Social science research has long associated successful government with what Max Weber called rational-legal authority: government based on formal rules and staffed by salaried, professionally trained civil servants selected on merit. But Weberian governments are expensive. Historically, most governments did not have the fiscal resources necessary to sustain such a bureaucracy. England, for example, collected tax revenues of only around 10% of national income as the Industrial Revolution began, yet was able to govern its cities and villages extensively. How?
In this paper, the authors advance the hypothesis that governments with limited revenues are able to provide public goods and services by exploiting the fact that they are embedded in society – an Embedded State: a system of government in which the state draws on social incentives, such as status, prestige, career opportunities, flexibility, and autonomy, to attract individuals to perform public services without pay . This allows them to harness notions of status, prestige and social obligation to provide non-monetary incentives for people, often elites, to undertake administrative tasks and provide public services. They can also use career incentives and provide steppingstones to positions that are renumerated.
The authors study this question in historical England, where most public services were delivered through local government. Their analysis draws on the 1835 Municipal Corporations Report, a systematic investigation of English municipal boroughs (self-governing towns) that records government positions, whether they were salaried, the public services for which they were responsible, along with assessments of how well the borough delivered those services. The scale of unpaid government work was substantial. While the English central state employed about 21,000 people in 1835, the authors estimate that local governments employed or relied on at least 148,000 people. Nearly 95% of local government positions did not receive a salary.
The authors find that:
• Unpaid positions perform better than paid positions. After accounting for differences in borough, task, geography, and position title, unpaid positions perform 12 percentage points better than paid positions, about 20% relative to average performance.
• The result holds when the authors account for boroughs’ predetermined ability to pay. One concern is that boroughs might have withheld pay strategically. To address this concern, the authors exploit the fact that borough income largely came from rents on historically inherited assets. Comparing borough income with prevailing wages, the authors estimate which positions boroughs could afford to pay. Positions that were predicted to be unaffordable also performed better.
• Unpaid positions provide stronger nonmonetary incentives. They tended to be more prestigious, more likely to serve as stepping-stones to other positions, offered greater flexibility, and were less likely to involve oversight.
• Unpaid positions attract the social elite. The authors find that the types of people who take unpaid positions help explain why these positions perform better.
These results reveal two distinct models of government organization. In a Weberian State: a model of government based on rational-legal authority, characterized by meritocratic recruitment and salaried, professionally trained civil servants who implement policy impartially , officials are paid and motivated by salary and formal professional responsibilities. In the alternative model, unpaid officials are instead motivated by benefits such as prestige and career opportunities. The authors also show that incentives could be created further by giving the unpaid autonomy and greater task flexibility. Because this model relies on social incentives to attract people into public service, the authors call it the Embedded State.