How to achieve a more compassionate capitalism: look back to medieval Cambridge

by Catherine Casson (University of Manchester), Mark Casson (University of Reading), John Lee (University of York), Katie Phillips (University of Reading)

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How can modern economies reconcile the pursuit of international competitiveness with promotion of the common good? They could learn from the medieval period!

Contrary to popular belief, England in the late thirteenth century had a dynamic economy. Legal advances created a lively property market; cutting-edge technologies improved water management and bridge-building; commodity trade expanded; and towns grew dramatically, both in number and size.

But this was not an early form of individualistic capitalism. Family bonds were strong and community loyalty was intense. Economic ‘winners’ showed compassion for losers, rather than contempt.

Thirteenth-century expansion was not based on a consumer-driven boom. Its focus was on local infrastructure and local wellbeing. City churches were financed by local people to meet the needs of local people. Hospitals cared for the old, the poor and the needy, including special facilities for those affected by disease. Their legacy remains with us today: the most valuable real estate in a modern city is often occupied by medieval churches and hospitals.

Using recently discovered documents and novel statistical techniques, we have analysed the histories of over one thousand properties in medieval Cambridge over this period. Using evidence from the so-called ‘Second Domesday’ – the Hundred Rolls of 1279 – we show how wealth accumulated by successful businesses was recycled back into the community through support for local churches and hospitals and for itinerant preachers based in the town.

Town government was devolved by the king and queen to the mayor and bailiffs, and they encouraged the development of guilds, which promoted cooperation. New professions emerged in response to the growing demand for legal and administrative services.

The business centre of Cambridge shifted south as the town expanded. ‘New wealth’ replaced ‘old wealth’ as a local commercial class replaced Norman aristocrats. But local pride and religious devotion – expressed through high levels of charitable giving – helped spread the economic benefits throughout the town community.

This self-sustaining system was, however, broken in the 1340s by the Black Death, the outbreak of the Hundred Years War and the punitive levels of taxation imposed on towns thereafter. When prosperity returned in the Tudor period, a more ruthless form of capitalism took root, and it is this ruthless form of capitalism whose legacy remains with us today.

France’s Nineteenth Century Wine Crisis: the impact on crime rates

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Street Wine Merchant, France 19th century. From Wikimedia Commons

 

The phylloxera crisis in nineteenth century France destroyed 40% of the country’s vineyards, devastating local economies. According to research by Vincent Bignon, Eve Caroli, and Roberto Galbiati, the negative shock to wine production led to a substantial increase in property crime in the affected regions. But their study, published in the February 2017 issue of the Economic Journal, also finds that there was a significant fall in violent crimes because of the reduction in alcohol consumption.

It has long been debated whether crime responds to economic conditions. In particular, do crime rates increase because of financial crises or major downsizing events in regions heavily specialised in some industries?

Casual observation and statistical evidence suggest that property crimes are more frequent during economic crises. For example, the United Nations Office on Drugs and Crime has claimed that in a sample of 15 countries, theft has sharply increased during the last economic crisis.[1]

These issues are important because crime is also known to have a damaging impact on economic growth by discouraging business and talented workers from settling in regions with high rates of crime. If an economic downturn triggers an increase in the crime rate, it could have long-lasting effects by discouraging recovery.

But since multiple factors can simultaneously affect economic conditions and the propensity to commit crime, identifying a causal effect of economic conditions on crime rates is challenging.

The new research addresses the issue by examining how crime rates were affected by a major economic crisis that massively hit wine production, France’s most iconic industry, in the nineteenth century.

The crisis was triggered by the near microscopic insect named phylloxera vastatrix. It originally lived in North America and did not reach Europe in the era of sailing ships since the transatlantic journey took so long that it had died on arrival.

Steam power provided the greater speed needed for phylloxera to survive the trip and it arrived in France in 1863 on imported US vines. Innocuous in its original ecology, phylloxera proved very destructive for French vineyards by sucking the sap of the vines. Between 1863 and 1890, it destroyed about 40% of them, thus causing a significant loss of GDP.

Because phylloxera took time to spread, not all districts started being hit at the same moment, and because districts differed widely in their ability to grow wines, not all districts were hit equally. The phylloxera crisis is therefore an ideal natural experiment to identify the impact of an economic crisis on crime because it generated exogenous variation in economic activity in 75 French districts.

To show the effect quantitatively, the researchers have collected local administrative data on the evolution of property and violent crime rates, as well as minor offences. They use these data to study whether crime increased significantly after the arrival of phylloxera and the ensuing destruction of the vineyards that it entailed.

The results suggest that the phylloxera crisis caused a substantial increase in property crime rates and a significant decrease in violent crimes. The effect on property crime was driven by the negative income shock induced by the crisis. People coped with the negative income shock by engaging in property crimes. At the same time, the reduction in alcohol consumption induced by the phylloxera crisis had a positive effect on the reduction of violent crimes.

From a policy point of view, these results suggest that crises and downsizing events can have long lasting effects. By showing that the near-disappearance of an industry (in this case only a temporary phenomenon) can trigger long-run negative consequences on local districts through an increasing crime rate, this study underlines that this issue must be high on the policy agenda at times of crises.

 

Summary of the article ‘Stealing to Survive? Crime and Income Shocks in Nineteenth Century France’ by Vincent Bignon, Eve Caroli and Roberto Galbiati. Published in Economic Journal on February 2017

[1] ‘Monitoring the impact of economic crisis on crime’, United Nations Office on Drugs and Crime, 2012. This effect was also noted by the French ‘Observatoire national de la délinquance et des réponses pénales’, when it underlines that burglaries sharply increased in France in the period 2007 to 2012.

From the LSE blogs – Industrial strategy: some lessons from the past

Industrial strategy is back on the government’s agenda, with a promise to produce a ‘match fit’ economy that ‘works for everyone’ and is able to thrive after Brexit. As yet, however, there is little sign of the promised broadly-based and coherent industrial strategy emerging. In crafting it, explains Hugh Pemberton, its architects may profitably look…

via Industrial strategy: some lessons from the past — British Politics and Policy at LSE

Political Institutions Shaping Economic Outcomes: Land Tenures in Colonial Sind 1843-1920

by Tehreem Husain

Interactions of political and economic institutions and their ramifications on development outcomes have been recognised by academics and policymakers alike. This blog analyzes the principal-agent relation between the British coloniser and local landlords and peasants in British Sind during 1843-1920. It argues that changes in political institutions during the period affected economic institutions, which through path dependence persists today.

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Research in the area of comparative institutions and economic development points to the fact that political institutions once in place, persist and shape the political-economic interactions between different groups and agents. Moreover, past institutional frameworks also have a degree of influence on the direction that institutional change takes place (Acemoglu and Robinson, 2008). This has been the case in British Sind (part of Bombay Presidency till 1935) as well. Sind’s primarily agrarian societal structure was based in powerful landlords who held large tracts of land with peasants having little or negligible ownership rights. The institution of land tenures – a term which encompasses rights of land occupancy, land revenue collection and land ownership – did not only impact agricultural productivity and welfare outcomes during the period under study but can still be felt today.

Acemoglu, Johnson and Robinson’s seminal paper on institutions (2005) has highlighted the instrumental role that land tenures and property rights play in determining social outcomes and trajectory of economic growth of a group, region or a nation. This is applicable to British Sind too. During 1843-1920 system and laws regarding land revenue and tenures were taking roots in the region. Overall, three different forms of land tenure systems were introduced in India; landlord-based system (zamindari), an individual cultivator based system (ryotwari), and a village-based system (mahalwari). Selection of a system was mainly defined by the actual or prospective land revenue from an area. The importance of choosing a specific land tenure system and hence extraction of land revenue from a region can be gauged from the fact that by the mid-nineteenth century land revenue contributed more than 50 percent and even seventy years later by 1920 more than 40 percent to the total revenue of British India.

In ensuring smooth collection of land revenue, the governance structure adopted by the British aligned itself to the indigenous societal structure using the local landlords as ‘intermediaries’, usually those who had ‘traditional’ or ‘customary’ authority. The colonial state maintained de jure ‘direct rule’ over the territory however in reality coercion was enforced by intermediate local political elites who operated outside the bureaucratic-rational apparatus of the state (Naseemullah and Staniland, 2014). The local landlord was made powerful firstly by granting them revenue-free lands which were heritable, and secondly, by giving them powers to collect revenue. This was done in exchange of curtailing any political and social resistance against the British. On the other hand, unlike in other parts of India where agricultural tenants had occupancy rights (Swamy, 2011), tenants in Sind would till the land and meet conditions that the landlords may impose on them from time to time without any land-ownership (Hughes, 1876).

Granting local landlords rent free lands and special privileges of land revenue collection fortified the extant hierarchical societal structure and was broadly aimed at establishing and perpetuating British rule through the institution of land tenures. Land revenue and administration records exhibit that 19.5% of land amongst large tracts of land (500 acres or more) had rent-free status in Sind-the highest in the entire Bombay Presidency. Moreover, legislative acts were also passed during this period to ensure that the power and influence the landlords wielded was not undermined.

Interestingly, upon Sind’s annexation to the empire in 1843, the British desired to deal directly with the cultivator and implemented the ryotwari system of land tenures. However, they soon realized the local landlords were wielding enormous authority over the peasants living with little or no land rights. Hence ryotwari system converged closely to a zamindari system; though official records continued to recognize it as the former. Consequently, the utilitarian nature of ryotwari system was destroyed by trading rights of the peasants for achieving political gains.

The approach of granting rent free lands and closely following the zamindari system of land tenures was at odds with the colonial power’s fiscal target of improving public finances from this area for the larger aim of achieving political expediency. The fact that a significant portion (87 percent) of revenue was alienated in Sind relative to rest of Bombay Presidency is evidence of this claim. Moreover, it also impacted agricultural productivity. This can be ascertained from the fact that alienated land had the lowest yield. Colonial records also give evidence to the claim that revenue per acre from alienated land was quite low in Sind and was falling. More importantly, incidence of revenue in non-alienated land was highest in Sind. This shows that the incidence of revenue was primarily on tenants and on small landlords. As much as the analysis of historical land tenure systems in Sind gives insight on how economic institutions were influenced and shaped it also serves as a social premise on Sindi society which to this day has largely been unchanged relative to what it was more than 150 years ago.

Furthermore, comparison of land revenue and administration records from Sind to rest of the Bombay Presidency suggests that the land grants to the landlords in Sind were very pronounced relative to other districts in the Presidency. Overall, analysis of land revenue and administration records from 1843-1920 highlight three aspects of economic history of Bombay Presidency in British India.

First, it argues that the, like in other parts of the colony, British colonizers exploited agency relation to govern Sind and used local landlords as their agents. The interesting part is that they built principle-agent relation by first confiscating the whole area and then making grants of large tracts of heritable rent­-free land to the old rulers and landlords. These land grants were the highest in Sind compared to rest of the Bombay Presidency and reinforced the existing social order through land tenure system. Primary purpose of this approach was to ensure smooth governance in the province.

Second, using land tenures as an instrument to achieve political expediency, they implemented ryotwari land tenure system on paper which, however, in spirit, was more like the zamindari system. This has implications for earlier work on historical land tenures in India (for instance Banerjee, 1985) wherein official records on land tenures have been considered as the practiced one. This needs to be tested for other parts of British India. This impacted agricultural productivity and revenue outcomes.

Third, although land granted as jagirs, inam etc. was done elsewhere in the Bombay Presidency (of which Sind was a part till 1935), this article argues that this was carried out in the harshest form in Sind where the tenant had no occupancy rights unlike elsewhere in the Bombay Presidency. The impact of this was reflected in low agricultural yields from alienated land in Sind relative to the same category elsewhere in the Bombay Presidency. Moreover, these effects are still being felt today and these institutions have permeated through time and shown path dependence. Researchers using data from the latest agricultural census of Pakistan 2010 have shown that inequality in terms of land ownership has increased through time in Sind.

From Immigrant Entrepreneurship – The Business of Migration since 1815

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Millions of American immigrants, who worked in business or started new businesses of their own, also used businesses in order to reach America in the first place. Before the mid nineteenth century advent of the telegraph, railroad and steamship, this migration usually relied on the services of multiple businesses and intermediaries in order to carry out long multi-stage journeys across land and ocean. In the modern “global village,” interconnected by widely available fast air travel, key services needed by international migrants are also generally dispersed across multiple businesses, often related mainly to surmounting and adapting to legal restrictions. In between, during late nineteenth and early twentieth centuries, the business of migration was concentrated mainly on the crossing of the North Atlantic. Mass transatlantic migration then became the core segment of the world’s first major intercontinental travel industry, a business in which large German shipping lines played a leading role. Within a longer term context, this essay emphasizes that middle epoch of commercially-provided physical relocation from Europe to the United States, and also includes a sub-focus on entrepreneurship of German origin.

Read full article here: http://immigrantentrepreneurship.org/entry.php?rec=281

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Repost – Gentlemen and capitalism: some questions

by Dave Postles, University of Hertfordshire

Consequent upon Wiener’s and Rubinstein’s research respectively into culture and industrial capital and ‘men of wealth’, Cain et al. embarked upon the elucidation of ‘gentlemanly capitalism’, which has become a paradigm of English entrepreneurship, status and the performance of the economy.(1) Perhaps, however, we can illustrate a dichotomy by reference to contemporary literature and ethnographic writing. Ostensibly, Henry Wilcox represents this ethos of gentlemanly capitalism, although his company is a commercial enterprise rather than industrial. We should recollect, however, that, although he purchased the Onibury estate (Clun, Shropshire), he really was not enamoured of the countryside, visited the estate rarely, and abandoned it when an unpleasant incident occurred there. Nor was he especially attracted to his wife’s Howards End. His countenance of both arose from expectations of status and family rather than a desire to enjoy the lifestyle of the country elite. His natural environment was the City.(2) In contrast, Jack London excoriated the 400,000 gentlemen in the 1881 census, ‘of no occupation’ and ‘unprofitable’.(3) Such a number could not have been composed of either retired industrialists or ‘men of wealth’.

Read the full article here: http://davelinux.info/wordpress/?p=32b1bb2b9a79a7a81b8033e6a9e8a9fd33

 

From VOX – Service labour market: The engine of growth and inequality

Economic historians tend to explain US geographical development gaps in terms of industrialisation. But by the end of the 20th century, the richest counties had become specialised in services, rather than in manufacturing. This column evaluates how the service economy triggered this evident contrast between the urban and rural US. Market size causes localisation of non-agricultural activity, with the effect being stronger for services, especially knowledge services. Local policymakers can thus foster growth by attracting high-skilled workers to a region, with the multiplier effect eventually increasing the local market.

by Alexandra Lopez-Cermeño, 12 July 2015

Article here:

http://voxeu.org/article/service-labour-market-engine-growth-and-inequality

 

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From VOX – Comparative advantage in manufacturing: A look back at the late Victorian ‘workshop of the world’

Modern discussions about a country’s ‘decline in manufacturing’ are seldom meaningful. Such talk of industrialisation and deindustrialisation across the entire sector tends to ignore important variation across individual industries. This column draws lessons from the revealed comparative advantage of late-Victorian Britain – the ‘workshop of the world’. Advantage lay mainly in industries that were relatively…

via The late Victorian ‘workshop of the world’ — VoxEU.org: Recent Articles