30 December 2011

Inheritance rights in Russia under Peter the Great

From John Nye's review of Richard Pipes' Property and Freedom:

Peter the Great is often saluted for having modernized Russia's culture and economy. But Pipes makes clear that Peter's Westernization was primarily cultural and technological. Although receptive to Western ideas in art, literature, music, and science, Peter did little to adopt the legal institutions so crucial to English success. Rather than improving individual property rights, Peter blurred a variety of existing distinctions and endangered the long-run stability of all reforms through arbitrary confiscation. Peasant agriculture was held back by a law requiring that all holdings must be bequeathed in toto to a single heir. Though intended to stop the devolution of large holdings into small parcels through inheritance, the law had the effect of destroying the working land market that had begun to emerge in Russia.

25 December 2011

Ashwin Parameswaran on the tradeoff between short-term stability and long-term resilience

From this, rather long, blog post:

The puzzle:

Most monetary and fiscal interventions result in a rise in the financial markets, NGDP expectations and economic performance in the short run. Yet,

  • we are in the middle of a ‘great stagnation’ and have been for a few decades.
  • the frequency of crises seems to have risen dramatically in the last fifty years culminating in the environment since 2008 which is best described as a perpetual crisis.
  • each recovery seems to be weaker than the previous one and requires an increased injection of stimulus to achieve results that were easily achieved by a simple rate cut not that long ago.

... Similarly, when a central bank protects incumbent banks against liquidity risk, the banks choose to hold progressively more illiquid portfolios. When central banks provide incumbent banks with cheap funding in times of crisis to prevent failure and creditor losses, the banks choose to take on more leverage. ... Of course, in economic systems when agents actively intend to arbitrage such commitments by central banks, it is simply a form of moral hazard. But such an adaptation can easily occur via the natural selective forces at work in an economy – those who fail to take advantage of the Greenspan/Bernanke put simply go bust or get fired. ...

some of you may raise the following objection: so what if the new state is pathological? Maybe capitalism with its inherent instability is itself pathological. And once the safety nets of the Greenspan/Bernanke put, lender-of-last-resort programs and too-big-to-fail bailouts are put in place why would we need or want to remove them? If we simply medicate the economy ad infinitum, can we not avoid collapse ad infinitum?

This argument however is flawed.

  • The ability of economic players to reorganise to maximise the rents extracted from central banking and state commitments far exceeds the the resources available to the state and the central bank. ... as Minsky and many others have documented, the pace of financial innovation over the last half-century has meant that banks and financialised corporates have all the tools they need to circumvent regulations and maximise rent extraction.
  • Minsky noted that "A high-investment, high-profit strategy for full employment – even with the underpinning of an active fiscal policy and an aware Federal Reserve system – leads to an increasingly unstable financial system, and an increasingly unstable economic performance. Within a short span of time, the policy problem cycles among preventing a deep depression, getting a stagnant economy moving again, reining in an inflation, and offsetting a credit squeeze or crunch."

...The structural malformation of the economic system due to the application of increasing levels of stimulus to the task of stabilisation means that the economy has lost the ability to generate the endogenous growth and innovation that it could before it was so actively stabilised. The system has now been homogenised and is entirely dependent upon constant stimulus. ...

22 December 2011

Tainter on the importance of legitimacy for state power

From The Collapse of Complex Societies by Joseph A. Tainter (p. 26-8):

Anthropologists have had some difficulty defining the concept 'state.' It is something that seems clearly different from the simplest, acephalous human societies, but specifying or enumerating this difference has proven an elusive goal. Many anthropologists, despite this difficulty, insist that states are a qualitatively different kind of society , so that the transition from tribal to state societies represents the 'Great Divide' (Service 1975) of human history. ...

States are, to begin with, territorially organized. That is to say, membership is at least partly determined by birth or residence in a territory, rather than by real or fictive kin relations. ... The territorial basis both reflects and influences the nature of statehood ...

States contrast with relatively complex tribal societies (e.g., chiefdoms) in a number of ways. In states, a ruling authority monopolizes sovereignty and delegates all power. The ruling class tends to be professional, and is largely divorced from the bonds of kinship. This ruling class supplies the personnel for government, which is a specialized decision-making organization with a monopoly of force, and with the power to draft for war or work, levy and collect taxes, and decree and enforce laws. The government is legitimately constituted, which is to say that a common, society-wide ideology exists that serves in part to validate the political organization of society. And states, of course, are in general larger and more populous than tribal societies, so that social categorization, stratification, and specialization are both possible and necessary ...

States tend to be overwhelmingly concerned with maintammg their territorial integrity. This is, indeed, one of their primary characteristics. States are the only kind of human society that does not ordinarily undergo short-term cycles of formation and dissolution  ...

States are internally differentiated ... Occupational specialization is a prime characteristic, and is often reflected in patterns of residence ... By virtue of their territorial extensiveness, states are often differentiated, not only economicaliy, but also culturally and ethnically. Both economic and cultural heterogeneity appear to be functionally related to the centralization and administration that are defining characteristics of states ...

Despite an institutionalized authority structure, an ideological basis, and a monopoly of force, the rulers of states share at least one thing with chiefs and Big Men: the need to establish and constantly reinforce legitimacy. In complex as well as simpler societies, leadership activities and societal resources must be continuously devoted to this purpose. Hierarchy and complexity, as noted, are rare in human history, and where present require constant reinforcement. No societal leader is ever far from the need to validate position and policy, and no hierarchical society can be organized without explicit provision for this need.

Legitimacy is the belief of the populace and the elites that rule is proper and valid, that the political world is as it should be. It pertains to individual rulers, to decisions, to broad policies, to parties, and to entire forms of government. The support that members are willing to extend to a political system is essential for its survival. Decline in support will not necessarily lead to the fall of a regime, for to a certain extent coercion can replace commitment to ensure compliance. Coercion, though, is a costly, ineffective strategy which can never be completely or permanently successful. Even with coercion, decline in popular support below some critical minimum leads infallibly to political failure (Easton 1965b: 220-4). Establishing moral validity is a less costly and more effective approach.

Complex societies are focused on a center, which may not be located physically where it is literally implied, but which is the symbolic source of the framework of society . It is not only the location of legal and governmental institutions, bur is the source of order, and the symbol of moral authority and social continuity . The center partakes of the nature of the sacred. In this sense, every complex society has an official religion (Shils 1975 : 3; Eisenstadt 1978: 37; Apter 1968: 2 18).

The moral authority and sacred aura of the center not only are essential in maintaining complex societies, but were crucial in their emergence. One critical impediment to the development of complexity in stateless societies was the need to integrate many localized, autonomous units, which would each have their own peculiar interests, feuds, and jealousies. A ruler drawn from any one of these units is automatically suspect by the others, who rightly fear favoritism toward his/her natal group and locality, particularly in dispute resolution (Netting 1972: 233-4). This problem has crippled many modern African nations (cf. Easton 1965b: 224). The solution to this structural limitation was to explicitly link leadership in early complex societies to the supern a tural. When a leader is imbued with an aura of sacred neutrality, his identi fi c ation with natal group and territory can be superseded by ritually sanctioned authority which rises above purely local concerns . An early complex society is likely to have an avowedly sacred basis of legitimacy, in which disparate, formerly independent groups are united by an over arching level of shared ideology, symbols, and cosmology (Netting 1972: 233-4; Claessen 1978: 557; Skalnik 1978: 606).

Supernatural sanctions are then a response to the stresses of change from a kin-based society to a class-structured one. They may be necessitated in part by an ineffective concentration of coercive force in emerging complex societies (Webster 1976b: 826). Sacred legitimization provides a binding framework until real vehicles of power have been consolidated. Once this has been achieved the need for religious integration declines, and indeed conflict between secular and sacred authorities may thereafter ensue (see, e.g. , Webb 1 965). Yet as noted, the sacred aura of the center never disappears, not even in contemporary secular governments ( Shils 1975: 3-6). Astute politicians have always exploited this fact. It is a critical element in the maintenance of legitimacy.

Despite the undoubted power of supernatural legitimization, support for leadership must also have a genuine material basis. Easton suggests that legitimacy declines mainly under conditions of what he calls 'output failure' ( 1965b : 230). Output failure occurs where authorities are unab l e to meet the demands of the support population, or do not take anticipatory actions to counter adversities. Outputs can be political (Eisenstadt 1963: 25) or material. Output expectations are continuous, and impose on leadership a never-ending need to mobilize resources to maintain support. The attainment and perpetuation of legitimacy thus require more than the manipulation of ideological symbols. They require the assessment and commitment of real resources, at satisfactory levels, and are a genuine cost that any complex society must bear. Legitimacy is a recurrent factor in the modern study of the nature of complex societies, and is pertinent to understanding their collapse.