The consensual, moderate politics that characterized the golden age of democratic capitalism hasgiven way, in the past decades, to growing public dissatisfaction toward political elites,ideological polarization, and the rise of populist parties. This chapter starts by exploring theeconomic foundations of that remarkable political turnaround. It then describes the historicalsequence through which populist movements took advantage of those changes. And it concludesby discussing potential responses to the new economic and political challenges faced byadvanced economies.

During the last century and a half economic growth has been formidable in the North Atlantic basin. As shown in Figure 2.1, in 1870 per capita income (in constant dollars of 2000) ranged from around $1,100 in Portugal to about $3,500 in New Zealand and the United Kingdom. By 2007 it had multiplied by about twelve to fourteen times to more than $35,000 in the United States, about $25,000 in France and Germany, and $16,000 in Portugal. Such a shift in income levels implied an average annual growth rate of about 1.8 to 2.0 percent.

Within this explosive secular trend, growth rates exhibited considerable variance over time. OECD countries (defined here following the old membership criteria restricted to Western Europe, North America, Japan, and Australasia) grew at below that average rate before 1914 (at 1.7 percent) and between 1929 and 1939 (at 1.2 percent). By contrast, their growth rates exceeded the historical average right after World War I and especially after World War II. From 1945 to 1960 their growth rate, at 6.6 percent, tripled the average rate, and, although it slowed down in the period 1960–1980, it still more than doubled it, at 4.8 percent. A similar story can be told about Europe as a whole: It underperformed (relative to its historical average) during the belle époque yet it overperformed after the two world wars over the period aptly labeled the Golden Age (Crafts and Toniolo 1996; Toniolo 1998) that ended with the stagflation crisis of the mid-1970s and early 1980s. By the early 2000s, growth rates were around or below 2 percent.

Growth rates also varied substantially across countries. Before 1914, growth took place mainly in the European industrial core and the North American Atlantic seaboard. Then, after the nineteenth-century period of industrial take-off, poor economies grew faster than wealthy ones – in line with the predictions of standard growth models (Solow 1956; Barro 1997). Nonetheless, that long-run process of economic catch-up only narrowed cross-country differences moderately.

To understand the foundations of political order and the causes of inequality, we must first imagine and examine the social and economic conditions that preceded the introduction of any formal political authority as well as the emergence of any major economic differences across individuals. Accordingly, this chapter models an initial world that has three key traits. First, all individuals are endowed with identical resources. Second, these individuals rely on two different strategies to survive and prosper. They may follow a productive strategy, which consists in the allocation of their resources to the production (and voluntary exchange) of goods and services. Alternatively, they may adopt an expropriatory or predation strategy, that is, they may direct their resources to appropriate the assets or returns of other individuals through the use of force. Third, there are no political institutions or state, that is, there is no organization or set of agents with the monopoly of violence and the capacity to police and punish.

As discussed in the first section of this chapter, under a condition of anarchy all individuals cooperate among themselves and follow a productive strategy provided there is one key condition in place: that all their resources remain similar or, in other words, that there are no substantial changes in the initial condition of equality that characterizes the state of nature. As soon as the distribution of resources and the stream of income each individual receives shifts significantly to the advantage of one section of the population, the outcome of “spontaneous” or “self-enforced” cooperation (as opposed to a world where cooperation is enforced by the state) breaks down. In addition to the level of interpersonal equality, the second section shows that the stability and robustness of an equilibrium of self-enforced cooperation is also shaped by the time horizons, the type of predation technologies available to those individuals, and the mobility of the population. The third section of the chapter offers a broader discussion of the concept and nature of cooperation – and in the process it shows that current alternative explanations of social cooperation (such as risk sharing or production complementarities) are subordinate to the main theoretical claims of this chapter.

The fundamental question of political theory, one that precedes all other questions about the nature of political life, is why there is a state at all. Is human cooperation feasible without a political authority enforcing it? Or do we need a state to live together? This problem then opens up two further issues. If a state is necessary to establish order, how (and when) does it come into place? And, if it does, what are its consequences for the political status and economic welfare of the citizens under its control?

Classical political thinkers offered (or at least attempted to offer) a comprehensive answer to all these questions. Their ultimate goal was of a normative or justificatory kind – to establish whether there should be a state at all and, if so, of what nature. But their (rather diverse) responses have shaped our empirical understanding of politics in a powerful way. In this conclusion, I revisit the contributions of three main thinkers, Hobbes, Locke, and Rousseau, who can be thought of as the forefathers of our existing political traditions – from authoritarianism through liberalism to socialism. For each one of them, I summarize their positions on the three problems raised in this book: the feasibility of cooperation under anarchy; the conditions that elicit the formation of a state; and the political and economic effects of the latter. I then review the main findings of this book and the ways in which they disallow or qualify central tenets of political thought and political science. The final part of this concluding chapter takes a stab at one of today’s most pressing intellectual topics: the determinants of inequality in contemporary democracies.

As discussed in Chapters 1 and 2, mankind moved away from its initial condition of equality in three broad steps. Men and women invented technologies of production that eventually led to growing economic differences across individuals and territories. That economic inequality resulted in the breakdown of a collective order based on the nonformalized, horizontal application of rewards and sanctions to generate social compliance. Individuals, now competing systematically over the control of highly productive patches, set up formal (state) institutions to control, defend, and exploit their economic resources. In this new world, the conduct of war became a key determinant of the structure of those institutions. The nature and complexity of military technologies affected the power of producers (vis-à-vis those individuals that specialized in the exercise of violence) and determined the size and scope of the state. They shaped also the final level of inequality because the distribution of political power often modified the distribution of resources given by the existing technologies of production.

This chapter and the following two put the main hypotheses of the book to an empirical test. Chapter 3 examines how technological change and a correlated spatial clustering of productive resources led to the emergence of territorial and interpersonal inequalities, the formation of social hierarchies, and the creation of state institutions. Chapter 4 deals with the impact that specific war technologies had on the distribution of political power within states. Chapter 5 explores the effect of both technological changes and military power on inequality.

Chapter 1 showed that human cooperation is feasible without having to establish an institutionalized authority to enforce peace – provided that individuals are roughly equal in both economic resources and ability to fight. Such a state of cooperation may take place through two alternative forms: in the form of individuals (or, at most, households) living separately and avoiding any systematic conflict among themselves; or in the form of a community of people living together – either to share risks or to exploit some complementarities in the process of production. Either way, however, life under a situation of spontaneous cooperation is poor, nasty, brutish, and short. Men and women live at the margin of subsistence, almost always exclusively preoccupied with satisfying their most elemental material needs, and with their private behavior and conversations strictly fettered by a community that punishes any deviation from the socially expected standard of behavior with ostracism and sometimes even with death.

This chapter turns to explore the construction of the state, its nature and consequences. The section “Learning-by-Doing, Inequality, and Sorting” describes the process of technological change that results in the breakdown of the spontaneous or self-enforced cooperation equilibrium. The following section, “From Conflict to Political Order,” examines the alternative political regimes (in a range that goes from monarchies to imperial republics) through which order can be reestablished. This includes an analysis of the concept and foundations of political obligation. The section “Monarchies or Republics? The Role of Warfare” outlines the conditions (war technologies and extraction mechanisms) that determine which type of political regime will prevail. With those results in mind, ”Warfare and the Number and Territorial Size of Political Regimes” discusses why republican governments were smaller, shorter in duration, and much more infrequent than monarchies around the world at least until the nineteenth century. The following two sections describe the consequences that each political solution has on both the distribution of income and growth.

Chapter 2 described how the process of technological innovation and the corresponding emergence of a resource gradient interacted with the construction of political institutions to transform prestate societies, which had no formal political institutions and relatively equal distributions of income and wealth, into human communities defined by individual and territorial inequalities.

Those inequalities took place through two channels. The first channel was strictly economic. Output across economic agents and groups diverged when either the rate of innovation varied across individuals or when the level of technological know-how was the same for everyone but its productive application to the assets in the hands of each individual led to different output levels. For example, the invention of large boats and fishing equipment such as weirs and nets could only be exploited along a river or a maritime coast such as the Northwest Pacific Coast. Indeed, so-called complex foraging (i.e., mainly riverine and maritime) societies enjoy higher productivity rates than simple foragers, show some stickiness in the intergenerational transmission of wealth, and are characterized by some social stratification. The domestication of plants and animals that began around 9000 BC produced even sharper patterns of territorial differentiation, economic specialization, and social stratification across the globe.