Wars and state competition in Europe led to emergence of strong states

David Schonholzer has an excellent article in the latest edition of Works in Progress where he attributes Europe's early modern advancement to wars. Channelling Charles Tilly who wrote that "war made the state, and states made war", he argues that apart from building state capabilities to raise and collect tax revenues and manage the logistics of an army, wars also led to a winnowing of effective states and strong institutions. 

He and his co-author, Eric Weese, have a paper here that uses maps in the Centennia Historical Atlas to highlight the continuous redrawing of boundaries in Europe in 1000-1800 as a Schumpeterian "creative destruction" process through wars and the emergence of stronger states. He also layered the maps with data on populations of 2206 cities in the 800-1850 period. 

A successful state grows its cities’ populations by attracting immigrants from other states; by preventing deaths from war, disease, and poverty; by seeing more births; and through internal immigration... Among states with at least one city, the average state survived less than a century... These states did not last in the ruthless market for governance, but their ‘deaths’ were matched by an inflow of ‘newborn’ and expanded states that arose out of the remnants of their forebears... This steady churn was accentuated by periods of mass extinction of states, such as when Napoleon swept the German lands after the French Revolution with his iron broom (including both the Prince-Bishopric of Liège and Austrian rule in Belgium). But even putting these periods aside, the European state system was constantly in flux throughout the entire period between 1000 and 1850.

He compares it with Schumpeterian creative destruction,

The process of displacement and reinvention of states throughout European history resembles the process of creative destruction popularized by economist Joseph Schumpeter: ‘the process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one’. In models of creative destruction, companies develop new technology over time to gain an edge over their competitors. This leads to three effects: firstly, technology improves as businesses with better technology enter the market; secondly, those with worse technology leave, freeing up the resources they had been using for other companies to use instead; and thirdly, firms with superior technology gain market share at the expense of their less effective rivals.

All three of these forces are at work in competition between states as well. New states come into existence based on rules that allow for a more favorable economic environment, for example when the mercantile Dutch Republic replaced the absolutist Habsburg Monarchy in the Low Countries. Existing states may be more likely to disappear (through war or revolution) if they are unable to raise taxes to pay soldiers to defend themselves, or otherwise cannot command the loyalty of their population and control their territory. Finally, better states may foster more economic growth, funding military and diplomatic efforts to gain territory at the expense of rivals.

They also point to the prohibitive costs of too much switching of states across empires.

In fact, out of more than 2,000 cities whose populations we can track in the 1000-1800 period, 80 percent changed hands at least once. Many cities saw several government changes, and some of them went through dozens. The two European regions with the highest number of switches are Northern Italy and the Low Countries, which includes cities like Ghent... Having grown rich from maritime trade during its Golden Age from the twelfth to fifteenth centuries, Ghent was not able to recover to its peak population size until the nineteenth century. During the intervening years, it had the bad luck of being conquered many times, and governed by a near constant parade of unstable, low-quality rulers. This is where Smith’s edict of peace as an essential feature of good governance shines through most clearly: perhaps Ghent would be a major European city today, in terms of population size, had it enjoyed more stable rule... On average, cities that switch – so often through revolutions or conquests – see population drop by almost 30 percent relative to cities that did not switch at that time. Remarkably, in the time before the switch, these cities grew at the same speed as other cities.

Our evidence suggests that the gains from switching from one state to another decrease the more a city does it. While being invaded once a century may shatter ossified patronage networks keeping the city back, a revolution every decade is more likely to put it into a state of permanent chaos and drive people into exile. That suggests there is a competition sweet-spot. 

This is a great summary of the trade-off between the costs and benefits of creative destruction in terms of the average gains for cities of a given length of switching sequence against the costs of switching. The solid line shows the total gross benefits of state competition, and the hashed line takes into account the costs of switching. Once a city switches states three times or more, the decreasing marginal benefits of switching kick in.

The paper contrasts the histories of Ghent and Leipzig.

And the positive effects of switching

After accounting for the transitory cost of switches, switching to another state is associated with a permanent 20 percent increase in population size. We find three sources of benefits due to territorial competition: first, some of the benefits are due to better, or more effective, states taking over more cities over time. The French occupation of the Rhine during the Napoleonic Wars makes for a striking example of these benefits. In the 1690s, the region was burdened by toll booths that required payment of different state customs duties every six miles. The French did away with this remnant of the Holy Roman Empire, which allowed for easier trade and subsequent city growth in the region.

Second, cities end up being matched with states that seem to be a better fit for them, perhaps because they care more about the city for religious, nationalistic, or other ideological reasons. For example, the creation of the Dutch Republic put the cities of the Low Countries under the stewardship of a state that cared deeply about their welfare – unlike the Spanish Habsburgs, who had ruled the region before the Dutch Revolt and who had little regard for anything other than the tribute they sought to extract from these cities... And third, some benefits to switching seem to be due to a pure change-in-governance effect: possibly, the breakup of patronage networks in the city tied to the former state in power helps to set free previously suppressed productive forces, no matter the quality of the state or of the match. For instance, after the demise of the Old Swiss Confederacy in 1798, the Helvetic Republic briefly took over governance in Switzerland. Although many Swiss resented it for its centralism and forced a partial reconstitution of the Swiss Confederacy, many oppressive political arrangements of the Old Confederacy that stymied city growth had been permanently removed.

The paper also looks at the new institutional features while switching that contribute to better city growth

One of the correlates with higher estimated state effects on city growth is the extent to which the state had an active parliament. Parliaments offered a forum for rulers to bargain over peace guarantees and property rights in exchange for tax revenues – part of Adam Smith’s recipe for high-functioning states. Cities switching to states such as Britain, and England before it, in which Parliament convened roughly every other year, grew faster than those switching to states like Denmark, in which parliaments were nearly nonexistent during this period. These estimates suggest that going from no parliament to one that meets every year leads cities in the state to grow almost nine percent faster per century.

Of course, this relationship is not perfect: some states had a positive impact on city growth even without a powerful parliament. If the ruler of a high-quality state was not constrained by parliament, they often had access to other capacities that fostered growth. In particular, higher-quality states had higher fiscal capacity: they were able to maintain more debt at a lower interest rate than other states. This helped to secure internal peace in times of crisis and invest into productive capacities such as infrastructure once the Industrial Revolution took off...

Another important takeaway is that not only may Europe have had close to the ‘Goldilocks’ amount of competition between states, but it also benefited enormously from the ability of states to copy the successful innovations of others through means other than through annexation, and a relatively unified collective intellectual culture. Waves of institutional innovations brought about by newcomers forced other states to adapt and learn if they wanted to survive, just as with useful and technological innovations. The introduction of parliaments, the rise of fiscal capacity, and later on executive constraints and the rule of law went hand in hand with enhanced military might, leading to a virtuous cycle of better governance coupled with larger shares in the market of governance...

In sum, Europe’s secret to early growth may lie in the delicate balance between the costs of war and the creative forces unleashed in the competition between states. Many cities faced destruction throughout European history. But out of their ruins rose, gradually and by no means irreversibly, the foundation for better governance.

The paper compares Europe's experience of state building through wars and state competition with that of China and India. 

While Europe may have experienced close to the optimal level of creative destruction in its state system, China and South Asia present two cases that may have been exposed to insufficient and excessive creative destruction, respectively. Due to China’s early unification under a single state after the establishment of the Qin dynasty and especially the Han dynasty around 200 BC, the Chinese state faced only infrequent threats from other states.As a result, Chinese cities were exposed to much less upheaval than European ones, but in turn the Chinese state may have ossified and the quality of governance may have failed to improve. 

On the other hand, South Asia experienced nearly one hundred “supra-regional” or “pan-Indian” states that have ruled over substantial portions of the region... the only city that was reliably a center of political power in South Asia was Delhi, and that numerous other capitals appear randomly scattered about the sub-continent. This contrasts substantially with the state system in Europe, where Rome, Constantinople, Vienna, Lisbon, Paris, and London served as capitals of European states for most of the last thousand years. It seems plausible that the extreme variability in the number and location of states on the Indian subcontinent, perhaps caused by the lack of easily defended peninsulas and protective mountains, led to the repeated capture and looting of cities and thereby delayed capital deepening. If this were indeed the case, then South Asia would be an example of a state system where control of cities was too ephemeral, perhaps causing slower economic progress due to an excess of creative destruction.

See this map of centres of powers in India from the Schwartzberg Atlas referenced in the paper.

On the issue of state capability in India, I have blogged earlier referencing Francis Fukuyama's argument that India never experienced the kinds of brutal wars and intense inter-state competition that characterised Europe, and which necessitated strong state capabilities. Schonholzer and Weese qualify this and argue that South Asia while did have too many wars (perhaps not as brutal) there was too little state competition. 

The subcontinent never got unified into large kingdoms occupying the major part of the region even during its biggest empires. Besides the caste divisions came in the way of the diminution of kinship loyalties and the emergence of economic interest groups with society-wide representation. This is a compelling argument to explain the absence of strong state capability in India today.