STATE CAPACITY AND ECONOMIC GROWTH: CAUTIONARY TALES FROM HISTORY

By Sheilagh Ogilvie.

"Abstract 

This paper uses economic history to probe the relationship between state capacity and economic growth during the Great and Little Divergences (c.1500–c.1850). It identifies flaws in the dominant measure of state capacity, fiscal capacity, and advocates instead analysing state expenditures. It investigates five key activities on which states historically spent resources: waging war; providing law and administration; building infrastructure; pursuing industrial policy; and fostering a national culture. The lesson of history, it concludes, is not to build a capacious state. Rather, we need a state that uses its capacity to help (or at least not hinder) market activity."

The image below has an excerpt that was posted on Twitter by Douglas Irwin: 

 

Irwin also says "See also @antonhowes excellent discussion of Tudor industrial policy & trade wars....

Age of Invention: Tudor Trade War The true effects of Henry VII's "industrial policy" 

"Bizarrely, Henry VII’s control of export licences and trade bans are often described as a case of early home-biased industrial policy — an idea most recently popularised by the bestselling economics author Ha-Joon Chang.17 Henry’s policies have been presented as a purposeful stimulus to England’s export of cloth, allowing English industry to rise up through protectionism before it later “kicked away the ladder” for other countries by imposing trade rules free of tariffs and import bans. But Chang based his information almost entirely on a 1720s writer, Daniel Defoe, who was seeking precedents to justify protectionism in his own time, and who got some crucial details utterly garbled."

"The reality then was that Henry’s trade ban did more to hinder the English economy than help it — which is also very clearly borne out by the data on cloth exports. It was only when he stopped declaring on-and-off trade bans with the Low Countries that England’s cloth exports finally gained a secure basis for growth. With trade allowed to grow for the next fifty years, this time with relatively few further interruptions, the weight of English cloth exports more than doubled, and increased by even more in terms of value. It was not by imposing embargoes, but by refraining from them, that England’s main manufacturing industry finally had the chance to expand."