kottke.org posts about Guns Germs and Steel

Is the US becoming an extractive state?Oct 22 2012

Following up on her piece in the New Yorker on how hedge fund billionaires have become disillusioned with President Obama, Chrystia Freeland says that the 1% are repeating a mistake made many times throughout history of moving from an inclusive economic system to an extractive one.

Extractive states are controlled by ruling elites whose objective is to extract as much wealth as they can from the rest of society. Inclusive states give everyone access to economic opportunity; often, greater inclusiveness creates more prosperity, which creates an incentive for ever greater inclusiveness.

Freeland is riffing on an argument forwarded by Daron Acemoglu and James Robinson in Why Nations Fail. Their chief example cited by Freeland is that of Venice:

In the early 14th century, Venice was one of the richest cities in Europe. At the heart of its economy was the colleganza, a basic form of joint-stock company created to finance a single trade expedition. The brilliance of the colleganza was that it opened the economy to new entrants, allowing risk-taking entrepreneurs to share in the financial upside with the established businessmen who financed their merchant voyages.

Venice's elites were the chief beneficiaries. Like all open economies, theirs was turbulent. Today, we think of social mobility as a good thing. But if you are on top, mobility also means competition. In 1315, when the Venetian city-state was at the height of its economic powers, the upper class acted to lock in its privileges, putting a formal stop to social mobility with the publication of the Libro d'Oro, or Book of Gold, an official register of the nobility. If you weren't on it, you couldn't join the ruling oligarchy.

The political shift, which had begun nearly two decades earlier, was so striking a change that the Venetians gave it a name: La Serrata, or the closure. It wasn't long before the political Serrata became an economic one, too. Under the control of the oligarchs, Venice gradually cut off commercial opportunities for new entrants. Eventually, the colleganza was banned. The reigning elites were acting in their immediate self-interest, but in the longer term, La Serrata was the beginning of the end for them, and for Venetian prosperity more generally. By 1500, Venice's population was smaller than it had been in 1330. In the 17th and 18th centuries, as the rest of Europe grew, the city continued to shrink.

BTW, Acemoglu and Robinson have been going back and forth with Jared Diamond about the latter's geographical hypothesis for national differences in prosperity forwarded in Guns, Germs, and Steel. I read 36% of Why Nations Fail earlier in the year...I should pick it back up again.

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