State Capacity as O-Ring
State capacity refers to the ability of a government to implement policies and deliver public goods and services effectively. Strong state capacity is crucial for economic development, social cohesion, and overall stability. Scholars use different measures like the ability to collect taxes (fiscal capacity), enforcement of rules/contracts and protection of rights (legal capacity), and the coercive powers of the state to define state capacity. The ability of public institutions to also do these things range from simple tasks like managing a toll gate to complex ones like building and launching an interplanetary rover. It is often tempting to take headline achievements or lack thereof as a way of judging capacity.
For example, the ability of the United States to solve some problems like building decent railways — relative to China — has been argued as a sign of declining state capacity. This seemed to be reaffirmed during the Covid outbreak when China built multiple hospitals with thousands of rooms in a few days and was massively testing millions of people rapidly. Meanwhile, the U.S. was stumbling to have a coherent policy response. The flip side to this was that the U.S. was able to develop a Covid vaccine in record time and administer them widely while China still does not have an effective local vaccine to date — which meant it could not develop a clear exit from pandemic restriction policies. Many reasons like political decay, underfunding, culture, corruption, history, etc. have been argued as responsible for the divergence in state capacity — but not enough attention has been given to the nature of the tasks involved in many public services and the skills required. This is particularly relevant for developing countries that have to make tough allocative decisions on investing public resources for the best results.
The O-ring theory of economic development, developed by economist Michael Kremer, is a model that explains how a single weak link in a production chain can severely compromise the overall quality and performance of the final product. Kremer suggested that the income and productivity differences between countries can be better explained by how their firms excel at products with high skill complementarities. Economist Garett Jones, building on Kremer’s model, also argued that there are two types of jobs in an economy. O-ring jobs which require high levels of skills but also require all workers to be at a similar level of skill — and ‘’foolproof’’ jobs where the output is not so sensitive to the level of skills. Jones’ model has some implications for cross-national differences in income but perhaps we will get to that someday. What is important to keep in mind is that highly skilled people can work in foolproof jobs, but low-skilled people cannot easily transition into O-ring jobs without the risk of destroying the final product.
Much like Jones, I think that public services have O-ring and foolproof tasks — and this has important implications for what we call state capacity. It is possible to reduce crime and insecurity by instructing police officers to brutalise or kill anyone accused or with the slightest appearance of being guilty of any petty crime. It does not take much skill either. Just some able-bodied men who can fire automatic weapons — of course with the occasional incidences of ‘’accidental discharge’’. But in reality, not many countries can take this approach to crime reduction without descending into violent chaos. But then countries that have only mastered this kind of skill and approach to crime reduction will inevitably have state capacity challenges. On the other hand, investigating crimes, keeping the peace without inciting chaos, and respecting the rights of even those accused of crimes is a network of complex processes and requires well-trained and higher relevant skills working together. The same can be said of many other public services. You can increase your ‘’IGR” or tax revenues by deploying tax agents to harass micro-enterprises and tax the same businesses multiple times. But building a more formalised tax system where voluntary income declaration and tax filing can be incentivised is harder and requires many skilled people working together.
Countries can appear to have high state capacity when they have only learned and can deploy foolproof methods that do not require a high level of skills. However, the limitations are quickly laid bare when the output reaches diminishing returns.
It is therefore important for political leaders and policymakers interested in state capacity to think about the organisational dimensions — like the processes involved and the skill level required to deliver public service.