Different Types of Federalism

31 Thursday Jul 2025

Posted by Oren Litwin in Politics, Politics for Worldbuilders, State Formation

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federalism, history, political science, politics, State Formation, worldbuilding

Modern fantasy/scifi seems to not feature many federal countries (or as we will call them, “federations”)—that is, countries made up of several subunits such as states or provinces, each with certain powers that are distinct from those of the central government. (If a central government has total control over a country, and its subunits or provinces are merely administrative tools of the central government, this is called a “unitary state.” The “districts” in The Hunger Games come to mind.) Yet a federal design gives worldbuilders lots of opportunities for cool setting details and plot conflict.

I live in the United States, and some of my fellow Americans might assume that federations pretty much work the way things do in the U.S.: the states join together as co-equal partners under the federal government, with the same privileges and rights (that is, our federalism is symmetrical), initially for the sake of mutual defense against an outside threat and later to participate in the growing power of the strong federal government. (Alfred Stepan calls this “coming-together federalism.”) In fact, only a handful of federations were formed via coming-together federalism: the United States and Switzerland (which predated the French Revolution), and New Zealand (which did not last long as a federation).

William Riker argued that federations with a weak central government tended not to last long. They would be preyed upon by external enemies, lose internal cohesion as the subunits pull away from the central government and each other, or else decide to strengthen their central government in response—as the U.S. did, when we replaced the Articles of Confederation (which featured a weak central government heavily dependent on the states for its revenue) with the Constitution (featuring a much stronger Federal government with its own taxing power and laws).

(We can see some of these tensions working in real time in Europe, as the E.U. attempts to increase its control over member states and some states resist bitterly, with the U.K. leaving the E.U. altogether.)

If a federation has a strong central government, meanwhile, the central government tends to accumulate more power over time. As Riker put it, “If a federalism is centralized, then the ruler(s) of the federation have and are understood to have greater influence over what happens in the society as a whole than do all the rulers of the subordinate governments. And, having this influence, they tend to acquire more.” Eventually, it might dispense with the federal form altogether and restructure as a unitary state, as New Zealand did.

(This is comparable to the dynamic between a Palace ruler and a Nobility in the model of Samuel Finer, which I wrote about in my first worldbuilding book.)

But that is only one way to do things. (Which is great news for worldbuilders, because it means we have a great set of flexible concepts to make interesting settings with.) Following Stepan, we can actually talk about three ways in which a federation might form:

Coming-together federalism;
Holding-together federalism; and
Putting-together federalism.

Moreover, there are many other possible federal or quasi-federal arrangements other than the symmetrical model. Daniel Elazar lists several, which we will discuss a bit later. First, let’s look at the different ways a federation might form.

Coming-Together Federalism

Riker argues that when a federation is formed among formerly independent states, it only remains a federation if it’s in the interest of both the political organizers and of the states. On the side of the organizers, they should want to expand their power over the states (perhaps over the other states, if the federation is spearheaded by one or two of the stronger states), but not be strong enough to do so by force. If they were strong enough, they would simply conquer or annex the states and form an empire, with a unitary government. (Stepan partly disagrees, as we will note below.)

On the part of the states, they need to have a sense of their own independent identities (or they would simply join into a larger empire), but should want the benefits of federation more than they want to remain independent. Most frequently, this includes protection from external attack, but also the opportunity to benefit from the federation’s increased power—especially the power to invade foreign neighbors!

If the federation ceases to be in the interest of the organizers, or of the constituent states, Riker says, then the federation eventually collapses—either because the states pull away, or because the central government breaks the federal bargain and becomes a unitary state.

Holding-Together Federalism

In another pattern pointed out by Stepan, a formerly unitary country may decide that some sort of federal structure is needed to prevent the country from breaking apart altogether. This could happen if the state is made up of several ethnic or linguistic groups in tension with each other—whether they have coexisted in one country for centuries, as with Belgium, or were more recently glued together, as with India. To preserve the country as a whole, the political regime is willing to transfer some of its power to the subunits (even if it has to create the subunits from scratch, as India frequently does).

Stepan points out that federalism seems to be the government structure best able to preserve the stability of a multinational country, because it best allows smaller communities to exercise their rights as communities. “In fact, every single longstanding democracy in a territorially based multilingual and multinational polity is a federal state. . . . [S]ome groups may be able to participate fully as individual citizens only if they acquire, as a group, the right to have schooling, mass media, and religious or even legal structures that correspond to their language and culture. Some of these rights may be described as group-specific collective rights. Many thinkers in the liberal tradition assume that all rights are individual and universal and view any deviation from individualism and universalism with suspicion, but this assumption is open to question.”

Putting-Together Federalism

Contrary to Riker, Stepan notes that some nondemocratic states, seeking to expand their power over their neighbors or actually conquering them, will preserve the conquered states in a federal arrangement. This is especially likely when the conquered states have their own durable national identities, similar to the holding-together model. Preservation of the federal subunits often allows for smoother administration of the absorbed territories, and makes submission to the conquerer somewhat more palatable to the conquered. Thus, federation can be a type of empire-building strategy.

The most prominent example was the Soviet Union, through which communist Russia dominated the formerly independent states that had broken away from the collapsing Russian Empire. The USSR recognized the linguistic and ethnic pluralism of its vast territories via the separate socialist “republics,” though Russia was unquestionably the top dog and extracted much wealth and resources from the peripheral republics.

(This model is partly replicated within modern-day Russia as well. Moscow treats Russia’s outlying provinces effectively as conquered territory, sucking up their wealth and manpower to benefit the elites.)

Different Varieties of Federalism

We mentioned above that not all federations are symmetrical—not all of the subunits have the same powers and privileges as each other. This is where we have tremendous scope to be creative.

Daniel Elazar noted, “The simplest possible definition [of federalism] is self-rule plus shared rule. Federalism thus defined involves some kind of contractual linkage of a presumably permanent character that (1) provides for power sharing, (2) cuts around the issue of sovereignty, and (3) supplements but does not seek to replace or diminish prior organic ties where they exist.” He lists several types of federal associations between states, aside from the symmetrical federation:

Before the United States Constitution introduced the modern style of federalism, Europe only knew of the confederation. In a confederation, the constituent states still mostly govern themselves, joining together only for limited purposes (usually mutual defense and foreign policy).

In more recent times, new flavors have developed. In a federacy, a larger and smaller power join together in an asymmetric relationship. The smaller power has more autonomy from the federal arrangement than the larger power, or existing subunits of the larger power if there are any; in return, it also has less influence over the governance of the larger power. Real-life examples include Arab Iraq and Iraqi Kurdistan, Serbia and Kosovo, or the United States and Puerto Rico.

An associated state arrangement (also called a “compact of free association”) is similar to a federacy, except that either member can unilaterally decide to pull out of the arrangement (rather than needing mutual agreement). Consequently, the member states have even less influence on each other than under a federacy. Examples include the United States and Micronesia, and (for a time, until they withdrew) the U.K. and several of its former possessions in the Caribbean.

Common markets are confederations that focus on economic cooperation, rather than broader political cooperation—such as the Caribbean common market, CARICOM. That said, a common market can sometimes act as a precursor to broader political unions, with the key example being the European Economic Community’s transmogrification into the European Union.

We can also usefully compare federalism with a different political model, the consociation, in which a country is divided not into territorial subunits, but into religious, cultural, ethnic, or ideological groupings, each with its own privileges. Elazar comments, “It is generally agreed that consociational regimes are based on the agreement of elites, each of which must be capable of maintaining control over its own segment in the grand coalition. Thus the segments have to be organized internally on hierarchical lines but governed by the people selected to be at the top.” This is a common strategy where a country is subject to dangerous tensions between communities that must nevertheless figure out how to coexist.

For example, Lebanon features a power-sharing agreement between its Sunni, Shia, and Maronite Christian communities, under which all three must agree on major policies and the appointment of political leaders. Moreover, it has been agreed that the president must be Maronite, the prime minister must be Sunni, and the speaker of parliament a Shia. Consociational arrangements are often more fragile than federal ones, as the Lebanese example shows; but that is often more the fault of the existing tensions between communities that consociationalism is meant to manage.

****

Summing up, we have a whole range of ways in which political units can associate with each other. We can also imagine ways in which the federation members might come into conflict. Subunits might demand more autonomy, or one subunit might block a national policy that other subunits might want, or vice versa. Independence movements might strengthen in a subunit based on linguistic or national identity, if the larger federation does not adequately respect the community’s desires. And on and on.

As a worldbuilder, can you think of ways to use these concepts to make your story conflicts more compelling?

Internal Discipline in Rebel Movements, Part II

22 Saturday Jul 2023

Posted by Oren Litwin in Politics, Politics for Worldbuilders, Revolution, State Formation, War, Writing

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fiction, government, rebellion, worldbuilding, writing

In a previous post, I discussed the theory of Jeremy Weinstein on why some rebel groups act in a relatively restrained manner towards civilians, while other groups engage in indiscriminate violence. He argued that much of the difference stemmed from the initial resources available to the group, and how that affected the incentives of people to join the rebels. Poor groups were forced by circumstance to become “activist” groups, that is, to appeal to a base of civilian support and to recruit personnel who were “investors,” i.e. willing to endure short-term sacrifices for the sake of the group’s long-term goals. In order to do that, activist groups were forced to maintain strong discipline to convince the civilian populace that it would protect them from abuses by its soldiers. Poor groups that failed to do so soon withered away from lack of recruits or food.

By contrast, groups that began with access to money and guns from external sponsors, or from control over valuable resources such as drugs or gems, lacked the strategic imperative to seek civilian support. Moreover, they had a strong incentive to expand their membership by offering high pay or other benefits, and therefore attracted “consumer” members, those seeking short-term benefits that flowed from their membership in the rebel group. Groups largely made up of consumers had a much harder time preventing abuse of civilians, since their members were prone to looting or to abducting civilian women or murdering people they disliked for personal reasons. And such groups also had fewer reasons to impose strong discipline: because they had independent resources, they suffered few (initial) disadvantages from tolerating abuses of civilians.

In this post, we will continue Weinstein’s argument and examine the consequences of the previous paragraphs for rebel groups’ governance of civilian areas.

As rebel groups gain control over territory, they have to decide how to handle the civilians living there. Civilians can provide useful resources to rebel groups: information about government activity, new recruits, food, and tax revenue. However, civilians are strategic actors: they can choose to support the rebels or the government, and if neither option seems attractive they will try to flee the area entirely or to resist both sides.

Rebel groups have options in how to build governance structures in response. These can be said to vary on two factors: inclusiveness (AKA participation) and the extent of power sharing. (This is true of regime governments as well, which is not surprising since a rebel group administering territory is basically a kind of government.) A participatory governance regime tries to address the preferences and needs of the populace, while a non-participatory regime treats civilians with indifference at best, as targets of predation at worst. But even participatory governments need not actually share power over decision making, a tempting option in wartime. However, the more that a rebel group shares real power with civilians, the more that civilians will trust the group (or the government in similar circumstances) to uphold its bargains in the future. And in response, rebel groups that build participatory structures of true power sharing are likely to elicit more cooperation from civilian populaces.

Why then doesn’t everybody build such structures? Weinstein argues that the difference hinges on three factors (though he subdivides the factors somewhat differently on pages 171 and 196 of his book without tying the differences to his findings—tsk tsk, Cambridge University Press editors!):

The degree to which the rebel group needs support from the populace;
The extent to which extracting resources from the populace is dependent on civilian productivity; and
The time horizons of the group’s members (i.e. whether they are predominantly “investors” or “consumers”), and the resulting ability of the group to make credible commitments to the populace.

A group that has significant starting resources needs the support of the populace less if at all, and will tend as a result to build non-participatory structures that do not share power. This tendency is exacerbated by the short-term orientation of its members, who want to plunder the populace and seize loot. Even the need to get food from the populace will not moderate this tendency much, since civilians cannot simply stop growing food and will therefore usually have food available to seize.

One complicating wrinkle occurs when the group can extract valuable resources from the populace, but only if the people commit their work to generating such resources. For example, the Shining Path in the Upper Huallaga Valley gained most of their revenue from the drug trade, but they therefore depended on civilians to grow coca. Out of self-interest, then, the rebels built structures that were responsive to civilian interest in having a predictable market for coca leaves, charging fixed taxes and administering public markets. (We would describe the resulting governance structure as inclusive but not featuring true power sharing.)

A rebel group in this situation could instead choose to enslave civilians en masse, and some try, but this tends to result in civilians fleeing the area or throwing their support to the government in response. Still, the short-term orientation of group members tends to cause the breakdown of the inclusive structures over time, as individual members steal opportunistically. As a result, even non-activist groups that try to take the interests of civilians into account for selfish purposes often fall back on control by force.

An activist rebel group, on the other hand, is dependent on the support of the civilian populace for its very survival. As a result, it will prize the cooperation of civilians, and will tend to create governance structures that both are participatory and share true power, so that civilians will trust them to uphold their bargains. Because activist groups are largely made up of members with longer time horizons (i.e. patient “investors”), the members will submit to such checks on their power for the sake of the group’s strategic goals.

In later posts, we will discuss rebel groups’ strategic use of violence against civilians, and their ability to sustain their membership over time.

******

(This post is part of Politics for Worldbuilders, an occasional series. Many of the previous posts in this series eventually became grist for my handbook for authors and game designers, Beyond Kings and Princesses: Governments for Worldbuilders. The topic of this post belongs in the planned fourth book in this series, working title War for Worldbuilders. No idea when it will be finished, but it should be fun!)

Cities, Money, Power, and Political Bargains

20 Thursday Jul 2023

Posted by Oren Litwin in Politics, Politics for Worldbuilders, State Formation, War

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Charles Tilly, government, politics, State Formation, worldbuilding, writing

For most of post-Roman, premodern history, Europe was hardly the most powerful region in the world. China and Japan were in many ways far more powerful than any European power and had more advanced technology. Africa too featured sprawling empires, such as that of Mali. Europe, by contrast, was something of a backwater, struggling with depressed trade, frequent war, limited education, and disease among other obstacles. And yet starting only a few hundred years ago, strong states emerged in Europe that were able to mobilize vast wealth and military strength sufficient to subdue most of the globe.

The question that scholars have grappled with is how this happened. The “state-formation” literature is generally more applicable to the discussion of state capacity (a topic to be covered in Book 3 of my series) rather than the economy per se; but it is still useful to us as we discuss worldbuilding models of the economy, because in one of the leading theories of state formation, economic development—and the growth of cities in particular—plays a central role.

In Charles Tilly’s Coercion, Capital, and European States, AD 990-1992, he argued that European cities played a key role in the development of strong states because of their role in concentrating and deploying capital. While many states (such as Russia) were heavily coercion-intensive, states that featured a large amount of capital (such as the Netherlands) eventually found that they could mobilize more of that capital by sharing political rights with the merchant class. As a result, high-capital states that made political bargains with their populace were eventually able to build more powerful militaries than predominantly coercive states, and that particular model of state structure became common.

(It is worth pointing out that Tilly explicitly limited the scope of his theory to Europe due to the unusual concentration of urban cities and high populations found there, and did not apply the theory to other regions. For a while, there was a thriving literature arguing that Tilly’s argument failed in various other regions, or that it did not account for various factors even in the European experience. When the dust died down, I think the best evaluation is that Tilly’s basic thesis holds true even outside of Europe where its necessary conditions hold, such as in China. And where it does not hold, scholars trying to explain why have enriched the general theory by discussing the differing conditions that resulted in other outcomes, such as Jeffrey Herbst’s work on African state-building.)

Fundamentally, the driving force behind the development of strong states was the need to prepare for war. The first states were formed by men seeking to extend their control over others, and the states with the most power would extend their control as far out as it could go, stopping only when they reached the limit of their ability to project power—whether because of the limitations of available transportation technology, geographical barriers, or the opposition of other states. As a result, in each region, the most powerful state set the terms of coexistence—neighboring weaker states could either submit to vassalage or outright conquest, or else spend disproportionate resources on their defense. As Tilly puts it, “[M]ost rulers settled for a combination of conquest, protection against powerful rivals, and coexistence with cooperative neighbors.”

Within the constraints imposed by powerful rivals, states had to build structures to efficiently extract resources from their populations (or other populations forced to pay tribute or subject to plundering) and then translate those resources into military power. Tilly zeroes in on four variables to explain the variable success of a European state in doing so:

its concentration of capital,
its concentration of coercive power,
its need, and ability, to prepare for war, and
its position within the regional or international state system.

For Tilly, the key difference was between capital-intensive and coercion-intensive regions. In short, coercion-intensive states were able to mobilize larger armies, at least initially; but their advantage was nullified when warfare changed to require more and more money, to pay for professionalized troops, new weapons, and regularized logistics, and coercion-intensive states tended to have stunted economies as a result. Meanwhile, capital-intensive city-states had skilled professional armies, but small ones; they had not enough population to compete effectively with national states in the long run. The sweet spot was occupied by national states built around large, capital-intensive cities so that their political institutions tended to grant rights to the holders of capital. As a result, they could access large national populations and the money needed to fuel powerful armies.

Coercion

Tilly describes three kinds of European states during the period under discussion:

Tribute-taking empires tended to have relatively low accumulations of coercive power, but high concentration—that is, they might have had one or two armies that periodically swept through their vassal territories, demanding resources at swordpoint and punishing rebellions. Such empires were relatively fragile; if an adversary managed to accumulate significant coercive power, the empire’s ability to extract tribute might collapse entirely.
Systems of fragmented sovereignty typically included city-states as well as urban federations such as the Hanseatic League or the early Netherlands, which featured several loci of political power without a single clear sovereign. Such systems tended to have high accumulations of coercive power (usually because each of the constituent cities or other units was rich enough to afford its own army). This is almost true by definition; if a fragmented system were not able to accumulate a lot of coercive power, it would have been swallowed up by a competitor. However, such systems usually featured low coercive concentration, as the cities often cooperated poorly on defense and rarely subordinated their forces to a unified command.
Finally, national states were in the middle: featuring a high concentration of strong coercive power, but forced to bargain with their populations for their cooperation—typically by granting them political rights or participation of one kind or another.

Capital

Whether capital is concentrated or not depends heavily on the available technologies, and whether they tend to encourage distributed or centralized production.

In a subsistence economy, there is practically no capital at all as we are used to thinking of it. Even if there are a small handful of nobles living in castles, and merchants living in sturdy houses, most people have absolutely nothing to their names. Fernand Braudel (The Structures of Everyday Life, p. 282), writing of the centuries before the eighteenth century in Europe, notes that official inventories of possessions of the deceased almost invariably were restricted to “only a few old clothes, a stool, a table, a bench, the planks of a bed, sacks filled with straw.” That was all that most people had. Capital as we know it was the province of a very few people who engaged in large-scale trade or taxation. Labor-saving devices were few, even including such things as plows (many farmers were forced to use spades and dig by hand). The most readily available form of capital was living beings: livestock, slaves, professional hirelings, or peasants drafted for periodic corvée labor. (That is, the analytical distinction between capital and labor essentially breaks down.) As a result, to accumulate useful capital you had to command the labor of people, which is why rulers were often forced to rely on local landlords to muster their peasants.

In the “protoindustrialization” era of cottage industries, the available technology made production suddenly more efficient, but did not produce large economies of scale—at a time when the roads were just good enough for finished goods to be cost-effectively sent to markets, but not good enough for raw material and workers to routinely travel to centralized production. Capital flowed to labor, in smaller-scale workshops dispersed through cities and their surroundings or out in the countryside. This was the time of the putting-out system, of small workshops and manufacturies built around windmills and watermills, of largely local production. As a result, there was prodigious accumulation of capital compared to what had come before, but it was not excessively concentrated and was spread around relatively evenly. Still, cities served as nexuses for trade, and represented the most available “containers” for capital. City-based merchants and burghers became politically important, because they had the money that rulers needed to pay for their armies. (And sometimes, as in the case of the Hanseatic League, the burghers became rulers themselves.)

By contrast, industrialization featured massive centralized factories, encouraged by the coal boiler and the huge returns to scale that it created. Workers came to capital, concentrating themselves in the cities. The rewards of production became concentrated in relatively few hands and places, which consequently made it easier for governments to make bargains with such capitalists and appropriate some of that wealth in exchange for political privileges.

Effects on State Power

Tilly notes, “Two factors shape the process by which states acquire resources, and strongly affect the organization that results from the process: the character of the bottom-up hierarchy of capital [that emerges naturally from trade and exchange], and the place within that hierarchy of any location from which a state’s agents try to extract resources.” In other words, for a state to be capable of taxing individual incomes requires far more institutional capacity than a state that can only tax salt entering at a single port, for example. And conversely, a state that is dependent on a few sources of tax income must be more solicitous to the interests of the relatively few, relatively wealthy taxpayers.

As a result, states that emerged gradually during the early modern era developed in a clear pattern. The biggest cities with a lot of commercial activity and wealth often became their own city-states (such as in Italy and pre-Bismarck Germany). The regimes in these city-states were often thinly structured, able to easily collect customs duties and borrow money from bankers without large coercive bureaucracies. That, in turn, tended to discourage coercive government policies on the margin. Somewhat less powerful cities were typically incorporated into national states, but were able to negotiate political bargains with the developing state in exchange for their tax revenue (as in France).

By contrast, regions that were relatively poorer and had relatively few cities with weak commercial links with the hinterlands around them often were subject to straight coercion by the ruler, in states that covered a larger geographic area but a relatively dispersed and poor populace (such as Russia). Tilly writes, “In broadly similar ways, Russian, Polish, Hungarian, Serbian, and Brandenburger states formed on the basis of strong alliances between warmaking princes and armed landlords, large concessions of governmental power to nobles and gentry, joint exploitation of the peasantry, and restricted scope for merchant capital. Repeatedly, leaders of conquering forces who lacked capital offered their followers booty and land, only to face the problem of containing the great warrior-landlords they thereby created.” The only feasible solution was to rely on extensive force, which became less and less effective as the coercive states fell behind their neighbors on economy.

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This has gotten quite long and somewhat disorganized, but the key ideas are still useful in your worldbuilding. States need to survive in a dangerous world, and need money and power to do so. In poor settings, highly coercive states have an advantage; but as capital accumulates, richer societies that made political bargains with their populaces end up pulling ahead. (On average!)

*****

(This post is part of Politics for Worldbuilders, an occasional series. Many of the previous posts in this series eventually became grist for my handbook for authors and game designers, Beyond Kings and Princesses: Governments for Worldbuilders. The topic of this post will show up in the planned second and third books in this series, working titles Wealth for Worldbuilders and Tyranny for Worldbuilders respectively. No idea when they will be finished, but they should be fun!)

Banking and Economic Development

09 Sunday Jul 2023

Posted by Oren Litwin in Credit, Economics, Politics for Worldbuilders, State Formation

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banking, economics, worldbuilding, writing

If you think about the differences between a poor peasant society, a relatively affluent society such as an 18th-century English city, and a 21st-century technological society as we experience in much of the West, one of the big differences is the sheer amount of infrastructure that we have. If you think about roads, power plants and power lines, sewers, networks of schools and hospitals, and on and on, it’s a little bit staggering to think about how sheer stuff had to be built to enable our modern lives—and how much money had to be spent in order to build it all.

In poor societies of yesteryear, roads are typically mud tracks. Electricity does not exist, and people often had to cut their own firewood. What “public” facilities there were, such as single-doctor clinics, are small scale. This is not merely a question of technology. The Roman roads were tremendously useful tools of power projection (and consequently, tools of commerce), yet they remained the gold standard for perhaps fifteen hundred years in Europe because few people wanted to pay the huge amount of money it would take to extend, or even maintain, the road network. Even in major post-Roman European cities, there were no paved roads until the 13th century. (Baghdad had streets paved with tar beginning in the 8th century.)

What this means is that to take a society from abject “backwardness” to a high level of “development” (in the sense of Alexander Gerschenkron) takes not merely technology, or manufacturing ability, but the money and other resources to build the massive amount of stuff necessary.

Some types of development can be done gradually, in a decentralized manner. For example, local communities can each build a school, without necessarily needing to coordinate with other communities or a national authority. However, other types of development functioned more effectively if they were coordinated at the national level. (Or at any rate, that’s how it tended to work in our actual history, with the types of technology that we had to work with and the kinds of conceptual models that our national planners used, given the role of massive scale in the 19th and 20th centuries.) For example, the electrical grids in 19th- and early 20th-century Western European countries tended to be much more stable than those of America at the time (and even today), because the American grid was a patchwork of local grids built by local power companies, whereas the European grids were built according to a national plan, with money and resources mobilized from the entire country.

One key element in this was the role of massive banks. America had an early lead in its financial development, due to the proliferation of local state-chartered banks that soon blanketed American society. These banks were a tremendous stimulus to local and regional commerce and the development of new settlements. (The English experience was broadly similar, although it was still relatively difficult to start a bank in England.) European powers were slow to catch up, but in the 19th century settled on a strategy of having centralized national banks that would finance not merely local businessmen, but the vast infrastructure projects of modernization. America was hobbled by the system of unit banking, which tended to keep banks relatively small, and by the lack of a muscular national bank. (Such a lack was not necessarily bad, as the conflicts over the Banks of the United States indicate!)

In an era before banks, much wealth is economically sterile—golden and silver goblets sitting in some nobleman’s vaults (for example), where they do not contribute to ongoing commerce. But when such wealth is deposited in a bank, it can serve as the basis for lending and new capital investment. (It can also promote new kinds of systemic risks, but that’s a different discussion.) Banks thus can mobilize formerly unproductive resources and put them to good use. And when the bank is national in scale, it can attract the money of the vast middle and even lower classes (in the case of the postal banks of e.g. Germany and Japan) and pool the money into a vast fund, which can then be used by the state in its development plans.

Banks are not the only way to do this, of course. But in our history at least, the alternative was coercive taxation or sheer plunder by the state (as in the case of Tsarist Russia, and later the Soviet Union).

At any rate, the key point here is that to build up a society takes a lot of money, and often that money has to be pooled somehow and deployed in coordinated projects. How that process works in your invented setting is, of course, entirely up to you.

*****

(This post is part of Politics for Worldbuilders, an occasional series. Many of the previous posts in this series eventually became grist for my handbook for authors and game designers, Beyond Kings and Princesses: Governments for Worldbuilders. The topic of this post belongs in the planned second book in this series, working title Wealth [Commerce?] for Worldbuilders, along with some overlap with the planned third book, working title Tyranny for Worldbuilders. No idea when they will be finished, but it should be fun!)

Building an Economy: Labor and Motivation

06 Tuesday Jun 2023

Posted by Oren Litwin in Economics, Politics for Worldbuilders, State Formation

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culture, economics, fiction, worldbuilding, writing

We return at last to our discussion of the Land/Labor/Capital triad of the factors of production (plus entrepreneurship, which is nowadays considered its own factor). We’ll start with a broad overview of Labor as a factor of production, and then zoom into the role of motivation on labor productivity.

Labor is unlike other factors of production like raw materials, for two main reasons:

If you don’t use an iron bar today, you can use it tomorrow; but if you don’t work today, that work potential is gone forever. You can work tomorrow, but you could have worked tomorrow even if you also worked today. That is, labor is a perishable resource. (It’s also a flow, not a stock; you have a maximum intensity of work that you can do at a given time, and you can’t “store extra work” for later.)
Unlike resources like wheat, or gold, or cars, which are largely interchangeable with other units of the same resource, one person’s labor is not the same as another person’s labor. Our labor is affected by individual skill, training, motivation, and differing opportunities to apply that labor to useful work. Labor is thus heterogeneous. (Indeed, one of the trickiest problems with labor is the difficulty in measuring labor outputs, and in assigning people to where they can do the most good—a great source of frustration when you’re out of a job!)

As we are trying to build a simple but powerful model of a fictional economy for worldbuilding purposes, rather than trying to exactly describe the real world in all its messy glory, we’re going to identify three major factors that influence the labor productivity of a society:

Human capital,
Physical strength and health, and
Culture.

The rest of this post will discuss the impact of culture on labor productivity—and particularly, cultural influences on our motivations for working.

Culture has many effects on labor productivity—for example, whether individual initiative is rewarded or punished, whether people are used to teamwork and obedience or if they resist authority, whether people are diligent and careful in their work or take a slapdash attitude towards maintenance. (The eminent economist Thomas Sowell noted that in the early United States, a Scots-Irish Southern “cracker” would walk around or through a creek running through his property for years on end, without any thought of improving the situation; whereas a Puritan-descended Northerner would almost immediately build a footbridge. This is but one example of the larger pattern identified by Max Weber in his Protestant Ethic and the Spirit of Capitalism.)

All of that is important, but for now we will focus specifically on motivation. Different people are motivated by money differently, as John Médaille discusses. Médaille, in Towards a Truly Free Market (a fascinating argument for the Catholic-infused economic doctrine of Distributism), points out that employment is unlike most commodities in that “[l]owering wages does not [automatically] increase employment; only the prospect of selling more goods induces employers to take on more hands.” On the flip side, wages cannot rise arbitrarily high; at a certain point, either profit rates will go to zero (causing capital to withdraw from that industry in search of better returns elsewhere), or wages will rise above the capital substitution rate, i.e. the point where it makes more sense to spend money on infrastructure and robots than on people.

Moreover, unlike other commodities where rising prices stimulates more supply, higher wages will not automatically elicit more effort from people. In some cases, it actually reduces effort. Médaille presents three stylized models for worker motivation:

The surfer works only as much as needed. Once he earns enough money to feed himself and see to his other necessities in a minimal way, he stops working and goes surfing for the rest of the week. If you want to elicit more work from a surfer, you would actually need to pay him less. (This tendency occurs in many peasant societies. In 19th-century Germany, the ruling-class Jünkers found that they could increase agricultural yields by suppressing peasant incomes to a level of utter misery, forcing them to work more in order to survive; if they paid the peasants more, on the other hand, yields dropped as the peasants simply drank away the surplus.)

The homebuyer has goals: he wants to achieve a certain level of material comfort (such as buying a home), to take care of the family and achieve some level of social status. Increasing pay will elicit more work from the homebuyer as these goals become achievable—but only to a point. Once pay is high enough and the goals are achieved, the homebuyer will not continue to increase work output and may even start to reduce output at the high end, as other things (leisure time, time with family, social involvement, etc.) become relatively more important than another few thousand dollars in the bank.

The oil rigger, on the other hand, is highly motivated by money and will work more if he gets more of it. At a time in his life where he has few other commitments, the oil rigger is willing to work incredibly hard in exchange for incredible pay, with the plan of benefiting from the accumulated money later in life. The more you pay the oil rigger, the harder he will work, until the point of sheer exhaustion. Cut the oil rigger’s pay, on the other hand, and he will leave in disgust to find better opportunities elsewhere. (See also investment banking, many commission-based jobs, and so on.)

As a result, the productivity of a given society’s workers will be influenced by the relative proportions of Surfers, Homebuyers, and Oil Riggers among its workers. So what determines that proportion?

Ronald Inglehart’s 1997 book Modernization and Postmodernization argued that societies exhibit coherent patterns of cultural development that are partly predictable, based on economic conditions that allow for and stimulate cultural change. This change generally happens across generations; people’s values are usually set by their experiences in childhood and early adolescence, and do not change much as they get older. But in times of rapid economic change, the values of the next generation can differ significantly from those of their parents. Moreover, even though economic conditions make cultural change possible, the resulting cultures also have an independent influence over later economic performance.

A key argument is the scarcity hypothesis: people tend to most value things that are in the shortest supply. In a time of social disorder, people will value authority and tradition; in a time of poverty and starvation, people will value material things. In a time of material abundance but soul-crushing conformity, people will value self-expression and autonomy. And these values persist once they are stamped into a person during adolescence and early adulthood, even as external conditions change.

In this book and in later research, Inglehart argues for two discrete axes of broad cultural variation between societies (and to a much weaker extent, between individuals): traditional versus secular-rational values, and survival versus self-expression values. (He initially thought that these axes were independent of each other, but later research suggested that they correlate strongly.) A society with “traditional/survival” values is a Traditional society, marked by deference to tradition, low economic growth and consequently significant poverty and insecurity, and little importance placed on political rights or personal fulfillment.

In a society with growing wealth, increasing state capacity, and bureaucratic organization, this cultural pattern gives way to the “secular-rational/survival” configuration, which Inglehart calls Materialism. In short, the spread of rational methods and organization is thought to bring true prosperity into reach—all we must do is work hard to achieve it. As a result, traditional authority is displaced by Science, Industry, and the State, and people develop strong work ethics beyond what are typically found in traditional societies. Work brings reward, and so the more you work, the better you are rewarded.

As wealth grows even more, societies reach a point where increasingly hard work no longer yields as much marginal benefit. Material safety is now taken as a given by those who grew up with it; this new generation shifts from a survival mindset to a self-expression mindset, which Inglehart calls Postmaterialism. This generation lacks the focus on material reward that marked their parents’ work ethic; they work in order to express their values, not merely to feed themselves, and are not as willing in the aggregate to spend nights and weekends in the office for the sake of higher pay.

(Obviously, Postmaterialism depends on the material prosperity that enables it. If material conditions suddenly regress, a cohort with Postmaterialist values will struggle to adjust, and the social consequences of this struggle may be dire.)

So as worldbuilders, we can think about the cultural attitudes at play in our invented societies, and how they will influence labor productivity and the economic development of the societies. There are some fun stories that can be told on these themes; can you think of any?

*****

(This post is part of Politics for Worldbuilders, an occasional series. Many of the previous posts in this series eventually became grist for my handbook for authors and game designers, Beyond Kings and Princesses: Governments for Worldbuilders. The topic of this post belongs in the planned second book in this series, working title Wealth [Commerce?] for Worldbuilders. No idea when it will be finished, but it should be fun!)

Uncertainty and Institutions

04 Sunday Jun 2023

Posted by Oren Litwin in Economics, Politics for Worldbuilders, State Formation

≈ 1 Comment

Tags

Institutions, political economy, politics, worldbuilding

The world is a complicated place. Especially when you are dealing with lots of other people, it can be very hard to predict how other people will act. And that, in turn, makes it very difficult to plan what you are going to do. Which then makes it harder for other people to predict how you are going to act, and so on.

With all of this uncertainty, how do we manage to function during the day? And just as importantly, how do we make long-term plans for the future, such as building infrastructure or growing food? As Douglass North writes in his book Institutions, Institutional Change, and Economic Performance, we use institutions to reduce the uncertainty of our interactions with other people. As a result, the structure of a society’s institutions plays a huge role in its economic and social functioning.

(If you read my book Beyond Kings and Princesses: Governments for Worldbuilders, you might remember that a good chunk of the book was inspired by Violence and Social Orders, by North/Wallis/Weingast; this is “North” of that trio.)

In a nutshell, here is North’s argument: in a vacuum, there is often too much uncertainty to permit voluntary interaction between people. Institutions are created to reduce uncertainty. Then organizations form or entrepreneurs make deals to take advantage of the possibilities created by the institutions, and the feedback from same gradually changes the institutions.

Some institutions are formal, such as laws, rules, regulations, religious doctrine, and the like. Some are informal—North identifies three kinds: (1) extensions or modifications of formal rules, (2) social norms, and (3) personally imposed standards. Either kind of institution can be created for many reasons, and formal institutions in particular often are created for self-interested reasons by those in power. As North puts it, “Institutions are not necessarily or even usually created to be socially efficient; rather they, or at least the formal rules, are created to serve the interests of those with the bargaining power to devise new rules.”

Nevertheless, institutions have the effect of reducing uncertainty, by giving us stronger beliefs about how other people will act in a given situation. Because of this, environments of high uncertainty (such as quickly changing social or environmental settings) often drive people to create new institutions, either formal systems or new belief systems.

(That need not always be socially optimal; a cultural belief that “my countrymen will deal honestly, but foreigners will always rob and murder me” would certainly reduce one’s felt uncertainty in both directions, but probably would not be helpful overall—unless the foreigners in question would actually do so!)

Reducing uncertainty has the effect of reducing transaction costs in commerce—particularly the costs of gathering information, forming agreements, and enforcing them. This is a significant issue; many of the weirdest parts of our own economy are the result of difficulties in gathering information. (Think of how hard it can be to find a job or hire people, for example.) Thus, lower transaction costs can dramatically encourage economic activity.

Okay, but what happens next? North is particularly interested in the feedback process between institutions and the people acting in light of them. In particular, entrepreneurs can sometimes perceive new opportunities that exist thanks to a given institution, take advantage of the opportunity, and therefore incrementally change the environment, creating new opportunities etc.

(For example, Jared Rubin writes about how a financial instrument first created in Muslim lands, the bill of exchange, was gleefully adopted by Christian merchants to evade currency controls between countries and served as a key impetus for the development of international banking in Europe.)

There are limits to such incremental feedback, however. North writes, “Individuals act upon incomplete information and with subjectively derived models that are frequently erroneous; the information feedback is typically insufficient to correct these subjective models.” Additionally, some institutions are designed not for economic efficiency, but to facilitate exploitation and oppression; these institutions actually raise transaction costs. Entrepreneurial adaptation can help ameliorate their effects, but only to a point. Finally, some well-meaning institutions are so flawed that no amount of adaptation can make them useful, and some kinds of adaptation can actually make them worse. (America’s short-sighted regulatory policies around housing finance, and how they sowed the seeds of the 2008 financial crisis, come to mind.)

Another key point that North makes is the importance of path dependence. In short, a given institutional environment will reward some kinds of activity and discourage others, which will in turn cause future development to lean in a particular direction. Examples:

If there is strong rule of law and enforcement of contracts, there will be more impersonal economic exchange. If rights are weak, on the other hand, people will tend to exchange only in trusted networks. This will weaken the future development of economic networks.
Insecure property rights will encourage the development of technologies that have low sunk costs, and are mobile. This also discourages long-term agreements.
The advance of knowledge is in large part path-dependent. Knowledge influences ideology, which guides the search for knowledge.

And once a given institution is in place, it is often difficult to change. As W. Brian Arthur pointed out, there are at least four processes that make it less likely for people to change systems once put in place: large fixed costs; domain-specific learning; coordination effects; and adaptive expectations.

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What are some takeaways, especially for worldbuilders? First, every time that you think of some new organization or new law or new environmental condition, spend time thinking about how self-interested people will react to it—and how other people will react to them, and so on. Second, remember the importance of reducing uncertainty.

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(This post is part of Politics for Worldbuilders, an occasional series. Many of the previous posts in this series eventually became grist for my handbook for authors and game designers, Beyond Kings and Princesses: Governments for Worldbuilders. The topic of this post belongs in the planned second book in this series, working title Wealth [Commerce?] for Worldbuilders. No idea when it will be finished, but it should be fun!)

Building an Economy: Natural Resources

28 Tuesday Feb 2023

Posted by Oren Litwin in Economics, Politics, Politics for Worldbuilders, State Formation, Writing

≈ 1 Comment

Having discussed population density and ease of transport, it’s time to finish off our discussion of land by talking about natural resources—and some surprising implications that natural resources can have for economic development, and politics.

(And in retrospect, this one really should have been the first subtopic in land that we discussed, since it really conditions all the others. I’ll correct that in the book to come!)

“Natural resources” can mean many things. One of the most fundamental will be the presence of available food production, from fertile soils and rain or rivers for agriculture, wild plants and herbs for gathering, animals to be hunted, or fish to be—err, fished. If a region does not have enough food production to feed its populace, it will have to depend on imports, which means that it will have to have something to sell to the outside world in order to pay for those imports.

Other things might or might not be a natural resource, depending on the details of your setting. For example, deposits of aluminum will only be valuable if the society has figured out how to smelt aluminum, a surprisingly difficult process. Small streams might be good places to fish, but if the society has developed the technology of the gear (meaning the round turny thing with teeth), streams can also drive watermills to provide kinetic energy for machines in a workshop.

(This also means that advances in technology, or other changes that turn something that was previously useless into something valuable, could bring new prosperity to formerly backward regions—or make them tempting targets for invasion!)

For each region you would need to decide what the key natural resources are for your story, and how abundant they are. The details of them obviously matter; but for our model, we will abstract away from the details (for the moment) and characterize each natural resource (in relative terms) as

rich or poor, and
concentrated or widely available.

Resource-Poor

If a region is poor in necessary resources, the people will have to either trade for them, substitute some other inferior resource, or do without.

If the people are wealthy—perhaps they are skilled businessmen or traders, or perhaps they are successful pirates—they can sustain a society even in a place with few resources; but they would be dependent on the outside world for most of their essentials, like food, fuel, raw materials, and the like. Essentially, a region with few natural resources stands in a similar relationship to the outside world as a city does with its surroundings: it must produce a lot of economic value to pay for its imports, and it lives and dies with the ability to transport the needed goods.

If the people don’t want to trade for the good they are missing, or the good is simply not available, they may try to use substitutes. For example, the Scottish Highlands had few trees for firewood; instead, the Scots burned peat (something halfway between coal and mud). Few people would prefer burning peat to wood; but it did the job. Similarly, early iron weapons were actually inferior to bronze in most respects, contrary to the common assumption; but bronze is made from both copper and tin in a specialized process, and when the tin trading network across Eurasia was disrupted for unknown reasons, local communities fell back on iron, which was readily available and easy for blacksmiths to forge. (That was a gross simplification of a complex process with many causes, but for our purposes it makes the point.)

If no substitute is available, then the populace will do without. The typical result is widespread poverty (at least in “objective” terms; a people that has never known the telephone will not mourn its lack, and will find plenty of other prestige goods to compete over). If the missing resource was critical to sustaining life, its lack may put a hard cap on how many people can live in the region. In the worst case, the region may simply be empty of people.

(The concentration of the resource matters, but only on the micro-scale; if you have a small amount of wood and no one else has any, you will be prosperous personally, but it won’t affect the rest of the region much.)

Resource-Rich

If a region is rich in natural resources, on the other hand, it could have wildly varying effects depending on whether the resource is mainly used by the region itself, or mainly exported. If the resource is mainly used by the region—either directly, such as foodstuffs, or as an input into some other production, such as timber into shipbuilding or iron into machine production—it will contribute directly to the region’s prosperity. Not only will the region use the resource, the availability of rich resources will tend to encourage the growth of new industries that require that resource (though not automatically; see our later discussion of entrepreneurship). In ideal circumstances, the natural resource serves as fuel for the larger economic engine, being transformed into ever more valuable uses as products move up the chain of production, and the economy will develop in healthy directions.

Problems emerge if the resource is produced mainly for export, however. The economy will tend to develop mainly to facilitate the export of resources, and other industries will be relatively less developed. An economy that is heavily unbalanced in the direction of exporting natural resources (or really, by any other single desirable export) is prone to Dutch Disease. For our purposes, Dutch Disease happens when a particular economic sector generates massive amounts of money from external sources; this could be oil, or timber, a wildly successful service sector such as London banking, or even foreign aid or foreign direct investment. People end up using that money to import new luxuries or to enjoy more local services, diverting revenue and labor away from local productive industries to a degree. (It gets worse if countries have independent currencies with fluctuating values; the vast exports of oil or whatever will cause your country’s currency to strengthen, making imports relatively cheaper, but also kneecapping your other industries such as manufacturing or tourism.)

The result is that even as the growing sector prospers, the other parts of a region’s manufacturing economy will tend to stagnate. If allowed to continue unchecked, the end result of Dutch Disease is to turn the region into a supply region with a hypertrophied primary export sector and a bloated service sector, and relatively little industry otherwise. The region will be excessively dependent on its main export industry and suffer booms and busts along with that industry. (This often happens on a smaller scale with oil towns, mining towns, and the like.)

The Resource Curse

We must also ask if the rich resources are concentrated or widely available. A large timber forest is relatively hard to monopolize, though kings certainly try; and as a result, it would allow a relatively large number of people to support themselves from the resource. But a much more concentrated resource is easier to monopolize, either by the state (a common occurrence) or by a private actor (which might accumulate much of the effective power of a state, as with the “Shell police” in Nigeria). Often, this actually leads to worse outcomes for the region—the so-called “paradox of plenty” or “resource curse.”

Investigating the paradox of plenty, Terry Lynn Karl in her book identified a common pattern in modern oil-dependent states. When oil is first discovered in a previously poor state, the state has a sudden budget surplus—either because it takes control of the oil directly, or heavily taxes the oil companies. With the sudden influx, the state massively raises its spending, usually first on social services, then on subsidies for new heavy-industry as the state tries to translate its new wealth into durable prosperity. Often, taxes on the broad populace are reduced, sometimes to zero. (This is not an unmitigated good; often, regimes reduced taxes and increased subsidies in order to demobilize their populaces and render them indifferent to national politics, the better to rule tyrannically in the absence of popular opposition.)

However, state spending often grew much faster than oil revenues, as new interest groups form to feast on the new state largesse. Moreover, efforts to nurture new industries often failed, overcome by the mismatch between the planned new industries and the existing technological competence of the society, the resulting inability of the economy to support the planned new industries (as Jane Jacobs discusses), the eventual growth of political patronage in subsidized or state-owned industries, and their resulting implosion from ineptitude. Factor in the effects of the Dutch Disease and consequent inflation, and the economy as a whole actually suffers from the new oil wealth. Many petro-states found that they could no longer feed themselves without imports, as local food production was crowded out by inflation and the lack of farm labor.

The ultimate beneficiaries, however, are the state itself (which grows massively from the new revenue) and the new stratum of state functionaries that fills all the new state jobs. But such prosperity is brittle, depending as it does on the revenue from oil. When oil prices suddenly fell in the mid-1980s, these states faced crippling crises that lasted decades.

Matters are less bad in states that already have strong state institutions, even if their economies are heavily dependent on the resource in question. Alaska, for example, managed to avoid the worst ravages of the resource curse by distributing much of its oil wealth directly to its citizens each year. The temptations of rentier-state gluttony are certainly present, but mitigated by the preexisting power of the citizenry and the strong tradition of limited government.

*****

This post has already gone on too long, but you can already see that the effects of a region’s natural-resource endowment can provide great fodder for plot conflict. And once you add in a few elements from the other building blocks of an economy? Yowza.

*****

(This post is part of Politics for Worldbuilders, an occasional series. Many of the previous posts in this series eventually became grist for my handbook for authors and game designers, Beyond Kings and Princesses: Governments for Worldbuilders. The topic of this post belongs in the planned second book in this series, working title Wealth [Commerce?] for Worldbuilders, along with some overlap with the planned third book, working title Tyranny for Worldbuilders. No idea when they will be finished, but it should be fun!)

Building an Economy: Ease of Transport

22 Wednesday Feb 2023

Posted by Oren Litwin in Economics, Politics, Politics for Worldbuilders, State Formation, Writing

≈ 1 Comment

Tags

economic development, government, politics, trade, worldbuilding, writing

In our last post, we started building a model for how to think of a region’s geography with three major factors: population density, ease of transport, and natural resources. Here, we will discuss the second factor, ease of transport.

We’ve referenced the importance of transport several times before, including with regard to cities and touching on it briefly in Book 1 of my “Politics for Worldbuilders” series during the discussion of the Nobility. Now we’re going to discuss transport squarely. It plays vital roles for economic activity, the placement of cities, and politics.

Let’s begin by assuming that a given territory can be easy to cross, difficult to cross, or have particular constrained routes such as rivers or valleys that allow for easy transport but can also be easily controlled. Each of these options generates its own set of possibilities.

Trade

The easier it is to transport goods and people, the easier it is to trade—you have to be able to get your goods to buyers without too much cost, and on the flip side you have to be able to access raw materials. If transport is cheap and easy, a lot of trade becomes feasible and economic activity will tend to flourish. Cities will be supported by food transports and shipments of raw materials such as iron ore or coal, paid for by the goods and services they generate, and they can also trade finished goods with each other and with their surrounding rural areas.

Similarly, the easier that transport is, the easier it is to stay current on news from distant places. This is somewhat less of a factor in our modern era of instant communication, rather than having to wait for the latest ship from far-off shores; but even today, there needs to be people on site to report what is going on, who want to report it to you or to an audience that includes you. This is more likely when transportation is easy and cheap.

If transport is difficult—the territory is a rugged mountain range, for instance—trade becomes difficult as well. People will have to depend more on their own production, rather than producing for trade with distant buyers. Villages will be inward-focused, struggling to produce their own food, clothes, tools, and other goods. Traveling peddlers might come along every month or three, or not at all. Cities will be rare, placed in the few places where transport is relatively easier, and more likely to be administrative/garrison cities supported by the government than commercial or industrial cities, simply because it is so hard to produce anything and transport it out to buyers. Economic activity as a whole will be stunted as a result.

(Many scholars believe that this is one of the reasons for the relatively low economic growth of the inland part of the African continent and Eurasia. In contrast to Europe, which features long coastlines and many rivers that penetrate into the hinterlands, Africa and Eurasia are mostly landlocked and have few rivers. As a result, areas along the coast and next to rivers will tend to flourish more than inland areas that have a relatively difficult time getting goods to market.)

Trade and production in places with difficult travel will tend to focus on valuable and rare goods if they are present, such as gold, spices, uranium, and the like. If there is enough money to be made, governments or merchants will invest in roads or other transport at fantastical expense that go directly to the production site and nowhere else, in order to make extraction easier. This will create path-dependency effects that favor continued focus on the extractive industry, rather than allowing the economy to broaden and deepen in healthier ways. The region will likely become a supply region. If no such valuables are present, economic activity will simply stagnate. People will focus on producing their own needs, or else migrate to greener pastures if available.

If transport is possible through otherwise rough terrain down particular pathways such as rivers or valleys, we can expect these roads to become the focus of military conflict or economic competition. Whoever controls them will be able to profit from the trade that goes through them, and if the pathways are the key enablers of trade between vast regions then the rewards might be great indeed.

Note that if the transport situation changes—new roads are built, or somebody invents magical zeppelins, or the mountain pass suffers an avalanche and is blocked until spring—the effects on the society might be profoundly good or bad. There is certainly a story to be written here, about who would benefit from such changes, who would be threatened, and what they would do about it.

Politics

Just as trade is easier if travel is easier, so is power projection. It is no accident that the Roman Empire spent incredible effort on building its famed roads.

Political boundaries often map onto geographic boundaries such as rivers or mountain ranges, simply because it is hard to transport armies across, or to enforce laws or collect taxes on the other side. The more rugged the terrain, the more likely that an area will feature a patchwork of smaller domains rather than a unified government. (This is part of why Afghanistan continues to be the graveyard of empires.) As with trade, nominal distances as the crow flies matter less than travel time. This is particularly true with the transmission of information; the less information that can get through, the less likely that an empire or other political unit can maintain its control and the more likely that control will devolve to a more local level.

And naturally, the political situation will have effects on the economic one as well, good or bad. A vast regime might enable more internal trade, as Rome did, or it might ruthlessly squeeze its subjects, as Rome also did at various times. A patchwork of small principalities might be littered with obstacles to trade and feature frequent conflicts, or it might become a fecund region promoting creativity and economic development.

You can see how these factors interrelate. A government might build roads for military purposes, which then have the side effect of stimulating new economic activity. The interstate highway system in the United States, and the Autobahn in Germany, are good examples. So is the rail system in much of Europe. Or a transportation system built for commercial purposes might be adopted for military ones, such as airplanes.

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All in all, the ease of transport across a territory will dramatically condition what happens there and how people live. For worldbuilders, we can readily exploit some of the challenges that this presents in our stories.

*****

(This post is part of Politics for Worldbuilders, an occasional series. Many of the previous posts in this series eventually became grist for my handbook for authors and game designers, Beyond Kings and Princesses: Governments for Worldbuilders. The topic of this post belongs in the planned second book in this series, working title Wealth [Commerce?] for Worldbuilders, along with some overlap with the planned third book, working title Tyranny for Worldbuilders. No idea when they will be finished, but it should be fun!)

Building an Economy: Population Density

20 Monday Feb 2023

Posted by Oren Litwin in Economics, Politics, Politics for Worldbuilders, State Formation, War, Writing

≈ 1 Comment

Tags

economics, factors of production, politics, population density, worldbuilding, writing

After a great deal of procrastination, it’s time to revisit the Land/Labor/Capital triad, identified by the classical economists like Adam Smith and the like as the key factors of production.

(Side note: modern economists consider entrepreneurship to be a fourth factor of production. I’m still trying to figure out whether there is a nice way to characterize entrepreneurship in our model, as it would obviously lend itself to strong stories.)

Remember, we’re not trying to explain everything about an economy from the ground up. We’re trying to build a relatively simple, yet powerful and flexible framework that worldbuilders can use to quickly mock up the contours of their invented societies. Once the bones are in place, you are then in a position to dive into all the cool little details, confident that they will be consistent with the structuring logic.

So when we talk about land, we’re going to focus on three broad variables—each of which can have surprisingly powerful implications:

Population density
Ease of transport
Natural resources

Really, these are interrelated. For example, you can’t have a dense population without lots of food, and and an easy way to get the food to people. Still, it’s useful to consider them separately to keep everything straight in our heads. Let’s begin with population density.

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If you want to have a country or region with a high population density, that implies several things. We already noted the need for lots of food and efficient transportation of it. On the other hand, you don’t necessarily need to have urban cities, if people are living in densely placed villages and growing their own food with intensive agricultural methods. (It will mean that animal husbandry will likely use methods that require little land, rather than pasture-grazing.) And the material standard of living might still be low if most people are producing food, rather than more specialized goods. Still, the more people there are living close together, the more opportunities for specialization and exchange, and the more likely that the economy will develop more complexity.

Conversely, if the population is thinly spread, the people might still be relatively prosperous. They could have large herds of livestock that move from place to place, or practice a carefree foraging lifestyle where they only spend a few hours a day gathering food and use the rest of their time making luxuries, playing games, fighting with neighbors (!), or relaxing. Or they might be desperately poor, if the land is not very productive and they all have to work hard to feed themselves, since there are few opportunities for trade. With a thinly spread populace that cannot sustain specialization and exchange, chances are that the energy surplus of the society will be small, which limits the development of their society and culture. (And you can see how the productivity of the land interacts with population density.)

So whether you choose to have a dense population or not, you can play around with what that looks like for you and your story.

But what about the political effects of a dense population, or its opposite?

Note that the more thinly spread the population, the harder it is to control the territory. If you are being oppressed by a ruler, or landlord, or moneylender, or cruel family members or whatever, you always have the option to pull up stakes and run; and all else equal, it is more difficult for a ruler to stop you if the population is thin. This is because fortifying the border to keep people in would be too expensive, compared to the number of people being contained. By contrast, if the society has a dense population, it is relatively more efficient to fortify the border even at great expense, because of the large number of people you will be able to contain and control.

Jeffrey Herbst argues that this is one of the key differences between the experience of Western Europe and of precolonial Africa; Western Europe, being densely populated and urbanized, made it worthwhile for rulers to fortify their borders, the better to control the moments of their people (as well as to defend against invasion!). In Africa, however, the landscape was so vast compared to the populace that there was little practical way to control the territory as such. Instead, African rulers focused on strategies to control people directly—ties of loyalty or marriage for some, enslavement and physical domination for others.

Let’s see why. When seeking wealth or other resources, a ruler must ask a key question: is it easier to exploit one’s own people, or someone else? If your people are easily controlled and restrained, it will be relatively easier to tax them. If your people can move around easily, however, then they will not tolerate heavy taxation. On the other hand, if your army can also move around easily, it becomes more attractive to invade your neighbors and cart away plunder, in goods or people.

So as a broad pattern, we see regions of high population density focus on fortification of borders and relatively high reliance on taxation or other means to generate resources from their own people (which does not exclude invading and pillaging neighbors, of course!); and regions of low population density feature relatively higher mobility, societies that feature relatively less political coercion and taxation, and lots of raiding of neighbors for treasure and slaves.

Of course, rulers can also change the population density of their territory. A very common pattern, as James C. Scott tells us, was for city rulers to concentrate the surrounding populations by force within the city walls, and have them cultivate fields that were within easy reach of the city (and the city’s military). This allowed them to tax their peasantry’s output more easily than if farmers were living in distant villages.

So when you’re creating a new territory, think about the population density of the land, and then consider what consequences flow from that. The implications for your story might be surprising.

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(This post is part of Politics for Worldbuilders, an occasional series. Many of the previous posts in this series eventually became grist for my handbook for authors and game designers, Beyond Kings and Princesses: Governments for Worldbuilders. The topic of this post belongs in the planned second book in this series, working title Wealth [Commerce?] for Worldbuilders, along with some overlap with the planned third book, working title Tyranny for Worldbuilders. No idea when they will be finished, but it should be fun!)

Taxation and Conflict

17 Saturday Dec 2022

Posted by Oren Litwin in Economics, Politics, Politics for Worldbuilders, State Formation, Writing

≈ 2 Comments

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government, Margaret Levi, politics, Taxation, worldbuilding, writing

Worldbuilders often have settings in which tax policies are key drivers of conflict. This is as it should be, given that taxes often drive conflict in the real world, for very good reasons. But typically, the decisions that a fictional ruler face are boiled down to “Do I want money? If so, tax everything that moves.” In the real world, things are more complex. And introducing a bit of carefully chosen complexity into your stories can make the conflicts a lot more interesting.

Our current discussion is based on the seminal model of Margaret Levi. Based on a deep review of the history of governments, Levi starts from the assumption that in general, sovereigns want to maximize their tax revenue. But this does not simply mean jacking taxes up as high as they can go.

First of all, the more you tax, the more opposition you get from those being taxed. This is obvious, but it has some notable consequences. A weaker regime will be able to tax less, because serious opposition could bring it down. Additionally, taxes will tend to fall more heavily on social groups that are less able to resist the government (often because they are poor!), or who depend on the government more, or who would benefit directly from the additional government projects that the tax revenues would fund and are thus more willing to bear the burden. In any event, the rulers will have to limit their taxation if they don’t want to antagonize the people.

Second, the higher the tax rate, the more that economic activity becomes depressed as many businesses simply become unprofitable. Moreover, it becomes worth it for people to rearrange their businesses to pay less tax, or even cheat on their taxes altogether. As a result, if you increase taxes by ten percent, say, your tax revenue will rise by somewhat less than ten percent. And at a certain point, tax collection actually goes down with higher taxes. (This concept is popularly known as the Laffer Curve.)

So a ruler will have to figure out the optimal tax policy for generating revenue. This is a difficult problem, especially if you don’t have a lot of data about the economy. Often, rulers get it wrong and set the tax rate too high for the amount of revenue they want to collect. (It is much less common to set the tax rate too low!)

This basic issue also functions across time periods; collecting lots of taxes this year will often mean that the economy’s growth will slow down in the future, reducing tax collection later. As a result, Levi notes that a major factor in the taxation decisions of sovereigns was their discount rate—that is, how willing they are to forego money today in exchange for more money tomorrow.

(A quick example: suppose you have an opportunity to invest $100 today, and in a month you’ll get back $110 guaranteed. If you have money in the bank and won’t miss $100, you’ll happily invest the money for a good return. If you only have $100, on the other hand, and you need to spend it on food, it’s another matter entirely. Still, you might be willing to invest the hundred dollars if you would get back a thousand; for that much money, you’ll find some way to last the month. In the first case, you have a relatively low discount rate; you can afford to be patient. In the second case, you have a relatively high discount rate; you need money today, and it would take a massive amount of money in the future to get you to give up what you have.)

Levi notes that sovereigns facing a crisis—particularly a war—needed lots of money today, and were more willing to raise taxes for current revenue even if it harmed future growth, and even if it provoked domestic opposition (to a point). In other words, these rulers had a very high discount rate.

Next, certain types of taxes take different types of bureaucratic infrastructure; if you don’t have the infrastructure, you can’t levy the tax. For example, to tax incomes, you need a way to monitor how much money people make. This is tremendously hard, which is why direct income taxes across all of society were nearly unknown until the early 1900s. And some kinds of taxes would cost more to administer than you would actually raise!

A sovereign will then want to invest in new bureaucracy, to be able to collect more taxes in the future. But such investment takes money and time, and it usually provokes opposition from society—people resent intrusions into their privacy, and know that higher taxes are going to result in the future.

Levi’s model thus has a number of moving parts, including:

the discount rate of the sovereign;
the capability of the tax-collection apparatus;
transaction costs for commerce, and for tax collection (which include information/monitoring costs, and fees, operating expenses, and other forms of friction); and
the relative bargaining power of the state versus different classes in society.

Levi’s entire discussion includes many other complex facets, including the concept of quasi-voluntary compliance which I already touched upon in Beyond Kings and Princesses in the discussion of bureaucracy; I hope to write about more from Levi in future posts. But even this starting overview provides some useful tools for worldbuilders looking to juice up their political conflicts.

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(This post is part of Politics for Worldbuilders, an occasional series. Many of the previous posts in this series eventually became grist for my handbook for authors and game designers, Beyond Kings and Princesses: Governments for Worldbuilders. The topic of this post belongs in the planned second book in this series, working title Wealth [Commerce?] for Worldbuilders. No idea when it will be finished, but it should be fun!)

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Taxation and Conflict