Governmental Forms and Economic Development by Maria Brouwer

Author:Maria Brouwer
Language: eng
Format: epub
Publisher: Springer International Publishing, Cham

3.7 Conclusions

Static competition of economics text books differs from dynamic competition. Static competition describes optimal allocation of given resources. It fits traditional society lacking innovation. Life is determined by an invisible force that prompts people and firms to respond in identical ways to changes in their (natural) environment. A person’s fate is thought to be determined at birth in traditional society. Hereditary leadership prevails in traditional society. Dynamic competition ensues, when organizations look forward and pursue different strategies to break up the status quo. Schumpeter argued that innovation comes from new organizations that need to differ from incumbents to be successful. Deviation from tradition is the life blood of entrepreneurship.

New organizations arose in medieval Europe, when lords issued rights to persons and organizations. Manors and cities emerged that spurred competition and innovation. Cities in Northern and Southern Europe established communal government. Peasants could leave the manor and move to the city. Cities expanded trade and promoted the arts and sciences. Many villages in the Low Countries obtained city rights after 1100. Italian cities were of an older date. Medieval emperors and lords were willing to grant city rights, because this increased their revenues from tolls and taxes.

Weber argued that cities as voluntary associations of people lacked authority. Only leaders that impose their will on people have legitimate authority. The contractual character of occidental feudalism did not fit his authority typology. Contracts can be breached and therefore, cannot control behavior. Only autocratic leadership can install order. But, medieval cities developed institutions to solve conflicts by agreement. City judges and mayors were not rent seekers like traditional rulers, but honorary office holders, who were often unpaid or received small rewards. Markets developed in the absence of absolute authority. But, contracts were annulled and assets lost their value, when a fight for dominance erupted between and within Italian cities. Communal government and discourse ended, when cities were no longer united. Civil wars for control of cities ended the prosperous days of Italian city-states. Single leaders took control of Italian cities and destroyed the institutions that had caused their glory. Individual artists could obtain fame at courts and palaces in the Italian Renaissance. Italian bloom came to an end, when a homogenous elite culture emerged that destroyed plural city culture. Italian cities lost their independence in the Italian Wars.

The Low Countries prolonged growth after 1500. The nobility largely lost its military function after 1300 and became a closed caste with its own code of conduct. Tournaments were fights for rank order that constituted a negative sum game. Northern European cities, by contrast, were engaged in a positive sum game based on trade. Value must be imagined, before it can be created. This applies to artistic works and investments in companies. The early buyer of a Picasso painting or Apple stock made big gains on his investment. The largest profits accrue to investors, who see value at a time when others see none. Collectors, who buy works from unknown artists that rise to fame make great profits.

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