World Happiness Report 2023 83 capacity, nor indeed the other way round. Our preferred framework for understanding state capacities stresses a web of mutually interdependent factors which eschews a simple causal story. This strong correlation between a range of outcomes across countries creates development clusters. Origins of Peace and State Capacity Whether peaceful political orders are established and whether state capacities are built both depend on how leaders purposefully allocate resources towards uses that have future consequences. It is useful to conceptualize these as forward-looking investments by the state. The key role of investments Political violence can be seen as an attempt to invest resources with the purpose to acquire or establish political control, or to remove incumbent groups from power. A peaceful social and political order requires systems of conflict resolution, such that no group finds it necessary to invest in violence for these purposes. Indeed, peaceful transitions of power are perhaps the most remarkable achievement of democratic systems. Repression is a form of investment where state power is deployed to enable autocrats to stay in place. This is frequently achieved by the extensive use of secret police and military force against civilians. Civil wars can be thought of arising as a consequence of two-sided investments in violence, where one side is the opposition that most often organizes as anti-state militias. To understand how peaceful societies come about, we thus have to investigate the conditions under which it is unattractive to invest in political violence. A similar, but reverse, line of argument applies to state-capacity building. Consider, for example, fiscal capacity. Setting up a tax system requires monitoring and compliance systems to be built involving organizational structures with tax inspectors and auditing. States that make such investments look to the future revenues that can be generated. Building legal structures, health systems, and social security systems similarly take time and thus requires forward-looking decisions to invest in the required institutions. To understand how state capacities come about, we thus have to understand under which conditions it is attractive to invest in them. Institutions and norms are crucial supporting structures for the promotion of investments in state capacities and/or limiting investments in political violence. In either case, leaders need to be reassured about the future. Let us give two examples to illustrate this. First, consider a case where citizens comprising the opposition believe that a disputed leader who loses an election will indeed step down. This will weaken motives to invest in political violence. Second, consider a case where incumbent leaders believe that future additional revenues from investments in the tax system will be used for expenditures with common benefits. They will then have a stronger incentive to invest in building fiscal capacity as their own group will benefit regardless of who holds power in the future. Cohesive institutions When we speak of “cohesive institutions,” we have in mind a whole set of arrangements that constrain state power Photo by Karson on Unsplash
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