TCS Daily

Iraq's Natural State

By Arnold Kling - January 8, 2007 12:00 AM

"For much of the world, the relevant alternative to the natural state is not an open access order like the United States or France, but a descent into the hell of disorder."

-- Douglass C. North, John Joseph Wallis, and Barry R. Weingast, The Natural State: The Political-Economy Of Non-Development

In this essay, I will try to sketch out the ideas in two important papers by Douglass North and colleagues (NWW). In addition to the paper quoted above (2005) they have a more recent paper (2006). Unlike other economic Nobel Laureates, who have stopped doing pathbreaking research by the time they receive the award, North continues to push the envelope a dozen years after he shared the Nobel with Robert W. Fogel in 1993.

At the risk of trivializing this research, I will talk about how I believe it applies to Iraq today. (NWW do not mention Iraq in either paper.) After that, I will raise some questions about their ideas.

The Three Phases of Order

NWW claim that there are three types of societies. Primitive orders are small bands of hunter-gatherers, and they are of little concern here. Limited-access orders are societies that provide meaningful political and economic rights only to narrow elites. Open-access orders are capitalist democracies that give political and economic rights to most citizens. NWW argue that limited-access orders are the "natural state:" they are stable, they resist economic progress, and they only rarely make the transition to open-access orders.

For NWW, these three types of order are like the three chemical phases of solid, liquid, and gas. That is, they are clearly distinct from one another, and transitions between different forms of order take place only under special conditions.

The limited-access order achieves stability by providing each potentially violent group with a valuable concession. For example, the ruling general of a military junta, in order to forestall attempted coups, has to give capable colonels plenty of opportunity to profit personally from corruption. Powerful figures who cannot be bought off must be jailed, exiled, or killed.

Even though coups may take place regularly, the limited-access order is still a relatively continuous arrangement. When the coup takes place, there is no broad redistribution of power, only a reshuffling at the top. (This form of continuity was perhaps first pointed out forty years ago by Washington University political scientist Merle Kling in a paper, "Violence and Politics in Latin America," published in 1967 in Sociological Review Monograph #11.)

A key insight of NWW is that the rulers of a limited-access order must restrict the rights of the masses. If everyone has economic and political rights, then the rulers have nothing special to offer to pacify would-be usurpers. Potential political competitors can only be bought off if they receive rights that are exclusive. But giving exclusive rights to one group necessarily entails restricting the rights of other groups. To say to the rulers of a limited-access order, "We insist that you get rid of corruption" is to ask them to commit political suicide.

The Rare Transition

A limited-access order allocates power in a way that keeps organized, potentially-violent groups satisfied. Those outside of the governing coalition have no access to political power or economic opportunity, and it is in the interest of the elites to keep it that way.

As NWW (2006) put it,

The limited access order is a social equilibrium. The equilibria share common characteristics:

1) Control of violence through elite privileges.
2) Limits on access to trade.
3) Relatively strong property right protection for elites and relatively weak property right protection for non-elites. To the extent a natural state is characterized by the rule of law, it is for elites.
4) Restrictions on entry into and exit from economic, political, religious, educational, and military organizations.

Accordingly, the transition from a limited-access order to an open-access order is quite problematic. NWW argue that such transitions are rare. Since World War II, only 8 countries have made this transition. Interestingly, such transitions often take a relatively short period of historical time -- fifty years or less. Recent examples include Taiwan, South Korea, Ireland, and Spain.

NWW (2006) write,

The central feature of the transition is the development of impersonal exchange among elites. Personal exchange involves a personal, on-going relationship between the exchange parties so that repeated dealings can be a central aspect of exchange enforcement. If one party cheats another, they risk losing the relationship and the benefits it implies. The necessity for repeated interaction limits the range of exchanges of any one individual.

In contrast, impersonal exchange involves parties without long-term personal relationships who may make a single exchange. Impersonal exchange requires that the parties to the exchange be confident enough that their rights and obligations will be secure despite the absence of repeated dealings. Impersonal exchange therefore requires some form of third-party enforcement.

NWW argue that three conditions are necessary before a transition from a limited-access order to an open-access order is even conceivable. These three "doorstep conditions" are:

1. rule of law for elites

2. perpetual life for organizations

3. political control of the military

In a country where even elites depend on personal relationships for personal and economic security, the first "doorstep condition" is not met. Think of Russia today, where even members of the wealthy oligarchy can be summarily stripped of rights by the head of state. On the other hand, in Great Britain in the period just prior to the full advent of democracy, elites developed an expectation that due process of law would apply to them.

Perpetual life for organizations means that there exist corporations or other institutions that can be expected to outlive their key members. If there are no such organizations, then that means that every organization is held together by personal loyalty. Once people see an organization as living beyond its current leaders, they begin to support contractual relationships with that organization. When the government starts to provide a legal framework to protect contractual relationships, a key element of open-access orders is in place. NWW argue that in order for any organization within a state to have perpetual life, the state itself must have perpetual life. If all of a ruler's legal rulings are subject to nullification when the ruler dies, then that condition is not satisfied.

Political control of the military requires that there be no independent organizations with a capacity for large-scale violence. Lebanon, where Hezbollah is an independent military force, clearly does not enjoy political control of the military. On the other hand, if a single faction takes control of the military, that is not NWW's definition of political control of the military. Instead, such a regime is a military dictatorship.

Thus, the NWW standard of political control of the military is very difficult to obtain. It requires a consolidated military force, separate from each faction, with the individual factions disarmed. To attain this outcome, a balanced coalition of powerful elites must agree on a set of rules and procedures that govern the use of military forces, and the coalition must have mechanisms that can ensure that such rules and procedures will be followed.

The Implications for Iraq

Iraq under Saddam Hussein was a limited-access order, or "natural state." NWW claim that such states resist the change to open-access orders. They resist our attempts to stimulate economic development, because true economic development requires fair competition, which threatens the privileges that are the stabilizing element in limited-access orders. Although NWW do not discuss "nation-building," it seems reasonable to infer that they would take an equally dim view of that notion.

Iraq was never on the "doorstep" of becoming an open-access order. The major factions are not willing to give up their weapons and concede military power to a central coalition. There are no perpetual-lived organizations that can make long-term contractual commitments. There is not even a willingness among factions to grant one another rights under the rule of law.

Accordingly, I would say that there is no chance that the United States will succeed in its objective of establishing an open-access order in Iraq. The best we can hope to do is restore Iraq to a natural state, meaning a limited-access order where rights and power are exclusive to certain elites, who will be subject neither to economic nor political competition as we know it.

For a limited-access order to emerge, the leaders of each major faction in Iraq must have a stake in peace. For each leader, that means having enough exclusive economic and political rights to feel that he has more to lose than to gain by resorting to violence.

If we want to set up a limited-access order, then we have to determine which factions we want to have in the governing coalition, and we must give each of them something of value in return for maintaining peace. To put it crudely (so to speak), one could imagine giving each major party in a coalition government control over a particular set of oil wells. Factions that we do not want in the coalition (Al Qaeda in Iraq, for example) would have to be hunted down and killed. Factions that receive an allocation of oil wells but continue to engage in violence would have to be declared outlaws and deprived of personal security, with their oil resources confiscated and redistributed to other factions.

As difficult as this may be to orchestrate, the challenge is made greater by the fact that Iran probably believes that it is in its interest to destabilize Iraq. Each faction has to be convinced that its benefits from participating in the coalition are greater than the value of support it might receive from Iran.

Some Questions

NWW have thought through their concepts very carefully. Nonetheless, I have some questions about the differences between limited-access and open-access orders.

According to NWW, limited-access orders function very differently from open-access orders. It follows that it ought to be easy to classify most countries at most points in time as either limited-access orders or open-access orders.

In principle, one should be able to construct an index of political competitiveness within countries as well as an index of economic competitiveness within countries. Furthermore, we should observe the following patterns in those indexes:

1. High values of political competitiveness should rarely be observed in combination with low values of economic competitiveness, and vice-versa. Would China's economic competitiveness index be high, even though its political competitiveness index has to be low? Are there countries where we observe the reverse -- Mexico, perhaps?

2. Many countries with low values for both indexes, and also a fair number with high values for both indexes. Relatively few countries should fall in the middle on either index. Is India a "middle" country? Chile? Are all "middle" countries candidates for transition from limited-access to open-access orders, and vice-versa?

Another question that occurs to me is how one would classify the United States in 1800. Political rights were not extended to women, slaves, or people without property. A lot of economic and political power was concentrated among a few Virginia aristocrats and New England merchants. Yet there were competitive political parties and an economic system largely free of state-granted monopolies and concessions.

If these questions cannot be answered in a satisfying way, then the concepts of limited-access order and open-access order, as appealing as they sound, ultimately may have to be discarded. My guess, however, is that they will prove to be useful and important to both economics and political science.

Arnold Kling is an adjunct scholar with the Cato Institute and the author of Crisis of Abundance: Rethinking How we Pay for Health Care.


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