Self-enforcing Political System and Economic Growth: Late Medieval Genoa

This paper presents a micro-level historical and theoretical analysis of Genoa's economic and political history during the twelfth and thirteenth century by examining the factors influencing the extent to which its political system was self-enforcing and their change over time. It combines narrative and theoretical analysis to resolve questions that can not be resolved by either narrative or theory alone. Although the Genoese Commune was voluntarily established in the hope to gain from economic and political cooperation, sustaining its self-enforcing nature constrained such cooperation. Cooperation was thus determined by the magnitude of factors, such as external military threat that relaxed this constraint. It took a century before learning and the increasing cost of non-cooperation induced organizational innovation that enhanced economic growth and political order by fostering the extent to which Genoa was a self-enforcing political system irrespectively of external threat. * The author gratefully acknowledges the support of the National Science Foundation Grants #9009598-01 and 9223974, and the Center for Institutional Reform and the Informal Sector at the University of Maryland at College Park. I have benefitted from the comments of Jim Alt, Masa Aoki, Bob Bates, Margaret Levi, Paul Milgrom, Boaz Moselle, Jean-Laurent Rosenthal, Barry Weingast and participants of a joint Harvard and MIT economic history/development seminar, all-department seminar in Tel Aviv University, all-department seminar at Northwestern University, and the Social Science History Workshop in Stanford. Some of the ideas expressed in this paper were formulated while I was a Fellow at the Center for Advanced Study in the Behavioral Sciences, Stanford, CA, whose kind hospitality greatly facilitated this study. The usual caveats apply. As always, Debbie Johnston provided effective and indispensable assistance. 1 For a more detailed exposition of the historical and theoretical issues discussed in this paper, see Greif (1998). 2 Introduction This study investigates empirically and theoretically the factors influencing the extent to which a political system is self-enforcing, their implications, and endogenous alteration. These factors determine the extent to which the political actors follow the rules of political conduct rather than ignoring them and resort to other means, such as violence to advance their objectives. Comprehending these factors is thus crucial for analyzing issues such as political order and disorder, states' formation, states' capacity to mobilize resources to advance their political and economic goals, and, hence, their political and economic performance. Specifically, the analysis concentrates on the self-enforcing political system of the commune of Genoa during the late medieval period. Since this city, by the end of the thirteenth century was, among the Italian maritime cities, a naval and commercial power second at most to Venice a better understanding of its commercial and political rise is also of interest for its own sake. The paper examines the importance of various factors such as the nature of the economic system, military strength of various social groups, external military threats, and political rules in determining the extent to which Genoa's political system was self-enforcing. It highlights the importance of these factors in influencing Genoa’s political and economic history. This was the case even when political order prevailed as the extent to which Genoa’s political system was selfenforcing determined the degree to which Genoa was able to mobilize the resources required to advance its economy. At the same time, the extent to which Genoa's political system was selfenforcing depended on the degree to which its economic system provided appropriate economic foundations. In Genoa, economic growth would have eroded, rather than enhanced, the economic foundations of Genoa's self-enforcing political system. For a while, external threat endangering Genoa provided a political foundations better suitable for economic development. This development, however, implied the collapse of political order when that external threat subsided. It was the later adoption of particular set of self-enforcing political rules that enabled the Genoese to break the link between the extent to which Genoa's political system was self-enforcing, external threats, and economic development. Following a long process of learning and experimentation and taking advantage of a particular historical situation, the Genoese altered their self-enforcing political system in a manner that enhanced political order and enabled the state to mobilize the resources required for economic growth. The particular historical period examined in this study is of interest to economists and