The Crux of the Matter

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?

Also from this issue

Lead Essay

  • Everybody seems to know we need government … But pirates didn’t! How did they manage without the state? In this issue’s thought-provoking lead essay, Peter T. Leeson, the BB&T Professor for the Study of Capitalism at George Mason University, explores what pirate “constitutions,” credit institutions among 19th century African bandit traders, and the well-being of Somalians after the collapse of the Somalian state have to tell us about the possibility of practical anarchy. It works better than you think, Leeson concludes. “As long as there are unrealized gains to realize, people will find ways to realize them” — state or no state.

Response Essays

  • Bruce L. Benson, author of The Enterprise of Law: Justice Without the State, argues Peter Leeson’s defense of anarchy is too moderate. Governments in developed nations, Benson maintains, are not better than ordered anarchy. Drawing on Franz Oppenheimer’s classic account of the state as a protection racket, Benson argues that the state only seems necessary because it offers “solutions” to problems the state itself creates. Benson claims that even well-constrained states are essentially parasitic, leading him to conclude that “even when a relatively ‘good’ government exists, there still is way too much government and not nearly enough anarchy.”

  • Harvard economist Dani Rodrik is willing to accept a number of steps in Peter Leeson’s argument for anarchy, “but [Leeson’s] bottom line … represents a huge leap of faith.” Citing the work of several important thinkers, Rodrik argues that “the problem with self-enforcing agreements is that they do not scale up.” Both theory and data show that complex, well-functioning social and economic systems require the enforcement of rules by government. “Those societies in which markets work best are the ones where the reach of the state is longer, not shorter.”

  • Florida State University economist Randall Holcombe argues that even if Leeson is right about anarchy, it doesn’t much matter. “Regardless of its merits,” Holcombe writes, “anarchy has no prospect as an actual policy option.” The bottom line is that government is popular in developed nations. Furthermore, anarchy may not be a “stable equilibrium,” in which case it might “coalesce into governments … potentially more oppressive and more destructive than those we see in prosperous areas today.” According to Holcombe, if we’re going to get a government anyway, the best approach to policy is to “make it smaller, less intrusive, and more libertarian,” not to make it go away.