Family Structure, Institutions, and Growth: The Origins and Implications of Western Corporations

There is a vast amount of literature that considers the importance of the family as an institution. Little attention, however, has been given to the impact of the family structure and its dynamics on institutions. This limits our ability to understand distinct institutional developments—and hence growth—in the past and present. This paper supports this argument by highlighting the importance of the European family structure in one of the most fundamental institutional changes in history and reflects on its growth-related implications. What constituted this change was the emergence of the economic and political corporations in late medieval Europe. Corporations are defined as consistent with their historical meaning: intentionally created, voluntary, interest-based, and self-governed permanent associations. Guilds, fraternities, universities, communes, and city-states are some of the corporations that have historically dominated Europe; businesses and professional associations, business corporations, universities, consumer groups, counties, republics, and democracies are examples of corporations in modern societies. The provision of corporation-based institutions to mitigate problems of cooperation and conflict constituted a break from the ways in which institutions had been provided in the past. Historically, large kinship groups—such as clans, lineages, and tribes—often secured the lives and property of their members and provided them with social safety nets. Institutions were also often provided by states and governed by customary or authoritarian rulers and by religious authorities. Private-order, usually undesigned, institutions also prevailed. Corporation-based institutions can substitute for institutions provided in these ways. When they substitute for kinship groups and provide social safety nets, corporations complement the nuclear family. An individual stands to gain less from belonging to a large kinship group, while the nuclear family structure increases its gains from membership in such a corporation. In tracing the origins of the European corporations, we focus on their complementarity with the nuclear family. We present the reasons for the decline of kinship groups in medieval Europe and why the resulting nuclear family structure, along with other factors, led to corporations. European economic growth in the late medieval period was based on an unprecedented institutional complex of corporations and nuclear families, which, interestingly, still characterizes the West. More generally, European history suggests that this complex was conducive to long-term growth, although we know little about why this was the case or why it is difficult to transplant this complex to other societies. We draw on Greif (2006); due to space limitation, most references were omitted. For complete references, see www.ssrn.com.