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INSTITUTIONS ALWAYS “MATTERED” A Quantitative Economic History of The (forgotten !) Republic of Ragusa , 1000-1800

INSTITUTIONS ALWAYS “MATTERED” A Quantitative Economic History of The (forgotten !) Republic of Ragusa , 1000-1800. Oleh Havrylyshyn . University of Toronto Nora Srzentic . Ghent University Seminar Presentation, Dept. of Economics West Virginia University , Nov. 15,2013. OUTLINE.

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INSTITUTIONS ALWAYS “MATTERED” A Quantitative Economic History of The (forgotten !) Republic of Ragusa , 1000-1800

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  1. INSTITUTIONS ALWAYS “MATTERED”A Quantitative Economic History of The (forgotten!) Republic of Ragusa ,1000-1800 OlehHavrylyshyn. University of Toronto Nora Srzentic. Ghent University Seminar Presentation, Dept. of Economics West Virginia University , Nov. 15,2013

  2. OUTLINE • MOTIVATION AND AIMS OF RESEARCH • REVIEW OF MAIN ASPECTS OF THE NEW INSTITUTIONAL ECONOMICS (NIE) • BRIEF HISTORY OF THE REPUBLIC OF RAGUSA • QUANTITATIVE EVIDENCE ON INSTITUTIONAL QUALITY IN RAGUSA • CONCLUSIONS AND FURTHER RESEARCH

  3. 1. MOTIVATION-PERSONAL VIEWING DUBROVNIK’S MAJESTIC CITY WALLS ONE CANNOT BUT ASK:HOW DID IT BECOME SO PROSPEROUS ?

  4. 1. MOTIVATION AND AIMS OF RESEARCHLITERATURE,ITS SHORTCOMINGS, OUR RESEARCH

  5. 2.A. MAIN WORKS IN THE NEW INSTITUTIONAL ECONOMICS (NIE) KEY RECENT WRITINGS • Early economic historians North( 1973 [ w. Thomas ],1981, 1990,1994), O.Williamson (1985 )- remind dev. economists that market-friendly institutions in advanced countries evolved over centuries • Coasians like Djankov,Glaeser, LaPorta, Shleifer,Vishny-various articles by combinations of authors starting in 90’s,make more explicit the connection to efficient-markets theory of Coase (1937 ,1980) implying market players demand and create good institutions {THIS IS NOT inconsistent with North interpretation of English Industrial Revolution} • Eclectics like Acemoglu, Johnson and Robinson –AJR-(2000,2003,2005), Rodrik ,Subramanian, Trebbi (2004), Ogilvie (2011) also add gov. role to establish and implement institutions, • Good lit. reviews by Williamson (2000),Glaeser et.al. (2004),AJR(05). Haggard and Tiede (2011)

  6. 2A. HOW NEW IS CONCEPT OF GOOD INSTITUTIONS ? • terminology ,formal theory indeed new; but concept of “ institutions matter” is very old • many mediaeval writers in Italian Republics ( birthplace of modern capitalism , banking ) discuss how to achieve economic prosperity, what state should do to promote commerce • Two Ragusans provide relevant examples : • DeDiversis (1440)“among permanent regulations {=institutions? au} the first is responsibility to preserve justice and order among wholesale and retail merchants, foreigners or citizens” • Kotruljevic(1458) “ state should ensure a mercantile environment conducive to creating wealth, with minimal interferencein commerce , and prudent state finances”

  7. 2.A. KEY ISSUES OF NIE AND RELEVANCE FOR OUR RESEARCH ON RAGUSA ECONOMY

  8. 3. BRIEF HISTORY OF RAGUSA • PHASES OF TRADITIONAL POLITICAL AND DIPLOMATIC HISTORY • OUR RE-CLASSIFICATION INTO ECONOMIC PERIODS • NEW DATA BANK OF ECONOMIC PROXIES • TEST OF TRADITIONAL HISTORIAN’S HYPOTHESES ABOUT RAGUSAN ECONOMIC PROSPERITY

  9. 3.A. Traditional Historical Phases: Ragusa 1100-1800 • The Byzantine period about 8th/9th century to 1204 • The Venetian period, 1204 to 1358 • Hungarian suzerainty, 1358-1526 • The Ottoman period, 1526-1684 • The Austrian period, 1684-1806 • French occupation in 1806 ends the independence of Dubrovnik

  10. 3.B. RE-CLASSIFICATION: ECONOMIC PERIODS

  11. 3C. 1. TESTING COMMON HYPOTHESES ON RAGUSAN ECONOMYHH1: The Golden Years of prosperity were about 1400-1550.HH2: Population carrying capacity very limited, well under 100,000,HH3: The commercial fleet of Ragusa at its peak equaled that of Venice, and exceeded that of England.( the “patriotic” hypothesis)HH4: Ragusa’s decline began with the discovery of The Cape of Good Hope route about 1500 3.C. 2. AUTHOR’S ADDED HYPOTHESIS HH.5. The Silver Period 1250-1400 was economically also very dynamic and created basis for Golden Years. ( based on work of Stuard ,(1976 ), though she does not explicitly state it so)

  12. 4. EVIDENCE ON INSTITUTIONAL QUALITY: TRADITIONAL HISTORICAL CONSENSUS • Openness and outward orientation, cosmopolitanism • General good governance; early codification of laws ( 12thand 13thc. )formalised in 1272, Liber StatutorumCivitasRagusii, continually evolves e.g.Customs Book by 1300,. • Rule of Law effectively and generally fairly applied • First quarantine in 1377 : recognised by health experts even today • Benign oligarchy –substantial social benefits: urban infrastructure, water ,sanitation, wood-buiding prohibitions to minimize fires, health care , hospitals, orphanages, subsidies for poor in housing, grains in famines • Financial prudence (“strong fundamentals”),very low indebtedness • Policies favouring commerce ( ease of doing business is high ): numerous writings by Ragusans on promoting trade, modern ideas like Fisher’s interest=capital cost of time; double-entry bookeeping late 15th. C. arguably before reputed “first “ of Venetian Pacioli

  13. 4.2. INSTITUTIONS: HYPOTHESIS TESTED WITH DATA • HH6: The State conducted very prudent and conservative financial policies, avoided budget deficits, debts, inflationary debasement • HH7: State laws regulations on commerce, contract enforcement, bankruptcy, effective and speedy • HH8:Rule-of-Law was established early , widely applicable, effectively and fairly implemented

  14. 4.2. OTHER INSTITUTIONAL HYPOTHESES: LARGELY QUALITATIVE EVIDENCE • HH9: Enlightened social policies provided for basic needs of the entire populace • HH10: Ragusa had very low military-naval expenditures, relying on diplomacy for its achievements.

  15. HH6:Evidence on “Strong Fundamentals” • Numerous qualitative assertions by historians about: sensible public finance policy, apparently often surplus, avoidance of high public debt • DATA FIG 7 ABOUT 1800: • Positive net asset position in 1800 budget after two centuries of relative decline !! • Interest expenditures only 1.7% of total expenditures- cf. Other states: generally well over 20% • 1800 budget: diplomacy 45% much more than military (12 %) ; social e.g. education 5-6% much more than other states ____________________________ • QUALIFIER: hard data only for this late period; although qualitative historian’s judgment almost universally points to prudent finances [[ good area for further research ]]

  16. HH7.Evidence on Ease of Doing Business(Analogue of WB Doing Business Reports} • Limited data on legal proceedings regarding bankruptcy cases(Tab.1), notary registrations for diverse contracts (Tab.4), relatively speedy court settlements (Tab.5 )> all consistent with high EDB • NOT “debtor’s prison” approach , rather modern concepts of sequester, liquidation, restructuring of debts ; courts encouraged settlement esp. for commercial cases ( Tab.6,7) • Pro-business attitudes reflected in theoretical & practical : de Diversis,Kotruljevic noted: renoiwnedscientiosts , mathematicians like Boskovich 18th c.( early regression analysis! )

  17. TAB.1.SELECTED DATA ON TIME FOR BANKRUPTCY PROCESS

  18. HH8:Evidence on Effective Rule-of-Law • Notary entries relative to population very high evidence of extensive use of formal notarization procedures (Tab.2,3.4) • Efficiency and speed of courts (Tab. 5) high compared to many DC’s today ( as in WB DBR) • Rule-of-Law was widespread to all levels of population, not just nobles and merchants( Tab. 2,3 on participation), tab 4 on types of notary entries • Ragusean courts strongly encouraged out-of-court settlements ( Table 6, INSERT FROM paper)

  19. TABLE 2: RAGUSA 1299-1301 NOTARY ENTRIES RELATIVE TO POPULATION

  20. TABLE 3. FREQUENCY OF INDIVIDUAL’S INVOLVEMENT IN NOTARY ENTRIES RAGUSA 1299-1301

  21. TABLE 4. RAGUSA 1299-1301 NOTARY ENTRIES BY CATEGORY

  22. TABLE .5. SOME QUANTITATIVEEVIDENCE OF EFFICIENCY AND SPEED OF RAGUSA COURTS: 13th.-18th.c-Percent of cases completed , by# of months

  23. TABLE 6. COURT ACTIONS BY TYPE AND OUTCOME (Average percent for 1423, 1466 and 1487)

  24. TABLE 7. TREND OF TERMINATION /FINAL JUDGMENT PROPORTIONS OF CASES, 1312-1499

  25. HH10: MINIMAL MILITARYMAXIMAL DIPLOMACY • Quantitative evidence very fragmentary, but does show quite small numbers for ships, soldiers • Fig 7:1800 budget clear: diplomacy predominant ; “Tributes, Representation ~45% of budget; Army ` 12% • NO DATA ON EARLY FORTIFICATION COSTS:, likely to have been much higher in early centuries • Literature replete withj discussion of outstandingly effective diplomacy , and qualitative assessments virtually unanimous: Ragusa too small to rely on military power (unlike Venice, Genoa, later Spain , England etc.),hence RAG becomes very skilled at diplomacy : “SetteBandieri” label exemplifies this

  26. HH9:“Sufficiently”Fair Social Policy (NO HARD DATA AS YET-BUT DOABLE) • Fair but not equitable-considerable poverty esp. in rural areas; BUT widely considered beneficent for city-dwellers • Recognised by health experts globally and even today for FIRST quarantine station in 1377 • Already in 14th-15th century!:street paving, sanitation regulations, infrastructure such as public fountains, hospitals, hospices, orphanages, wood-building prohibited to minimize fires • Free Health care , education provisions: N.B. latter, `5-6% of 1800 budget, high for the times ;{{ possible FUTURE ARCHIVAL RESEARCH FOR EARLIER PERIODS?}} • reserves of grains for frequent famines at subsidised prices • Indigent policies: lower building fees/taxes ; higher state subsidies for rebuilding after fires; indigent homes.

  27. 5.A. MAIN CONCLUSIONS • WE CONFIRM WITH DATA MOST HYP. OF HISTORIANS: • PEAK PROSPERITY IN 15TH AND 16TH C. • POP. CAPACITY LIMITED DESPITE WEALTH, < 100k. • RAG. INDEED MAIN RIVAL OF VENICE, BUT EXXAGERATION TO SAY IT WAS ITS “EQUAL”- MERCHANT FLEET ONLY “EQUAL” AFTER VENICE LOST SHIPS IN WARS • HOWEVER, TRUE RAG.FLEET > ENGLAND UNTIL MID-1500’s • WE ADD: SOME NEW OR MODIFIED HYPOTHESES: • DECLINE NOT IMMEDIATE AFTER CAPE ROUTE OPENED: RAG CONTINUES HIGH GROWTH TO 1575/1600, SUGGESTING ITS GOOD POLICIES PROVIDED RESILIENCE TO EXTERNAL SHOCKS • GOLDEN YEARS OF MARITIME GLORY , 15TH-14C., FOUNDED ON PRECEDING DYNAMIC PERIOD OF “SILVER PERIOD” 1250-1400

  28. 5.A. MAIN CONCLUSIONS-cont’d • 5.a.3. WE FIND EVIDENCE OF STRONG INSTITUTIONS: • evidence (1800 budget ) of “strong fundamentals” • selected but clear evidence of institutions favourable to commerce: contract enforcement , widespread ROL, efficient courts, minimization of common “debtor’s prison” penalty • considerable evidence o f socially benevolent policies albeit almost entirely qualitative

  29. 5.B. FURTHER RESEARCH • DUBROVNIK ARCHIVES FAMED FOR HUGE HOLDINGS GOING BACK TO AT LEAST 1200; UNDERUSED BY ECON.HISTORIANS, GREAT POTENTIAL WITH INFO NOT ONLY ABOUT RAGUSA • OUR SECONDARY RESEARCH REVEALS MANY AREAS OF POTENTIAL PRIMARY RESEARCH : • FISCAL , MONETARY AND DEBT OPERATIONS IN EARLIER CENTURIES TO CONFIRM HYP. OF “ STRONG FUNDAMENTALS” • EXTENT OF EXPENDITURES ON URBAN INFRASTRUCTURE AND SOCIAL PROGRAMS (EDUCATION, HEALTH CARE,SANITATION ) TO COPFIRM HYP. ON “SOCIAL BENEVOLENCE” • MORE “DATA” ON INSTITUTIONAL QUALITY : e.g.: how easy or difficult was it to start a commercial venture , what registration procedures, fees etc.

  30. 5.C. CONTRIBUTION TO LITERATURE • We compile a new data-bank quantifying economic proxies and institutional indicators- openly available for scholars • Using this data we broadly confirm historian’s hypotheses on evolution of Raguseanprosperity,and add some modifications, new hypotheses. • With selective data on court/notarial records, we provide support for the hypothesis that Ragusa’s prospertiy not a matter of luck or good diplomacy , but also due to “market-friendly : institutions as per NIE • Thus,wedemonstrate that the modern-day Institutional Paradigm is far from “new” and can be seen inter alia in this small mediaeval city state perhaps as early as 13th.c. • Therefore we contend Ragusa should be added to the NIE literature as an important historical example of how good institutions contribute to economic growth.

  31. Thank you for your attention!… AND FOR COMMENTS AND SUGGESTIONS , TODAY AND LATER!! o.havrylyshyn@utoronto.ca nora.srzentic@ugent.be

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