The Paradox of Sovereignty
Fiscal Capacity and the Colonial State in Asia and Africa 1850-1960, ed. Ewout Frankema & Anne Booth, 2019.
A remark from Charles Maier’s Recasting Bourgeois Europe that has stuck with me is an observation on Mussolini’s Italy. Maier writes, “the paradox of fascist sovereignty [is] the more grandiose the regime’s claim to transcend the party arena and the marketplace, the more it became hostage to those few political forces it still tolerated”. The vastness of the authority fascism claims makes it vulnerable. A narrow set of interests amplifies the voice of those who remain at the table. If interest-groups can leverage this, their influence may be great.
As the title makes obvious, Fiscal Capacity and the Colonial State in Asia and Africa 1850-1960, an edited volume by Ewout Frankema and Anne Booth, has little to do with fascist Italy. Including (but not limited to) Tirthankar Roy on India, Anne Booth on Southeast Asia, and Leigh Gardner on East Africa, this book attempts to chart and explain the development of fiscal capacity from the beginning of new imperialism to decolonisation. Militarised Portuguese Angola, bureaucratised French Indochina, and developmental-ish Japanese Manchuria: all were differentiated by resource endowments, orientation to the metropole, size, and population, as are all the colonial states studied in this volume. But trying to find commonalities between them brought me to Maier. From the start, Frankema and Booth make clear that “the solution to the revenue problem… varied enormously both across and within empires”. But while the solutions varied, the essential constraint was often the same: the legitimacy deficit that ruling (and taxing) an unrepresented population bestowed. Frankema and Booth write how this “could only be overcome by force, by reliance on indigenous elites… or by keeping taxes low”. Unevenly combined, these three recourses set colonial Africa and Asia on a divergent fiscal path to the European metropole. This not only shaped their economic development, but partially determined their response to the interwar crisis; and ultimately, the circumstances of decolonisation.
I should clarify what the authors mean by fiscal capacity. Essentially, there are three points of interest: the ratio of revenues and expenditures to GDP, the ‘information-intensity’ of taxation, and the existence/sophistication of public debt. These are associated with modernisation, state formation, and traditionally, long-run economic growth. The first is simple enough - if the data exists, which is sometimes a big if. The second is more complex. I find that often we imagine a progression from indirect taxes (like import duties) towards direct taxes (like income tax) which are more information-intensive but grant a state greater fiscal firepower. But the colonial state complicates this a little. States which could not rely on indirect taxes (due to insufficient foreign trade, for example) often gained most revenue from direct taxes. But these were not sophisticated instruments. A corveé (a tax on labour, in kind), a poll tax, and the incendiary ‘hut tax’ - levied on each indigenous household, irregardless of circumstance - are direct taxes, but represent a lower level of fiscal development than indirect taxation.
The third attribute - the public debt apparatus - is also difficult. Famously, it has been argued (with relative success) that colonial states enjoyed improved borrowing conditions, by virtue of ‘imperial privilege’. The Raj could borrow in London at a lower interest rate than if it had been outside the British Empire. But it is not this simple. Colonial states were often bound by tight fiscal rules, explicitly or implicitly, that their metropole was not. Their domestic financial development may have been stunted by the obligation - or expectation - that they would conduct financial business in and with the metropole. Evaluating advancements in public finance requires more than tracking interest rates. I will not talk about this component further - it is less connected to the social bargain of empire than with the structure of imperial power - but this makes it no less significant.
So how did fiscal capacity develop in the colonial state? As I mentioned, the process is far too uneven for a succinct answer, let alone a crude summary. But I will try anyway. In the beginning of our period, poll and hut taxes were predominant. They were often legacies of pre-colonial regimes, administered indirectly via local elites. While this was the backbone of most colonial fiscal systems, local circumstances still mattered. Indirect taxes became important in areas with flourishing trade, as in British West Africa. If shortages of labour were a concern - such as in the Dutch East Indies - a corveé might be leaned upon. Above all, tax to GDP was extremely low everywhere. That said, none of this was that dissimilar to the situation in Europe at the time.
However, as the nineteenth century gave way to the twentieth there emerged a divergence. While European states, to varying extents, adopted direct taxes a la income and estate duties, in most cases, this would not be translated into their empires. The general movement in the colonial world was towards more reliance on indirect taxes, for rising global trade obviated many dependencies on crude direct taxation. The general level of taxation remained very low, less than 10% of GDP in most cases, even while it rose in Europe. This would have severe consequences come the Great Depression. A reliance on indirect taxes made revenues volatile, as a global trade contraction hit revenues hard. While the Great Depression is usually a very Euro-centric story, fixated on Germany and the United States, the shock was acutely felt in many parts of the colonial world for this reason. In India, the revenue shortfall pushed the state to revive the hated salt tax, which had been wound down over previous years. Gandhi’s ‘declaration of independence’ in 1930 took aim at the tax. His refusal to pay it sparked a movement culminating in the killing of 379 protestors, “among the last nails in the British colonial coffin”.
Generally, raising taxes was extremely fraught for colonial nations. Priority number one was always keeping the social peace which shrouded the brutal facts of imperial rule. This was incompatible with a sophisticated fiscal state that, in Europe at least, was part of a quid pro quo with taxpayers for higher expenditures on social goods and political representation. Fiscal reform that tried to ignore this would inflame the illegitimacy of the colonial state, a risk no administrator or viceroy wanted to take. But making such a deal was also risky. It could ignite the chain of rights and responsibilities that lead only to independence. This self-imposed dilemma paralysed fiscal development.
As I mentioned earlier, Frankema and Booth write that there were only three workarounds to this problem: a light touch via local elites, low taxes, or sheer force. Given the expense of the third, the first and second options found the most favour. In French Indochina, Monserrat López Jerez observes, historical consensus is that the French learnt early on that ‘you do not rule against the elites’. Their federal system, while heavily bureaucratised, did not attempt to undertake the invasive and potentially destabilising surveys direct rule - and direct taxation - would have involved. The British ran a small state in almost all their domains. Low taxes were seen as insurance against rebellion. While tax reform was rammed through in London, the advice to administrators in the colonies was to only introduce and enforce income tax if resistance was not forthcoming.
It is revealing that the only empire which took the third option - brute force - was Portugal. The Portuguese regime in Angola and Mozambique levied taxes relatively heavily, and directly. Corporate and income taxes made a significant contribution to revenues, with resistance brutally put down. Reliance on local elites was similarly overcome. No concessions of representation or a socially-driven fiscal programme were made. And Portuguese rule lasted up until 1975, amongst the latest of any European empire in Africa. But all this was enabled by a state that, in military spending to GDP, dwarfed all other African colonies.
I should not give the impression that no movement towards a modern fiscal state occurred in Asia and Africa during the colonial period - that is not the conclusion of Fiscal Capacity and the Colonial State. No fiscal apparatus was the same in 1960 as it was in 1850. Corveé was almost entirely eliminated by the mid-twentieth century, and income taxes - however regressive - found themselves increasingly commonplace. In some exceptional places, such as South Africa and Japanese Taiwan, the rise in fiscal capacity was stark. But the point of comparison was also moving. By 1960, the information-intense, highly redistributive, and entrenched fiscal states of Europe were a far cry from the largely regressive apparatuses they were - or had recently been - running in their colonies. The capacity for the state to function as such had simply not been invested in. In certain ex-colonies, especially those in Asia like Korea and Taiwan, this would not be an impediment to growth for long (although I haven’t touched on the topic here, explaining this divergence is tackled in Fiscal Capacity and the Colonial State). But in many nations it did. Amongst the various injustices of empire, that “colonial rule bequeathed to African taxpayers a fiscal state that was limited in its reach” is not the most heart-wrenching. But the harm inflicted echoes down into the present.