capable of supporting private elite organizations outside the orbit of the state’s own organizational structure. So basic natural states do not support a rich civil society because few (perhaps no) organizations exist that compete with the state.15 How public law grows varies enormously from society to society, and here, as always, it is important not to draw too many conclusions from any single experience.16

15Again, the ability of the basic natural state to support private organizations is not a zero/one outcome. As basic natural states develop, they become more capable of supporting private organizations.

16In Nazi Germany, for example, all organizations were either state organizations or had very close relations with the state. The tendency in twentieth-century socialist and communist countries has been to embed every organization within the ruling party. In late twentiethcentury China, for example, the strict central control over the formation of state institutions was loosened in the 1980s with the creation of township and village enterprises. Local party

Public law in Europe during the Middle Ages developed support for elite organizations within, but not beyond, the framework of the state. The organizations themselves were under the control of powerful members of the dominant coalition. The privilege of heading an organization constituted an important part of a powerful member’s social persona. Bishops, for example, headed religious organizations. By virtue of their office, bishops held a formal place in the structure of the state. Appointments of bishops, as we discuss later, were a critical area of conflict and compromise within the religious–political coalition that governed Europe in the Middle Ages. In basic natural states, the formation of organizations remains within the orbit of the state.

How well basic natural states perform and survive is likely to depend on building state organizations that serve broader segments within the elite. When state organizations serve smaller groups of elites and a small subset of the dominant coalition, the rents the organizations create are more vulnerable to appropriation by the rest of the coalition. If, however, specialized state organizations emerge to serve several different members of the coalition, the new organizations are likely to survive.

Finally, the range of social arrangements that can be sustained by a basic natural state is limited because the state is not perpetually lived and only exercises limited control over violence. We have used the term durable to indicate arrangements that last through time. Perpetual lived arrangements are fundamentally different. A perpetually lived organization is one where the identity of the organization is independent from the identity of its individual members.17 All states are organizations, and perpetually lived states are ones where the identity of the organization is independent of the identity of the individuals who make up the organization. Basic natural states develop public institutions internal to the state, and out of those institutions it is possible to develop common beliefs about the expected life of the state; that is, about the credibility of the state to make commitments about the future. A basic natural state has a limited ability to make credible commitments through time. A basic natural state may have durable institutions, but the basic natural state is not perpetually lived.

organizations were given more discretion to pursue alternative economic arrangements. The results have been astounding in terms of economic growth.

17The use of perpetual does include an element of time, because the organization lives beyond the lives of its members, but perpetual life does not imply infinite life. A perpetual organization can be created to live to a specific and limited time period as we see later in the case of a variety of types of corporations.

and be sued, and the relationship of the mayor to the city can come under purview of the law.19

Intraand inter-organizational contracts require both a form of legal system for administration of contracts and a system to protect these organizations from expropriation by the state and by other members of the dominant coalition. That is, a form of rule of law for organizations must emerge in mature natural states. Because rule of law cannot emerge by fiat, it is easily undone, and many attempts to create it in basic natural states fail. The institutions providing these services must be embedded in the state in a way that they are protected from the frequent natural state dynamics whereby privileges are regularly rearranged among members of the dominant coalition so that the rule of law is eroded.

In Roman law, a variety of organizations – collegia, universitas, municipium – were all sanctioned by the law as organizations capable of bearing rights and responsibilities. The Roman experience highlights both the way mature natural states deal with organizations and the impossibility of drawing a hard and fast line between basic and mature natural states. The creation of organizations under Roman law remained a matter of public law: that is, formal organizations had to be recognized by the state as organizations. However, as the Republic matured, access to organizational forms became easier for the upper classes. The de facto independence of Roman organizations, supported by the development of Roman law, provided the stability and incentives for rapid economic and political expansion. The ability of wealthy individuals to mobilize their resources and power through organizations provided the magistrates and Senate with independent incentives to maintain Roman rights.

The same wealth creation that fueled Roman growth, however, was a source of instability over the long term. As the Republic grew, the provisioning of armies and the administration of the empire required a multiplication of offices and concentration of military power in the hands of leaders who were potential threats to the independence of the Senate. In 88 b.c.e. Sulla led his armies into Rome; in 49 b.c.e. Julius Caesar did the same, both claiming to restore Roman rights against a tyranny. After a century of civil war, the Republic effectively ended with the elevation of Octavianus to emperor as Augustus Caesar. Many of the formal, public law institutions remained under the Principate, but with much different functions and outcomes than under the Republic. Was the empire a mature or basic natural state? The answer is that the Roman Empire over the next

19Wallis, Weingast, and North (2006) discuss these issues in greater detail. For the Roman history, see Duff (1938).