I have been trying, for some time now, to circle an issue that we can consider to be a cousin of the emerging “state capacity” literature (see Mark Koyama’s amazing summary here). This cousin is the literature on “empire effects” (here and here for examples).
The core of the “empire effect” claim is that empires provide global order which we can consider as a public good. A colorful image would be the British Navy roaming the seas in the 19th century which meant increased protection for trade. This is why it is a parent of the state capacity argument in the sense that the latter concept refers (broadly) to the ability of a state to administer the realm within its boundaries. The empire effect is merely the extension of these boundaries.
I still have reservations about the nuances/limitations of state capacity as an argument to explain economic growth. After all, the true question is not how states consolidate, but how they create constraints on rulers to not abuse the consolidated powers (which in turn generates room for growth). But, it is easy to heavily question its parent: the empire effect.
Shipping is one of the industry that is most likely to be affected by large empires – positively or negatively. Indeed, the argument for empire effects is that they protect trade. As such, the British navy in the 19th century protected trade and probably helped the shipping industry become more productive. But, achieving empire comes at a cost. For example, the British navy needed to grow very large in size and it had to employ inputs from the private sector thus crowding-it out. In a way, if a security effect from empire emerged as a benefit, there must have been a cost. The cost we wish to highlight is the crowding-out one.
In the paper (written with Jari Eloranta of Appalachian State University and Vadim Kufenko of University of Hohenheim), I argue that, using the productivity of the Canadian shipping industry which was protected by the British Navy, the security effect from a large navy was smaller than the crowding-out from high-levels of expenditures on the navy.
While it is still a working paper which we are trying to expand and improve, our point is that what allowed the productivity of the Canadian shipping industry (which was protected by Britain) to soar was that the British Navy grew smaller in absolute terms. While the growth of the relative strength of the British Navy did bolster productivity in some of our tests, the fact that the navy was much smaller was the “thing in the mix that did the trick”. In other words, the empire effect is just the effect of a ramping-down in military being presented as something else than it truly is (at least partly).
That’s our core point. We are still trying to improve it and (as such) comments are welcomed.