State-Building:The Missing Dimensions of StatenessFrancis FukuyamaJohns Hopkins UniversitySchool of Advanced International Studies

Functions of the StateSource: World Bank, World Development Report, 1997

The Scope of State FunctionsMinimal FunctionsIntermediate FunctionsActivist FunctionsProviding pure public goods Defense, Law and order Property rights Macroeconomic management Public health Improving equity Protecting the poorX-axisAddressing externalities Education, environment Regulating Monopoly Overcoming imperfect education Insurance, financial regulation Social InsuranceIndustrial policy Wealth redistribution

Two Dimensions of StatenessScope of State FunctionsStrength of State Institutions

State Capacity

Sheet1

Addressing market failureImproving equity

Minimal FunctionsProviding pure public goodsProtecting the poor

DefenseAntipoverty programs

Law and OrderDisaster relief

Property Rights

Macroeconomic management

Public Health

Intermediate FunctionsAddressing externalities:Regulating monopoly:Overcoming imperfect information:Providing social insuranceProviding social insurance:

educationutility regulationInsuranceRedistributive pensions

environmental protectionanti-trustFinancial regulationFamily allowances

Consumer protectionUnemployment insurance

Activist FunctionsCoordinating private activity:Redistribution:

Fostering marketsAsset redistribution

Cluster initiatives

Sheet2

componentdisciplinetransferability

Organizational design and managementmanagement; public administration; economicshigh

Institutional designpolitical science; economics; lawmedium

Basis of legitimationpolitical sciencemedium-low

Social and cultural factorssociology; anthropologylow

State capacity

9

7

10

4

3

2

1

Function

Capacity

state capacity 2

8

9

4

3

6

4

3

5

7

3

6

4

2

1

state function

capacity

Sheet4

Defense8

Law and Order9

Property Rights4

protecting the poor3

Macroeconomic management6

Public Health4

education3

financial regulation5

redistributive pensions7

environmental protection3

unemployment insurance6

asset redistribution4

Fostering markets2

Cluster initiatives1

Sheet3

monetary policy9

fiscal policy7

internal security10

public safety4

education3

credit allocation2

parastatal mgmnt1

Stateness and EfficiencyScope of State FunctionsStrength of State InstitutionsQuadrant IQuadrant IIQuadrant IIIQuadrant IV

The Stateness MatrixScope of State FunctionsStrength of State InstitutionsUSSRJapanBrazilSierra LeoneUnited StatesFranceTurkey

Change over TimeScope of State FunctionsStrength of State InstitutionsUSSR 1980Japan 1980Russia 2000Japan 2001New Zealand 1981New Zealand 1995

Reform PathsScope of State FunctionsStrength of State InstitutionsPath IIPath IPath IIIPath IV

Tax Extraction Rates v. Per Capita GDP

Components of Institutional Capacity

Sheet1

Addressing market failureImproving equity

Minimal FunctionsProviding pure public goodsProtecting the poor

DefenseAntipoverty programs

Law and OrderDisaster relief

Property Rights

Macroeconomic management

Public Health

Intermediate FunctionsAddressing externalities:Regulating monopoly:Overcoming imperfect information:Providing social insuranceProviding social insurance:

educationutility regulationInsuranceRedistributive pensions

environmental protectionanti-trustFinancial regulationFamily allowances

Consumer protectionUnemployment insurance

Activist FunctionsCoordinating private activity:Redistribution:

Fostering marketsAsset redistribution

Cluster initiatives

Sheet2

componentdisciplinetransferability

Organizational design and managementmanagement; public administration; economicshigh

Institutional designpolitical science; economics; lawmedium

Basis of legitimationpolitical sciencemedium-low

Social and cultural factorssociology; anthropologylow

State capacity

9

7

10

4

3

2

1

Function

Capacity

Sheet3

monetary policy9

fiscal policy7

internal security10

public safety4

education3

credit allocation2

parastatal mgmnt1

Weak States and the Black Hole of Public AdministrationCentral issue of all organizational theory is delegated discretionUnderlying issue in socialism debate (Hayek), corporate structure (Chandler), federalismContemporary approach brings this under a principal-agent framework

Principal-Agent TheoryCoase, theory of the firm 1937Alchian and Demsetz, firms as nexus of contracts 1972Williamson, opportunism and bounded rationalityJensen and Meckling, agency costs 1976Fama, markets for managers 1980

Domains of Organizational UncertaintyAmbiguity of goalsImpossibility of erecting formal system of monitoring and incentivesInability to determine appropriate degree of delegation ex ante

Public Sector OutputsLow Transaction volume HighLow Specificity HighQuadrant IQuadrant IIQuadrant IIIQuadrant IV

Monitorability of Public Sector OutputsLow Transaction volume HighLow Specificity HighCentral bankingAircraft maintenancePrimary school teachingHighway maintenancePreventative medicineTelecomsGuidance counselingForeign affairsRailroadsUniversity educationCourt systems

Consequences of Organizational AmbiguityNeed to understand better where different public sector activities fall in the matrixSeek to fix problems that are actually solvableNew approaches to activities for which there are no best practicesNeed 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 placeRequires rather contextual judgment about applicability of foreign modelsNeed to think about the structure of decision-making rather than content of decisions

ApplicationsJapan: MacArthurs decision to keep the Emperorversus the clean break in GermanyIraq: disbanding the Iraqi ArmyIraq: tribalism in the Sunni triangle

Making Things WorseIFIs and donor community complicit in destruction of institutional capacityContradiction between objectives of capacity-building and provision of servicesNeed to rethink aims and emphasis of Phase II nation-building

Implications for Democracy PromotionNeed to rethink 1990s emphasis on civil societyGood theory but questionable allocation of resourcesNeed to deal first with problem of weak statesParty-building ahead of civil society promotion

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