The virtues of competition among states

An interesting theme running through some recent work in economic history is that competition among states can have positive long-run economic effects. Mark Koyama’s review essay of Walter Scheidel’s book Escape from Rome is a nice short summary of this theme. Both authors have tackled different aspects of the thesis that “a competitive and fragmented state system was a necessary condition for the eventual economic rise of Western Europe.” Fragmented refers to the fact that Europe was long divided into numerous small states, none of which could establish persistent dominance over the others. Some economic historians argue that the political and military rivalries among these states gave their rulers incentives to try to govern well and effectively, “invest in state capacity” in the jargon, while creating room for experimentation with different ideas and government policies.

Although this idea was developed mostly from work on the early modern period, around the 16th to 18th centuries, it has plenty of recent resonance. The Cold War rivalry between the US and the Soviet Union pushed both sizes into investing in new technologies like space exploration and the internet (Nasa was the earliest and most important customer for the nascent US semiconductor industry). If anything, competition among states has increased since the end of the Cold War: “a competitive and fragmented state system” seems like a reasonable summary of the contemporary “multipolar” global order, in which even superpowers struggle to enforce their will over other states.

Competition among states is of course bad when it takes the form of outright military conflict and the loss of life. Today, the existence of nuclear weapons means that any continued economic and human progress for the world is contingent upon powerful states being willing to impose limits on their competition. Even a non-nuclear confrontation among major powers, for example if the US and China were drawn into conflict over Taiwan, would be massively disruptive. It’s possible that, as Tyler Cowen has suggested, the lack of major wars may be taking some of the edge off of interstate competition. Neither the US nor China actually fear being taken over militarily by the other, nor does (at least most of) Europe need worry about being absorbed into a Russian empire. The worries are somewhat less existential, and therefore perhaps less pressing.

Rational self-preservation does limit how much competition among states can take the form of military conflict. But in that case their competition in other areas could becomes more rather than less intense. In particular, the US-China relationship has become increasingly competitive over the past decade. A recent piece by Ryan Hass of Brookings captures this dynamic well:

The US and China are both central powers within a single global system — and they compete for leadership in virtually every domain within that system. Both sides recognize the dense connectivity that binds them together within the existing system (e.g., supply chains, financial flows, knowledge production, scientific exchanges, ecological interdependence, etc.). Even as each side seeks to limit vulnerabilities from dependence on the other, neither side views it as plausible to disentangle entirely from the other at tolerable cost or risk.

Given these circumstances…both sides will be pushed to find opportunities to gain relative advantage over the other in long-term competition. This is where the bulk of both countries’ efforts are likely to be focused for the coming decades.

Hass argues that both countries are competing for global prestige and influence, and are focused on “which country’s social, political and economic system will demonstrate capacity to outperform the other.” He distinguishes between ideological competition, which he views as largely unproductive, and competition based on “performance,” which he views as creating pressure for more tangible actions. If geopolitical rivalry between the US and China does in fact leads to greater investment in state capacity and technological innovation, both countries could benefit. Authorities in the US are for instance increasingly aware of China’s demonstrated competence in building infrastructure fairly quickly and at reasonable cost. Competition with China could stimulate greater interest in addressing the insanely high costs of construction projects in the US, so that the comparison with China is not quite so embarrassing.

Perhaps the most fruitful venue for global competition among states would be in responding to climate change. You often hear about the need for the US and China to cooperate on climate change, which is because international agreements are often seen as the key mechanism for reducing emissions. This emphasis on cooperation is probably overdone: as Deborah Seligsohn argues in a useful piece, “cooperation isn’t the linchpin for driving down emissions to net zero.” She points out that the actual reduction in emissions will come from major changes in energy and other technologies, which will be largely produced and deployed by private companies. Competition among those companies is a powerful force for pushing technological progress, and in this sense the more competition between the US and China, the better.

For its part, China’s leadership clearly views the response to climate change as an arena for competition among countries not just companies. The transition to green energy is seen as a historic opportunity for China to establish global industrial leadership. The transition promises to disrupt the established hierarchy of existing technologies and companies that China, for all its successes, has struggled to overturn: think of how electric vehicles could erode the dominance of US, German and Japanese automobile companies and their internal-combustion-engine platforms.

Such concrete successes would matter a lot more to China than the intangible benefit of being perceived as a good global citizen in climate-change negotiations. China may well be resistant to establishing international agreements with strict and binding emissions-reduction targets, as many Western critics complain, but this is because its politicians (rather unsurprisingly) resent being forced to do things by foreigners. China’s own industrial plans and domestic propaganda make it quite clear that the government wants to lead the world in the decarbonization transition, for its own benefit. Embracing an explicit global competition between the US and China in creating and deploying emissions-reducing technological breakthroughs might yield more substantive progress than international negotiations, in which these geopolitical rivals are likely to struggle to achieve consensus.

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