Summary of article published in First View, Journal of Institutional Economics on 21st June 2018, by George Tridimas, Ulster Business School, Department of Accounting, Finance and Economics. The full article is available on the JOIE website
Recent research has shown that over the period 800-300 BCE ancient Greece experienced significant population growth and substantial improvement in the standard of living. Applying modern theories that institutions and culture are the fundamental causes of development, Morris (2004), Ober (2015) and Bresson (2016) among others attribute the growth of the ancient Greek economy toinstitutional innovation, especially the establishment of city-state democracy, and an accompanying “robust civic culture”, which guided social norms. However, the ancient Greek economic performance displays an inverse U shape. After the 322 victory of Macedon over Athens and the Greek city-states, the efflorescence gradually unraveled. By146 the Roman conquest of the Greek city-states ended any prospects that the city-states would ignite lasting development. The present work investigates whether institutions and culture also contained adverse elements which along with critical geographical factors may explain the failure to sustain growth.
Contrary to earlier scholarly work arguing that the ancient Greek economy was substantive, that is, it lacked autonomous existence, but it was embedded in religion and politics (Finlay 1973) and could not escape the Malthusian trap, recent scholarship has documented its remarkable growth performance. Over the period 800-300,the population of the ancient Greek world grew tenfold. Real per capita consumption rose by an annual rate of 0.18 per cent, greater than the 0.10 per cent of the Early Roman Empire, 30 BCE-284 CE, and not far of the 0.20 per cent of 1580-1820 pre-industrial Holland (Ober 2015). During the Classical period, about a third of the population of mainland Greece imported its food, and about one third of the wider Greek world lived in urban areas (ibid). With average wage several times the subsistence cost (Scheidel 2010), a populous “middling” class of citizens lived above subsistence, took control of government from the elite and established direct democracy. Regarding Athens, the richest and best documented of the city-states, about three quarters of its citizens were landowners keeping them free of coercive or exploitative relationships (Patriquin, 2015), while in the late fourth century the Gini coefficient calculated at 0.71 (Kron 2011) compared favourably to 0.95 in 1911 England and 0.93 in 1912 USA. However, although significant technological growth took place, including the invention of the alphabet, coinage minting, warfare and shipbuilding, the technological progress did not increase manufacturing productivity (Schneider 2007). As a result, ancient Greek growth, as in other growth episodes before the Industrial Revolution, was driven by institutional innovation, and realised through open trade rather than technological progress.
Institutions and culture as causes of the ancient Greek efflorescence
Institutions are rules which constrain behaviour, regulate conflict, govern exchanges and determine wealth accumulation. The supremacy of institutions theory argues that the power structure in society is the main determinant of income growth. Political and economic institutions, which protect investors against predatory taxation, hold the government to account, secure property rights, offer equal access to resources, and protect freedom of contracts and the rule of lawencourage investment in human capital and spur technological innovation (Acemoglou et al 2005, North et al 2009).
Culture is the set of customary beliefs and values about how nature and society work and norms of behaviour derived from those beliefs, transmitted from generation to generation. Cultural causes of development direct attention to a variety of transmission mechanisms. Clark (2007) focused on a biological-demographic chain, where in sixteenth and seventeenth century England the economically successful sired more children forming asocial environment dominated by middle class values.Mokyr (2010) focused on the ‘Industrial Enlightenment’, a scientific revolution, which placed observation and experimentation as the basis of knowledge and changedattitudes in politics, including tolerance for intellectual innovation. McCloskey (2010), emphasised “talk and ideas”, especially liberty and equality, resulting in the public acceptance of the rise of market traders and manufacturers, previously despised as vulgar by the landed elite.
Geography-based theories emphasise that geographyshapesagricultural and mineral production; it influences the quality of human capital throughclimate, natural resources, disease environment andtransport costs, and by determining physical barriers, the ability of a country to defend against foreign invaders. Geographical factors may affect directly productivity and income per capita and indirectly through the choice of economic policies (Gallup et al 1999).
The scholarship on ancient Greek growth offers political institutions and culture as the fundamental drivers of the efflorescence. The “polis” or city-state as a distinct geographical, political and economic unit was the standard form of political organisation in the Archaic and Classical periods. A fragmented mountainous terrain, an indented coastline and a multitude of islands allowed for easily defended small territories, while the invention of cheaper iron weapons enabled the emergence of a large class of free farmers-warriors, whose political power led to democratically governed polities (Lyttkens 2013).
The institutions and culture of the polis became the engines of growth. They secured equal standing rights for citizens protected property rights and enforcing contracts (Bitros and Karayiannis 2010, Karayiannis and Hatzis 2012, Bergh and Lyttkens 2014, Economou and Kyriazis 2017). City-state democracy established fair rules and fostered competition among individuals and city-states, which in turn encouraged specialisation and innovation (Ober 2015, Bresson 2016).
However, the ancient Greek economy failed to start a “grand transition” to sustained long-run growth. Military defeat of ancient Greece is neither necessary nor sufficient to explain the development failure of ancient Greece. The city-states had been able to stand against the Persian Empire and fought against each other almost incessantly before and during the efflorescence period. Importantly, neither democracy nor prosperity recovered after the defeat by Macedon and the later Roman conquest.
Limitations of ancient Greek institutions
The 1,100 independent Greek city-states were small in both population and geographical size. Ancient economic activity was organised around the household (oikos)with land ownership the source of household wealth and citizenship rights. Infertile soil and unreliable rainfall made the threat of famine clear and present. Keeping fragmented and small landholdings was a risk minimisation strategy. But in the long-run, it led to lack of specialisation, failure to exploit economies of scale, high unit cost of production, trade barriers (different city-states adopted imposed a multitude of taxes), and immobile labour. Further, the city-states lacked fully inclusive economic institutions because women, metics, and slaves had fewer rights and economic opportunities.
Inside the democratic and egalitarian city-state, social peace and economic growth are at risk since the poor may revolt and confiscate the assets of the economically successful, or because ruling elites resist redistribution and loss of their privileges when new successful entrepreneurs emerge. However, conflicts over income distribution have been ubiquitous without preventing modern societies from developing; they cannot be a sufficient reason for the failure of the ancient Greek city-states. Tridimas (2015) suggests that the direct democracy of Athens was vulnerable to attacks from anti-democrats because immobile land was the main component of wealth, and because it lacked the protection that political party competition offers in contemporary representative democracies. In the direct democracy, the losers from the policy decisions of the demos turned against the rule of the demos. Thus, egalitarianism, which underpinned the direct participatory democracy of the polis, may have undermined its long-run growth.
A multiplicity of fiercely independent and competitive Greek city-states fought almost incessantly against each other as well as external enemies. War and the threat of war destroy existing assets and discourage investment in human and nonhuman capital. The result is a smaller capital-labour ratio leading to cheap labour and diminishing incentives to introduce capital-intensive techniques. War also diverted resources from productive activities towards military spending and exhausted the public treasuries weakening the city-states against later stronger enemies, like Macedon who possessed fertile lands, gold mines and a strong military.Similarly, the fragmented Hellenistic poleis and kingdoms eventually succumbed to a more populous, prosperous and militarily superior Rome.
We may then conclude that city-state institutions, which framed political and economic transactions, were suitable to initiate growth, but effectively they were the ‘fixed factor of production’. As a result, development based on the city-state format reached diminishing returns.
Limitations of ancient Greek culture
Ancient Greek cultural traits like the ideal of self-sufficiency, disapproval of wealth accumulation and manual work, and privileging the collective group against the individual had arguably a retarding effect on growth.
An ideology of self-sufficiency and independence from market inhibited growth. Further, a land-holding elite scorned wealth from commercial and industrial activities and disdained dependent work. Self-employed free artisans and traders offered their services as independent operators rather than employees, for limited tasks and times, and for different clients. Artisans who earned their living from manual labour were held in low social esteem, because they performed brutal work.Idealisation of land ownership and agriculture as the noblest economic activity meant that there was little social approval for enrichment through artisanship and trade.
Ancient thinkers considered material wealth as freeing man from deprivation and providing the means to pursue freedom of action, but saw it as a means rather than an objective. Seeking to acquire “man’s goods” without developing a “good man” was denounced, as that would lead to the creation of artificial needs and conspicuous consumption. Another anti-development cultural trait was the prevailing ideology of reciprocal assistance between citizens in the sense of gift exchange, including eranosloans interest-free loans from friends and relatives secured on property, which nevertheless coexisted with commercial loans.
Liberal ideas that humans are self-interested individuals with inviolable rights were absent. Citizen rights and obligations were public rights and duties; the notion of protecting the individual against the might of the state did not exist. Freedom meant that a community ran itself rather than individuals acting as they wished in private life (Thomas 2000). The dominance of the ancient state stands in sharp contrast to modern liberalism. Following Gorodnichenko and Roland (2017), if the ancient Greek culture was collectivist (embeddedness of individuals in a larger group, conformity and loyalty to the group) instead of individualistic (personal freedom, autonomy from larger social groups and elevated social status for personal achievement) neither an industrial revolution nor sustained growth could have taken place.
Nevertheless, information about ancient values and attitudes comes from authors who belonged to the elites, and who often expressed different views. It is therefore ambiguous how far the population shared their views. Partly for this reason, modern scholars arrive at different conclusions from the same ancient authors. For example, Harris and Lewis (2015) debunk the ideal of self-sufficiency arguing that the average citizen was neither oblivious to profit making opportunities nor detached from the market, while Bresson (2016) detects the seeds of an ‘enlightened’ culture.
The cost of energy relative to labour
The city-states lacked cheap energy (relative to labour) from abundant coal deposits, a factor which according to Allen (2009) explains the onset of Industrial Revolution in Britain. Production and transportation of goods, and warming and lighting houses require energy. Power was generated from wind, water, sun, and animate sources, wood, oxen, horses, and human labour, but they are unreliable and challenging to harness. As the energy from natural phenomena, humans and animals cannot be stored generating energy could not be separated from using it. This restricted severely productivity gains. Charcoal was the main fuel for heating and metalwork, but its opportunity cost was high. Nor could charcoal provide the intense heat required for key materials like steel, an essential element of the industrial era. With inadequate forests in most of the Aegean Greece, fuel supplies were limited restricting metallurgical outputs. Equally, raising horses for pulling power in hilly terrain is expensive; it made better sense to use land for growing food.
Reliance on animate sources of energy caused high transport costs reducing the distances goods could travel profitably thereby limiting trade networks. Costly land transport forced city-states worried about famine to rely on domestic production closing opportunities for specialization. When manufacturing and transport can no longer increase their energy inputs, output reaches its limit and growth stops. With profits from capital-intensive production techniques lacking, no class of industrial capital owners could emerge and land remained the dominant asset.
At first blush, ancient Greece, and especially Athens, had the institutions and culture which according to modern views regarding the fundamental causes of development are essential for sustained long-run growth. A democratic, urbanized, literate, and market-oriented society experienced a period of significant growth. However, the efflorescence ended failing to start an Industrial Revolution. The failure was attributed to a combination of institutional, cultural and geographical factors. City-state institutions acted as fixed factors running to diminishing returns because the city-state format could not overcome the limits of small economic size, internal strife and external conflicts. Arguably, there were also aspects of culture that discouraged accumulation of capital and business skills. An additional cause was the lack of cheap inanimate energy resources, which rendered manufacturing and transportation costly. At the very least, these arguments allude to a more nuanced contribution of the institutions and culture of the ancient city-states to the Greek efflorescence.
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