Never Underestimate the Nation-State

Irshad Salim, Karachi: Decades back, after reading the book ‘Why Nations Fail’, my first take was that “States fail, nations don’t”. My Professor Anthony Kahn laughed initially at my comment. We then conversed, he smiled and agreed with my one-liner. This was in 1984 in NJ; the Professor (of Japanese descent) gave me several independent studies to do. Among the several was: ‘Japanese Management vs American (Western) Management’. Another was ‘Predictability & Control Key Element of Management’, and ‘Labor, Laws & the Society’. Decades later, yesterday I ran into an opinion peace titled ‘Never Underestimate the Nation-State’. I have extracted some paragraphs which I consider relevant–these connect the dots to my goodread of ‘Why Nations Fail’ and my one-liner ‘States fail, Nations don’t” telegraphic quip to the Professor. He was taken aback though, and gave a half-grin followed with an animated smile, and then an articulated (both hands on his head) response: “Where did you get this from, Salim…what do you mean…please explain/elaborate?”. One thing common that helped ease our conversation and the Fahrenheit in his small office was our British English and the British accent. More later, as I intend to follow up with gentleman, scholar, former Vice Admiral, Ambassador, intellectual Hasham Sahib’s suggestion that I write a book compiling my experiences home & abroad.

Here are excerpts from the article by Andrés Velasco at Project Syndicate:

>>On January 12, 2010, Haiti suffered an earthquake measuring 7.0 on the Richter scale. Estimates of the fatalities range from 100,000 to 316,000. Barely a month and half later, a magnitude 8.8 earthquake hit Chile, leaving 500 dead, 150 of them from the subsequent tsunami. Whereas large swaths of Haiti’s main cities were reduced to rubble, including the National Palace – the president’s official residence – in Port-au-Prince, in Chile very few multi-story buildings collapsed, killing their inhabitants.

>>Unlike in Haiti, Chileans benefited from stringent building codes (adopted after another massive earthquake in 1960) and a culture, nurtured over generations, of building inspectors who allowed no construction shortcuts and, crucially, took no bribes. When the state works, it can save hundreds of thousands of lives in a single event. And when it fails, as Haiti is reminding the world yet again these days, the consequences are dire. Now, this is all so obvious that it should not need repeating, except that it runs counter to the narrative du jour. Citizens are anxious because their governments are not delivering, hums the conventional wisdom. And governments are not delivering because they have been rendered toothless by the forces of globalization. That will take a long time to fix, citizens are told. Until then, they are on their own. No wonder they feel anxious. When it comes to removing sources of anxiety, being reasonably sure that citizens’ roofs will not cave in, that the banks that hold their life savings will not collapse, and that the currency in which they are paid will be worth something tomorrow should figure high on anyone’s priority list. There is plenty that governments can do to ensure these outcomes.

>>Of course, a benign global environment makes national leaders’ job easier. Emerging and developing economies would not have to maintain high dollar reserves if a global financial safety net enabled them to borrow dollars in an emergency. And low-income countries would worry less about a food-price spike if countries like Russia refrained from invading their neighbors and throwing the world grain market into chaos.

>>But even when the global environment is not benign, well-run countries can protect their citizens against uncertainty. An economically anxious middle-class citizen is likely to be worrying about how to keep an unexpected illness or the loss of a job from depleting her savings and throwing her family into bankruptcy. Protection against that kind of mishap can mostly be provided within the nation-state, because all people do not become ill or lose their jobs at the same time.

>>Systems where those who remain healthy and employed lend a hand to those who do not go by the label of insurance. If government plays a role – subsidizing the system to make it affordable for the poor, mandating participation to ensure that the pool of people involved is large enough, or collecting from the young to raise the consumption of the old – we call it social insurance or a welfare state. The welfare state is a “piggy bank,” in the apt metaphor of my London School of Economics colleague Nicholas Barr. According to the International Labor Organization, nearly half of humanity today has access to some kind of welfare protection. It is not globalization that is keeping the other half from having the same.

>>The welfare state is a “piggy bank,” in the apt metaphor of my London School of Economics colleague Nicholas Barr. According to the International Labor Organization, nearly half of humanity today has access to some kind of welfare protection. It is not globalization that is keeping the other half from having the same.

>>To provide extra resources at a time of extreme need, governments must either be sitting on a big pile of reserves (as in East Asia) or have access to credit. Whatever the source of financing, advanced economies managed to spend 15% of GDP on pandemic relief, and emerging economies spent 7% of GDP – figures that were unthinkable only a few years ago. Such examples of success do not require blood, but without sweat and tears they will not work. Raising construction standards results in pricier accommodations or slimmer profits for builders.

>>Accumulating international reserves requires importing less than we export, for painfully long periods of time. Retaining access to credit in bad times requires running budget surpluses and repaying debt in good times (even rich countries can get into debt trouble, as Britain’s ruinous mini-budget episode revealed in September 2022).

>>To regain control over their own fate, countries must regain control over their own instincts. But that is not part of the narrative du jour, either. For some of the left, fiscal self-discipline is a quaint twentieth-century relic (why worry about debt if you can always print money to repay it?)…

More here.