State-Building: The Missing Dimensions of Stateness Francis Fukuyama Johns Hopkins University School of Advanced International Studies

The Scope of State Functions Addressing externalities Education, environment Regulating Monopoly Overcoming imperfect education Insurance, financial regulation Social Insurance Providing pure public goods Defense, Law and order Property rights Macroeconomic management Public health Improving equity Protecting the poor Intermediate Functions Industrial policy Wealth redistribution Minimal Functions Activist Functions X-axis

Two Dimensions of Stateness Strength of State Institutions Scope of State Functions

Stateness and Efficiency Quadrant I Quadrant II Strength of State Institutions Quadrant III Quadrant IV Scope of State Functions

The Stateness Matrix Strength of State Institutions France Japan United States Strength of State Institutions USSR Turkey Brazil Sierra Leone Scope of State Functions

Change over Time Strength of State Institutions New Zealand 1995 USSR 1980 Strength of State Institutions New Zealand 1981 China 2000 China 1978 Russia 2000 Scope of State Functions

Reform Paths Strength of State Institutions Scope of State Functions Path I Path IV Strength of State Institutions Path III Path II Scope of State Functions

Tax Extraction Rates v. Per Capita GDP

Components of Institutional Capacity

Weak States and the Black Hole of Public Administration Central issue of all organizational theory is delegated discretion Underlying issue in socialism debate (Hayek), corporate structure (Chandler), federalism Contemporary approach brings this under a principal-agent framework

Domains of Organizational Uncertainty Ambiguity of goals Impossibility of erecting formal system of monitoring and incentives Inability to determine appropriate degree of delegation ex ante

Public Sector Outputs Quadrant I Quadrant II Low Specificity High Quadrant III Quadrant IV Low Transaction volume High

Monitorability of Public Sector Outputs Aircraft maintenance Telecoms Central banking Railroads Highway maintenance Low Specificity High Foreign affairs Court systems Primary school teaching University education Preventative medicine Guidance counseling Low Transaction volume High

Consequences of Organizational Ambiguity Need to understand better where different public sector activities fall in the matrix Seek to fix problems that are actually solvable New approaches to activities for which there are no “best practices” Need 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 place Requires rather contextual judgment about applicability of foreign models Need to think about the structure of decision-making rather than content of decisions

Some Historical Examples Japan: MacArthur’s decision to keep the Emperor versus the clean break in Germany Iraq: disbanding the Iraqi Army

Making Things Worse IFIs and donor community complicit in destruction of institutional capacity Contradiction between objectives of capacity-building and provision of services Need to rethink aims and emphasis of Phase II nation-building

Application to Failed States Inevitable conflict between need to provide governance and early local ownership Recent cases of “authoritarian state building” High representative in Bosnia, CPA in Iraq Need to tolerate loss of control in the interests of local buy-in