Solid states.(State-Building: Governance and World Order in the 21st Century)(Book Review)

State-Building: Governance and World Order in the 21st Century, by Francis Fukuyama (Cornell, 160 pp., $21)

THIS is a very useful, intelligent, and short book by Francis Fukuyama, a leading political thinker. It examines a central issue in the age of terrorism: the perils (and sometimes necessities) of "state-building" in weak and failed states. One hopes it will become a must-read for State Department policymakers.

Fukuyama begins by describing how the "Washington consensus" of the early 1990s--an emphasis on privatization and market economics--has given way to a new conventional wisdom since 1997 that "institutions matter": an emphasis on legal systems, accountability, transparency, commercial norms, and democratic values. Fukuyama quotes Milton Friedman as saying that he was "wrong" in his emphasis on the privatization of public institutions in the heady days after the fall of the Berlin Wall. As Friedman recently told Fukuyama: "It turns out that the rule of law is probably more basic than privatization."

If institutions are crucial, what have we learned about them? Fukuyama skillfully walks the reader through major arguments about organizational theory. He is adept at dissecting the jargon of the field--words and phrases such as "satisficing," "stovepiping," "transaction intensity," and "low-specificity activities"--in ways that should retain the interest of the non-specialist reader.

There are two broad theories of organizations. The first is an economic model that assumes that members of organizations (both public and private) act as self-interested individuals. This theory therefore seeks to build rational, mathematical models to predict behavior; incentives (usually monetary) are emphasized as a way to improve performance. The second model is sociological, positing that individuals in organizations often act in non-rational ways. The premise of this model is that informal norms, values, group goals, shared experience, the "culture" of an organization, leadership, and other non-rational factors often prevail over self-interested calculation.

While recognizing that incentives are important, Fukuyama leans toward the sociological model--because, he notes, "the [economic] assumption that people in organizations are motivated primarily by individual self-interest" is just "too limited." He points out that an employee who joins an organization "simply to have a job" can end up developing "intense loyalty to other members of her team working nights and weekends to help the team defeat a rival." Conversely, another employee might intensely dislike a co-worker and do "everything he can to undermine that person even at the expense of the broader organization and his own career."

Fukuyama writes that "public administration is idiosyncratic and not subject to broad generalization"; so there is no general social-scientific theory of organizations or public administration that could assist developing nations. But while there are no lists of "best practices" that foreign-aid officials should promote, this "organizational ambiguity" does not mean that anything goes: There are "bad practices" (cronyism, corruption) to be avoided.