The result was a precociously unified and homogenous polity

Wednesday, January 18th, 2023

Davis Kedrosky explains how institutional reforms built the British Empire:

In 1300, few English institutions actively promoted economic growth. The vast majority of the rural population was composed of unfree peasants bonded either to feudal lords or plots of land. Urban artisans were organized in guilds that regulated who could enter trades like glassblowing, leatherwork, and blacksmithing.

The English state was in turmoil following a century of conflict between Parliament and the Crown, and though nominally strong, it was deficient in fiscal capacity and infrastructural power. The regime lacked both the will and the means to pursue national development aims: integrating domestic markets, acquiring foreign export zones, securing private property, and encouraging innovation, entrepreneurship, and investment. England resembled what has been called a “natural state,” in which violence between factions determined the character of governance. Institutions pushed the meager spoils of an impoverished land into the pockets of rentiers.

By 1800, all this had changed. Britain’s rural life was characterized by agrarian capitalism, in which tenant farmers rented land from landowners and employed free wage labor, incentivizing investment and experimentation with new crops and methods. The preceding two centuries had seen the waning of the guilds, which now served more as organizations for social networking. Elites that had mostly earned their income by collecting taxes were now engaging in commercial enterprises themselves.

The state was now better-financed than any before in history, thanks to an effective tax administration and the ability to contract a mountain of public debt at modest interest rates. This allowed Britain to fund the world’s strongest navy to defend its interests from New York to Calcutta. The British government also intervened frequently in economic life, from enclosure acts to estate bills, and had limited its absolutist and rentier tendencies through the establishment of a strong parliament and professional bureaucracy.

Mark Koyama called the five centuries of institutional evolution the “long transition from a natural state to a liberal economic order.” The state capacity Britain built up during this early modern period went side by side with its emergence as a major commercial power and, within a few years, the first nation to endogenously achieve modern economic growth. Twenty-first-century economists increasingly deem institutions an “ultimate cause” of industrial development. The differences between North and South Korea, for example, are not the result of geographical disparities or long-standing cultural cleavages on either side of the 38th parallel. While it’s not exactly clear which kinds of institutions cause growth, it’s pretty obvious that some sorts inhibit it, if not stifle it altogether. The story of Britain’s rise to global power, then, is also the story of a 500-year-long transformation that saw institutional changes to law, property ownership, the organization of labor, and eventually the makeup of the British elite itself.

In his 1982 book The Rise and Decline of Nations, Mancur Olson argued that societies are engulfed in a perpetual struggle between producers and rent-seekers. The former invent and start businesses, increasing the national income; the latter try to profit off of the producers’ hard work by lobbying for special privileges like monopolies and tax farms. In contrast to Douglass North, who emphasized the importance of secure property rights for economic growth, Olson distinguished between good and bad forms. Bad property rights entitled a specific group to subsidies or protections that imposed costs on consumers and inhibited growth—like, say, a local monopoly on woolen cloth weaving allowing a guild to suppress machinery in favor of labor-intensive hand labor, lowering productivity and output.

Backed by its elite commercial and landed classes, the English and eventually British state came to favor the removal of the barriers to growth that had plagued most pre-modern economies. “Peace and easy taxes,” contra Smith, isn’t a sufficient condition for endogenous development, but its inverse—domestic chaos and rent-seeking—may be sufficient for its absence. But Britain’s real achievement was that its elite class, over time, began to align themselves with market liberalization. In France, by contrast, the nobility and king were constantly at odds, and the monarchy actually supported strong peasant tenures in opposition to large landowners. The pre-1914 Russian Empire would do the same thing.

Applying Olson’s framework to the seventeenth century, what we see is a decline of “rent-seeking distributional coalitions” like guilds, which helps to explain England’s “invention” of modern economic growth. “The success of the British experiment,” write the economists Joel Mokyr and John Nye,

was the result of the emergence of a progressive oligarchic regime that divided the surpluses generated by the new economy between the large landholders and the newly rising businessmen, and that tied both groups to a centralized government structure that promoted uniform rules and regulations at the expense of inefficient relics of an economic ancient regime.

Mokyr and Nye theorize that the state’s demand for revenues led it to strike a bargain with mercantile elites: if you pay taxes, you can use our ships and guns. This was the basis of a grand alliance between “Big Land” and “Big Commerce” who used the government as a broom to sweep away local interests. It manifested in projects like the Virginia Company, whose investors involved both the nobility and mercantile venture capitalists.

Parliament was the instrument for fulfilling the pact, issuing a raft of legislation altering local property rights to open up markets throughout the 1700s. Estate acts, for example, allowed landowners to improve, sell, and lease their plots. Statutory authorities permitted private organizations to set up turnpikes and canals, helping to unify the English market. This allowed firms to increase production, exploit economies of scale, and compete with local artisans. Enclosure acts, meanwhile, provided for the transformation of open-field farming communities, in which decisions were made at the village level, into fully private property.

The origins of this process, however, are deeper than Mokyr and Nye suggest. The development of a national state began soon after the Norman invasion of 1066. William the Conqueror replaced the Anglo-Saxon aristocracy with a Norman one, redistributing the country’s lands to his soldiers and generating a mostly uniform feudal society. The result was a precociously unified and homogenous polity—as opposed to France, which grew by absorbing linguistically distinct territories. English kings who were seeking to fund domestic or military projects called councils with individuals, usually the great barons of the nobility, whose cooperation and money they needed. With the waxing of the late medieval “commercial revolution,” they eventually included representatives of the ports, merchants, and Jewish financiers. Kings would make “contracts” with these factions—often customary restrictions on arbitrary taxation or the granting of other privileges—in exchange for resources. These councils later became Parliament.


  1. Bomag says:

    Ehhhh,seems you need a people capable of implementing these fancy ideas.

    We breezed into Iraq and set up similar institutions, then congratulated ourselves on how wonderful Iraq was going to be. Looks like some variables overrode the expected results.

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