The Megastate

The shift from the national state to the Megastate began in the last decades of the nineteenth century. The first small step toward the Megastate was Bismarck’s invention in the 1880s of the Welfare State. Bismarck’s goal was to combat the rapidly rising socialist tide. It was a response to the threat of class war. Government had previously been perceived exclusively as a political agency. Bismarck made government into a social agency. His own welfare measures health insurance, insurance against industrial accidents, old-age pensions (followed thirty years later, after World War I, by the British invention of unemployment insurance)—were modest enough. But the principle was radical; and it is the principle that has had far greater effect than the individual actions taken in its name. [So the welfare state was born ..].   The Great Depression gave rise to the belief that the national government is—and should be—in control of the economic weather. The English economist John Maynard Keynes [..] claimed that [the] national economy is totally determined by governmental policy, to whit, by government spending. However much today’s economists otherwise differ from each other, all of them: Friedmanites, supply-siders, and the other post-Keynesians all follow Keynes in these two tenets. They all consider the nation-state and its government the master of the national economy and the controller of its economic weather. [Manager state is born].

The two world wars of this century transformed the nation-state into a “fiscal state.” Until World War I, no government in history was ever able—even in wartime—to obtain from its people more than a very small fraction of the country’s national income, perhaps 5 or 6 percent. But in World War I every belligerent, even the poorest, found that there was practically no limit to what government can squeeze out of the population. By the outbreak of World War I, the economies of all the belligerent countries were fully monetized. As a result, the two poorest countries, Austria-Hungary and Russia, in several war years could actually tax and borrow more than the total annual income of their respective populations. They managed to liquidate capital accumulated over long decades and turn it into war materiel [..].

Joseph Schumpeter, who was then still living in Austria, understood immediately what had happened. But the rest of the economists and most governments needed a second lesson: World War II. Since then, however, all developed and many developing countries have become “fiscal states.” [..] They have all come to believe that there are no economic limits to what government can tax or borrow and, therefore, no economic limits to what government can spend [..]

The last of the mutations that created the megastate, the Cold War State, was a response to technology.

Since 1500 or so, when the knight had become obsolete, warfare increasingly was waged with weapons produced in ordinary peacetime facilities with the minimum of delay or adaptation. In the American Civil War, cannons were still being produced in peacetime workshops and factories hastily adapted after hostilities had broken out. Textile mills switched production practically overnight from civilian clothing to uniforms. Indeed, the two major wars fought during the second half of the nineteenth century, the American Civil War (1861-65) and the Franco-Prussian War (1870-71), were still largely fought by civilians who had put on their uniforms only a few weeks before engaging in combat.

Modern technology [it was argued] had changed all this. The wartime economy could no longer be an adaptation of the peacetime economy. The two had to be separate. Both weapons and fighting men had to be made available, in large quantities, before the outbreak of hostilities. To produce either required increasingly long lead times.

Defense, it was implicit in the [argument] no longer means keeping the warfare away from civilian society and civilian economy. Under conditions of modern technology, defense means a permanent wartime society and a permanent wartime economy. It means the “Cold War State.”

But even after World War II, the United States for a few short years tried to revert to a “normal” peacetime state. It tried to disarm as fast as possible, and as completely as possible. The coming of the Cold War in the Truman and Eisenhower years changed all this. Since then, the Cold War State has been the dominant organization of international politics.

By 1960, the Megastate had become a political reality in developed countries in all its aspects: as social agency; as master of the economy; as fiscal state; and in most countries as Cold War State.