+ - 0:00:00
Notes for current slide
Notes for next slide

5.3 — The Path to Liberal Democracy

ECON 317 • Economic Development • Fall 2021

Ryan Safner
Assistant Professor of Economics
safner@hood.edu
ryansafner/devF21
devF21.classes.ryansafner.com

North, Wallis, Weingast's Doorstep Conditions

  • How can we get from natural states that benefit the elite to open access orders (that might harm elites?)

  • We saw plausible stories about how feudal societies transitioned to mercantilist societies

    • mercantilist societies are still natural states/limited access orders

  • How did some countries transition further to open-access orders or liberal democracies?

  • Again, it must be in the interest of the elite to reform

North, Wallis, Weingast's Doorstep Conditions

  • North, Wallis, and Weingast (NWW) have three "Doorstep Conditions" to reach the possibility (not guarantee!) of attaining an Open Access Order:

  1. Rule of law for elites

  2. Perpetually-lived organizations (public and private) for the elite, including the State itself

  3. Consolidation of military control under civilian leadership

1. Rule of Law for Elites I

  • In a natural state, rule of law is impossible, law and politics is personal, partial, patronage network

  • Elites have privileges and rents (lands, titles, etc) based on the price of their loyalty (ability to rebel or threaten violence)

  • Equilibrium: dominant coalition of elites respects one another's privileges in proportion to their power

  • Dynamic: as relative power distribution changes, privileges are added or revoked to groups that gain/lose power

1. Rule of Law for Elites II

  • If most elites enjoy similar privileges (e.g. trial by jury, secure property rights, inheritance), in their common interest to protect against arbitrary infringements to any elite member

  • Convert (elite) privileges into rights that cannot be infringed by other elites or the King

  • Elites must be able to coordinate a response against infringers (often the King)

    • "An attack on one is an attack on all"
    • Allows King to credibly commit to respecting rights (if he knows he will be resisted by all powerful groups)

2. Perpetual Organizations I

  • Elites must be able to create organizations outside the State

  • Organizations must exist as entities separate from individual members ("perpetual") and be capable of bearing legal rights and responsibilities ("legal persons")

  • Relationships must transform from personal patronage to impersonal contracts

    • The office must become more important than officeholder!

2. Perpetual Organizations II

"L'etat c'est moi!"

  • "The State" must become a perpetual organization separate from the individual ruler(s)

  • A mortal State cannot make credibly commitments!

    • What if future king disagrees with a previous king's policy?
    • What if the same king changes his mind in the future?

  • King must not be above or equal to the law, but be bound by it

2. Perpetual Organizations III

  • Movement from (e.g.) "King Henry VIII" to "The Crown"

  • The king's "two bodies": "corporeal" (the individual officeholder) and "corporate" (the office itself as an institution)

  • An individual king cannot alienate or alter features of The Crown

  • Elites can collectively manage and defend The Crown against a renegade king!

2. Perpetual Organizations IV

  • Elites must be able to form their own "corporate" organizations that

    • can exist separate from individuals
    • have its own privileges and obligations

  • At first: chartered monopolies for production, exploration, and colonization

3. Consolidation of Military Control I

  • Key to equilibrium in Natural State: groups of armed elites with own private armies balance one another with mutual threats

    • "successful societies wage peace"

  • A State is a monopoly on the legitimate use of violence within a territory

  • Need to move from elites with private armies (an oligopoly on violence) to a monopoly where the State controls "the" military

    • Requires rule of law and perpetual organizations!

3. Consolidation of Military Control II

  • Elites must have rule of law protecting their rights

    • free from threat of arbitrary military attack, harassment by the State
    • only then does it make sense for them to disarm their private armies

  • Elites need access to form orgs to specialize in non-military production (e.g. trade, business)

  • State & military as perpetual organizations separate from personality of whomever is in charge

  • Decisions about how to use military (funding, objectives, etc) decided outside of the military ("civilian control")

    • military specializes in tactics and execution of civilian-determined goals

First Semblance of Market Economy & IR

  • Industrial Revolution generally agreed to be somewhere between 1750-1850 in Britain

    • many inventions
    • technology and capital augmenting labor
    • centralized, factory mode of production, joint-stock companies
    • takes a long time for these inventions to show up as wage and income growth!
    • major political institutional changes

  • Countries that develop institutions capable of free markets and industrial revolution:

    • The Netherlands (17th Century)
    • Britain1 (18th-19th Centuries)

Why Not France? I

  • "France" a country in name only in 15th century

    • King's domain small compared to patchwork of powerful Dukes, etc.

  • Hundred Years War with England (1337-1453)

    • Civil war within French Armagnacs/Valois and Burgundians
    • Charles VII the Victorious famously turns the tide and centralizes power with his standing army

France during the Hundred Years War (1415)

Why Not France? II

  • Absolutist France most powerful country in Europe for centuries - could have been an economic powerhouse

  • King sold offices and monopolies as primary source of revenue

    • tax farming very popular for King

  • Regions remained isolated under local lords with their own taxes, tariffs, and privileges restricting internal French trade

  • France a near autarkic nation full of internal tariffs, tolls, regulations, and superfluos bureaucrats

    • Access to markets required privileges
    • 90% of all French wine produced was consumed in France

Why Not France? III

  • Well after Industrial Revolution in Britain, which has taken the lead

  • Not until French Revolution (1789-1799):

  • Revolutionaries overthrow the Ancien regime, abolish feudal hierarchy and traditions

  • New republican government aims to rebuild all social institutions from scratch via positivist science

  • la Terreur

Why Not France? III

  • Napoleon siezes control from infighting of republican groups

  • Universalizes and standardizes French language, law (Code Napoléon), customs, military under central State control

Why Not France? IV

Why Not France? V

  • "Exports" the French Revolution throughout Europe via military conquest

  • Ironically, Napoleonic conquest overthrew feudalism and rent-seeking lords in conquered territories - had long lasting good effects in these countries!

    • Institutional reform and change towards more inclusive institutions

Acemoglu, Daron, David Cantoni, Simon Johnson, and James A Robinson, 2011, "The Consequences of Radical Reform: The French Revolution," American Economic Review 101: 3286-3307

Why Not Spain? I

  • Iberian Peninsula reclaimed from Muslim Moors in Reconquista (711-1492)

  • Like France: monopoly of military & taxation gained by Crown fighting against external threat

  • "Spain" is a patchwork of different regions and cultures colonized and dominated by Castille ("Spanish" is truly Castellano)

    • Some regions (e.g. Catalonia, Basque) discriminated against and isolated with trade barriers, oppression

North and Thomas, (1986), *The Rise of the Western World: A New Economic History, Ch. 10

Why Not Spain? II

  • More importantly, Spain has a vast colonial empire, that is directly controlled by the monarchy

  • A vast source of treasure (gold, silver) coming in from colonies

    • No reason to invest in fiscal capacity (regular taxation, bureaucracy, administration) at home!

  • But running the world's largest empire is expensive

    • Not to mention the inflation from all that gold and silver incoming!

  • The fate of Spain is tied to the fate of its colonies

    • During bad times, monarchy arbitrarily confiscated property and privileges

North and Thomas, (1986), *The Rise of the Western World: A New Economic History, Ch. 110

The Netherlands I

  • "The Low Countries" A small collection of marshland and key trading cities

    • Amsterdam, Rotterdam, Utrecht, Antwerp, Ghent, Bruges, Brussels, Luxembourg1

  • Perhaps the richest region in Europe

    • The crown jewel of the Habsburg Spanish Empire

North and Thomas, (1986), *The Rise of the Western World: A New Economic History, Ch. 11

The Netherlands II

  • A small region with few resources and marginal land
    • Mostly swampland, poor suitability for agriculture

"God created the earth, but the Dutch created the Netherlands"

  • Unprofitable agriculture for landowners, few vassals or serfs renting land

  • Reclaiming land, draining marshes, polders

    • Very capital-intensive projects
    • Require secure property rights, financial markets, secure returns to investment

North and Thomas, (1986), *The Rise of the Western World: A New Economic History, Ch. 11

The Netherlands III

  • Grew wealthy from efficient economic organization and international trade

  • Trading cities, entrepot trading hubs for Northern Europe

    • Focus almost entirely on open international trade
    • regional specialization in textile manufacturing and export

  • Becomes world renowned source of art, culture, science, innovation

North and Thomas, (1986), *The Rise of the Western World: A New Economic History, Ch. 11

The Netherlands IV

  • Dutch East India Company (1602)

    • openly tradeable shares of stock in company

  • Bank of Amsterdam (1609)

    • world's first central bank

  • Amsterdam "price current" tracked market prices like financial newspaper

  • Efficient capital markets: stock exchange, short and long term debt and credit

    • largely privately-organized

Stringham, Edward, (2003), "The Extralegal Development of Securities Trading in Seventeenth-Century Amsterdam," Quarterly Review of Economics and Finance 43: 321-344

North and Thomas, (1986), *The Rise of the Western World: A New Economic History, Ch. 11

The Netherlands V

  • (Northern) Netherlands are heavily Protestant

  • Oppression by Catholic Imperial Spain (Phillip II)

    • arbitrary rules that intervene with trade
    • heavy taxation
    • considered the backwater of the Spanish Empire (despite being the wealthiest "colony")

  • 17 Provinces revolt under William of Orange (the Silent)

    • Right painting: Phillip II of Spain berating William the Silent Prince of Orange by Cornelis Kruseman (1832)

North and Thomas, (1986), *The Rise of the Western World: A New Economic History, Ch. 11

The Netherlands V

  • Eighty Years War (1568-1648): provinces form the Union of Utrecht and declare independence as the Netherlands

  • Small country with efficient credit markets that can out-finance a war against the greatest Empire in the world

  • 1648 Peace of Munster (simultaneous with Peace of Westphalia) recognizes independent Netherlands

  • Southern provinces (Catholic) don't join -- Belgium, Luxembourg

  • Become a dominant global power (gain colonies, dominate trade, etc) until Britain takes over

North and Thomas, (1986), *The Rise of the Western World: A New Economic History, Ch. 11

England I

  • Long history of struggles and warfare between nobility and a weak crown desperate for revenue

  • 1215/1225 Magna Carta

  • 1264-1267 Second Baron's War: Simon de Montfort's rebellion against Henry III establishes Parliament

  • Kings are forced to recognize rights and privileges of nobles

    • trial by jury
    • right of revolution?
    • impartial justice
    • consent for taxation

North and Thomas, (1986), *The Rise of the Western World: A New Economic History, Ch. 11

England II

  • Constant pressure internally and externally, King desperate for revenues

    • Hundred Years War vs. France (1337-1453)
    • Wars of the Roses (1455-1487)

  • Powerful kings (Edward I, Henry VII, Henry VIII) recognize they can get more of what they want if they ask nicely (via Parliament)

  • Parliament represents the lords (laity and clergy, all large landowners) and the commons (lesser gentry, towns)

    • But constituencies are fixed for centuries
    • No representation in towns where industrial revolution would occur!

North and Thomas, (1986), *The Rise of the Western World: A New Economic History, Ch. 12

England III

  • The 17th century turning point

  • Growing merchant elite disgruntled with Stuart kings' monopolies, arbitrary justice, forced loans, restriction of speech

  • Parliament passes 1623 of Monopolies

    • removes Crown's ability to grant letters patent to cronies
    • Parliament gains authority to grant limited patents for novel and non-obvious inventions

  • View emerging among both nobles (Tories) and merchants (Whigs) that the Crown is not above the law

North and Thomas, (1986), *The Rise of the Western World: A New Economic History, Ch. 12

England IV

King Charles storms the House of Commons (Jan 4, 1642) in Cromwell (1970)

England V

  • Charles I's behavior pushes country into the English Civil War(s) (1642-1651)

  • Parliamentarians vs. Royalists

    • most Parliamentarians are merchants and lesser gentry ("Whigs")
    • also religious dissidents
    • most Royalists are nobles and landowning aristocracy ("Tories")

  • Parliamentarians win, try and execute Charles I for high treason

  • Brief dictatorship under Oliver Cromwell (1649-1660)

  • Restoration of the monarchy under King Charles II (1660+)

The Trial of Charles Stuart, King of England

North and Thomas, (1986), *The Rise of the Western World: A New Economic History, Ch. 12

England VI

  • Openly-Catholic James II comes to throne

  • Previous Stuart kings were smart enough to play factions off against one another

  • James II manages to anger both the Whigs and the Tories who unite against him

James II of England

North and Thomas, (1986), *The Rise of the Western World: A New Economic History, Ch. 12

England VII

  • James II is ousted in a coup, the "Glorious Revolution" 1688-1689

  • Parliament makes a deal with William of Orange (Netherlands) to co-reign with Mary (Protestant daughter of James II)

  • Establishes Parliamentary sovereignty and a constitutionally-limited monarchy

    • credibly commits (from past actions) to oust the monarch if s/he acts without Parliament's consent

  • English Bill of Rights 1689

    • right of regular parliaments, free elections, freedom of speech, confirms habeaus corpus, taxation with consent
    • again, these are rights for Parliament, for the elite

William and Mary

North and Thomas, (1986), *The Rise of the Western World: A New Economic History, Ch. 12

England VIII

  • English Bill of Rights 1689
    • right of regular parliaments, free elections, freedom of speech, confirms habeaus corpus, taxation with consent
    • again, these are rights for Parliament, for the elite

North and Thomas, (1986), *The Rise of the Western World: A New Economic History, Ch. 12

William and Mary

England IX

  • Major effects of the Glorious Revolution

    • Parliament made a perpetual organization and source of lawmaking and taxation power

  • Credible commitment: Parliament can commit to always pay State debts via taxes

    • No more arbitrary will of the Crown
    • Credit to England goes from 5% of GDP to 40% of GDP
    • Interest rates plummet

  • Creates an enormous rise in State capacity and tax revenue as a percent of GDP compared to anywhere in the world

William and Mary

North, Douglass C and Barry R Weingast, (1989), "Constitutions and Commitment: The Evolution of Institutions Governing Public Choice in Seventeenth-Century England," Journal of Economic History 49(4): 803-832

England X

  • Liberal attitudes forged in the 17th Century turmoil and oppression

    • freedom of speech, press, trial by jury, habeas corpus

  • The "English Constitution" creates a government to protect rights

  • England is not yet an open access order!

  • Act of Settlement 1701: personal union with Scotland, becomes United Kingdom of Great Britain

A meeting of the anti-slavery society

North, Douglass C and Barry R Weingast, (1989), "Constitutions and Commitment: The Evolution of Institutions Governing Public Choice in Seventeenth-Century England," Journal of Economic History 49(4): 803-832

Britain I

  • Parliament had elections, but not competitive, full of "rotten boroughs"

  • 1760s-1850s: Industrial Revolution taking off in Manchester, Liverpool, Lancaster

    • but these places are not represented in Parliament!
    • still dominated by large landowners

  • 1832 Great Reform Act

    • Seats of rotten boroughs redistributed to new commercial cities
    • Began registration of voters and extending the franchise

House of Commons during Great Reform Act

Britain II

  • Great Reform Acts were in the interest of intra-elite bargaining amidst a natural state

  • Elite continues to expand definition of who counts as elite and deserving of rights

  • Unintended consequences:

    • leads to competitive elections, mass political parties, participatory democracy
    • Selectorate (and winning coalition) expands: need more public goods and less private rents for political support!

  • Slavery Abolition Act (1833)

  • Further Reform Acts in 1867, 1884, 1918, 1928

    • extend franchise to working class, counties (instead of just towns), all men, then all women

House of Commons during Great Reform Act

Britain III

  • The Corn Laws were tariffs to prevent importation of "corn" (grains)
    • rising population in Britain, once a grain-exporter, now an importer
    • tariffs create enormous benefit by propping up aristocratic landowners

Britain IV

  • Corn Laws became a huge political issue in England in 1830s-1840s

  • Industralization, rising population, but rising price of bread

  • Great Famine in Ireland 1845-1849

  • Radical liberals Richard Cobden & John Bright create the Anti-Corn Law League 1838

    • large rallies, major riots in London
    • Classical economiests (especially Ricardo and Bastiat) wrote vehemently against Corn Laws

A Meeting of the Anti-Corn Law League

Britain V

Richard Cobden

1804-1865

"[Repealing the Corn laws would solve four problems.] First, it would guarantee the prosperity of the manufacturer by affording him outlets for his products. Second, it would relieve the Condition of England question by cheapening the price of food and ensuring more regular employment. Third, it would make English agriculture more efficient by stimulating demand for its products in urban and industrial areas. Fourth, it would introduce through mutually advantageous international trade a new era of international fellowship and peace. The only barrier to these four beneficent solutions was the ignorant self-interest of the landlords, the "bread-taxing oligarchy, unprincipled, unfeeling, rapacious and plundering."

Britain VI

Robert Peel

1788-1850

  • Tory Robert Peel becomes P.M. 1841-1846

  • Repeals the Corn Laws in 1846

    • ruins his political career
    • splits the Tory Party into the Whigs; radicals leave and become the Liberal Party

  • Price of corn plummets

    • working classes can now afford food, more shift from farms to factories
    • last vestiges of feudal privileges eroding
    • transition to Open Access Order

Britain VI

  • Tory Robert Peel becomes P.M. 1841-1846

  • Repeals the Corn Laws in 1846

    • ruins his political career
    • splits the Tory Party into the Whigs; radicals leave and become the Liberal Party

  • Price of corn plummets

    • working classes can now afford food, more shift from farms to factories
    • last vestiges of feudal privileges eroding
    • transition to Open Access Order

North, Wallis, Weingast's Doorstep Conditions

  • How can we get from natural states that benefit the elite to open access orders (that might harm elites?)

  • We saw plausible stories about how feudal societies transitioned to mercantilist societies

    • mercantilist societies are still natural states/limited access orders

  • How did some countries transition further to open-access orders or liberal democracies?

  • Again, it must be in the interest of the elite to reform

Paused

Help

Keyboard shortcuts

↑, ←, Pg Up, k Go to previous slide
↓, →, Pg Dn, Space, j Go to next slide
Home Go to first slide
End Go to last slide
Number + Return Go to specific slide
b / m / f Toggle blackout / mirrored / fullscreen mode
c Clone slideshow
p Toggle presenter mode
t Restart the presentation timer
?, h Toggle this help
oTile View: Overview of Slides
Esc Back to slideshow