I find Leeson’s latest response very encouraging, because it actually shows that we largely agree on the underlying issues—even though we remain very far apart in the conclusions we draw.
Thus, Leeson accepts that self-enforcing agreements are imperfect, while I accept that governments are imperfect. We agree that national courts are inadequate in enforcing international trade contracts (a fact that is reflected in the high transaction costs evident in international trade, as I mentioned in my earlier post). And Leeson does acknowledge that government is not always concerned with rent-seeing and corruption, which implies that he believes governments are capable of doing good things—at least on occasion.
So here is the crux of the matter. Suppose we are each called on to advise the current government of Somalia. What advice would we give? My instinct would be to look around and see what other countries in Africa have been doing well, and to recommend a strategy that is consistent with that experience. So I would notice that two long-standing high performers in the region are Botswana and Mauritius, and in both cases the government has played a strong role, both within the economy and in setting up a legal regime (of third-party enforcement). My recommended strategy would be based on strengthening the capacity of the Somali state to achieve these ends, while building safeguards (through democracy and civil liberties) against the abuse of its power. I know that this is not pie-in-the-sky, because others have done it, and I do not see why we should deny the Somalis the same benefits.
Of course, there are also risks that the strategy will fail, as it surely has in many settings. But the fact that it has also often worked—and I do not have in mind only a few European cases or European offshoots, as my African examples indicate—can give us hope.
I wonder what advice Leeson would give. Would he say: “Forget this state-building business. Let the state wither away, and let markets and private self-enforcing agreements take care of the economy.”
I don’t know if this is what he would say, but it would seem to be the logical implication of his argument. Would he then recognize that he is recommending a strategy that has never been observed to produce well-functioning, wealthy economies? And that my strategy has the virtue of at least having been successful in some instances?