Review Article: Is State Building the Road to World Order?

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Notes

1. The book was first published as a hardcover edition in 2004. The new 2005 paperback edition contains two prefaces: the 2004 original, and one that relates Fukuyama’s arguments to the ongoing Iraq crisis. With the exception of the prefaces, the pages match in both editions.

2. Although ideal types are, of course, abstracted from empirical reality, the choice of Denmark does not seem to be entirely congruent with Fukuyama’s thesis. ‘Denmark’ may indeed be used (and has been used, e.g. L. Pritchett and M. Woolcock, ‘Solutions when the solution is the problem: arraying the disarray in development’, World Development, 32, 2, February 2004, pp. 191–212) as an ideal type of the kind of state that resembles Weberian rule‐bound bureaucracy. But ‘Denmark’ most certainly cannot be taken as a state that has achieved what Fukuyama is after, namely, reduced scope and appropriate enforcement. By any measure, Denmark is one of the states in the world with the largest scope. The state is, literally, everywhere. (We feel entitled to say this, as one of the authors of this paper is from what is called ‘Denmark’.) Even the present government, which proclaimed repeatedly in the 1990s that it would cut down the state sector––Danish Prime Minister, Anders Fogh Rasmussen, even wrote a book in 1993 called From Social State to Minimal State [Fra Socialstat til Minimalstat], when he was still in opposition––has effectively increased the number of state employees. Perhaps Fukuyama should have found himself a better metaphor. But which, if not Denmark? The point may be nothing but trivial insofar as it may be taken to cause problems for Fukuyama’s model‐to‐be‐copied of a reduced but empowered state as the way forward for developing countries: if history is anything to go by, the success examples of countries like Taiwan or South Korea indicate a road forward that leaves much more space for authoritarian state intervention (scope and enforcement) than Fukuyama would like to concede.

3. Our impression is that by ‘formal knowledge’ Fukuyama means what some organizational economists call ‘blueprint knowledge’. Compare for example R. N. Langlois and N. J. Foss, ‘Capabilities and governance: the rebirth of production in the theory of economic organization’, Kyklos, 52, 2, 1999, pp. 201–18.

4. Which should actually be thought of as a form of ‘limited cognition’. See Chapter 10 by R. N. Langlois, in R. N. Langlois (ed.), Economics as a Process: Essays in the New Institutional Economics, Cambridge University Press, New York, 1986.

5. Pritchett and Woolcock, op. cit.

6. A. Israel, Institutional Development: Incentives to Performance, Johns Hopkins University Press, Baltimore, 1987.

7. These categories will prove confusing to many organizational scholars, for in Williamson’s framework (see O. E. Williamson, ‘Comparative economic organization: the analysis of discrete structural alternatives’, Administrative Science Quarterly, 36, 2, June 1991, pp. 269–96) asset specificity refers to the nonfungibility of an asset. A highly specific asset is one with low or no fungibility. As such, it can lead to opportunistic behavior and a tussle for quasirents, which can only be solved through vertical integration.

8. ‘Workers … can and do behave with a high degree of professionalism in developing countries, but their primary ties remain very strong, and the countervailing effects of socialization into the norms of the various professions is weaker, just as other forms of human capital are less developed. This reduces the possibilities for substituting social capital for formal monitoring and accountability, making the performance of low specificity tasks less efficient. Those non‐Western countries that have developed the most rapidly were the ones in East Asia that already had highly developed norms of professionalism in public service before they modernized’ (p. 90).

9. Incidentally, there is an emerging economic literature (called Second Generation theory of fiscal federalism) that focuses exclusively on fiscal federalism from an organizational viewpoint that, though germane, cannot be discussed here. See, among others, W. E. Oates, ‘Toward a second‐generation theory of fiscal federalism’, International Tax and Public Finance, 12, 4, August 2005, pp. 349–73; G. Garzarelli, ‘Cognition, incentives, and public governance: laboratory federalism from the organizational viewpoint’, Public Finance Review, 34, 3, May 2006, pp. 235–57.

10. F. A. von Hayek, ‘The use of knowledge in society’, American Economic Review, 35, 4, September 1945, pp. 519–30.

11. Ibid., p. 521.

12. M. Polanyi, Personal Knowledge: Towards a Post‐critical Philosophy, University of Chicago Press, Chicago, 1958.

13. See, for example, sociologists like J. Baechler, The Origins of Capitalism (translation by B. Cooper of Les Origines du Capitalisme, Gallimard, Paris, 1971), Basil Blackwell, Oxford, 1975; Ch. Tilly, The Formation of National States in Western Europe, Princeton University Press, Princeton, 1975; or economic historians such as E. Jones, The European Miracle: Environments, Economies and Geopolitics in the History of Europe and Asia, 3rd edition, Cambridge University Press, Cambridge, 2003, esp. ch. 6.

14. For example, oil‐producing countries, the main income of which is based on (Ricardian) rents deriving from their ‘resource trap’ position, will normally lack incentives toward participatory state building.

15. See, e.g. D. North, Structure and Change in Economic History, W. W. Norton & Company, Inc., New York, 1981, ch. 10 and M. Olson, ‘Dictatorship, democracy, and development’, American Political Science Review, 87, 3, September 1993, pp. 567–76. For a more recent characterization of these delicate political–economic equilibria that view state organization and the development process as indissoluble, see R. Bates, A. Greif and S. Singh, ‘Organizing violence’, Journal of Conflict Resolution, 46, 5, October 2002, pp. 599–628.

16. See, for example, B. Thomassen, ‘Fidelity and betrayal in Trieste: locating the “crisis of the state”’, in Th. M. Wilson and H. Donnan (eds), Culture and Power at the Edges of the State, Lit Verlag, Münster, 2005, pp. 31–55.

17. See, for example, North, op. cit.; Th. Eggertson, Economic Behavior and Institutions, Cambridge University Press, Cambridge, 1990; Williamson, op. cit.

18. See, among others, Langlois (ed.), op. cit.; Langlois and Foss, op. cit.; L. Kim and R. R. Nelson (eds), Technology, Learning, and Innovation: Experiences of Newly Industrialized Economies, Cambridge University Press, New York, 2000; R. R. Nelson and B. N. Sampat, ‘Making sense of institutions as a factor shaping economic performance’, Journal of Economic Behavior and Organization, 44, 1, January 2001, pp. 31–54; T. Yu, ‘The role of government in the economic development of the East Asian learning economies’, Journal of Public Finance and Public Choice, 20, 1, 2002, pp. 23–41.

19. Langlois and Foss, op. cit.; Garzarelli, op. cit.

20. F. Fukuyama, ‘The end of history?’, The National Interest, 16, Summer 1989, pp. 3–18.

21. F. Fukuyama, The End of History and the Last Man, The Free Press, New York, 1992.

22. In S. Huntington, Clash of Civilizations and the Remaking of World Order, Simon & Schuster, New York, 1996, we were offered a competing meta‐narrative to that of Fukuyama’s End of History. The world had not settled into any final form: huge differences in values not only persisted, but would grow stronger over time, and this would lead to a clash of civilizations. Hence, Huntington argued that the values Fukuyama had seen as reaching their final destination were mostly Western, and was very skeptical about their diffusion. Lately, Huntington has moved in the opposite direction. In a Preface to a recent book co‐edited with Harrison (called, appropriately, Culture Matters), Huntington for example argues that we can (and should) spread Western values: see L. E. Harrison and S. Huntington (eds), Culture Matters: How Values Shape Human Progress, Basic Books, New York, 2000, pp. xiii–xvi. Exogenous development strategies, Huntington argues, can work hand‐in‐hand with endogenous ones and make people ‘think the right way’. This value or cultural level is exactly the level that Fukuyama, as we saw, deems to be impossible to spread. Hence, Fukuyama has become less ‘universalistic’ and Huntington more so: on that account they seem to have moved towards each other. However, as they meet, they still seem to disagree: Huntington believes that values can be transferred after all (e.g. religion is not such an eternal constant as he led us to believe in Clash of Civilizations); Fukuyama instead believes that what can in fact be transferred is found within the more narrow field of organizational design, and partly institutional design.

23. In a very concrete sense, of course, embeddedness and limited cognition are actually the same problem. See especially A. O. Hirschmann, ‘Rival interpretations of market society: civilizing, destructive, or feeble?’, Journal of Economic Literature, 20, 4, December 1982, pp. 1463–84.