Chrystia Freedland points out that the Venetian Republic was once incredibly wealthy, its riches built on an open economy. But then the ruling class built the equivalent of a gated community around themselves, causing their own economic decline. More:
The story of Venice’s rise and fall is told by the scholars Daron Acemoglu and James A. Robinson, in their book “Why Nations Fail: The Origins of Power, Prosperity, and Poverty,” as an illustration of their thesis that what separates successful states from failed ones is whether their governing institutions are inclusive or extractive. 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.
The history of the United States can be read as one such virtuous circle. But as the story of Venice shows, virtuous circles can be broken. Elites that have prospered from inclusive systems can be tempted to pull up the ladder they climbed to the top. Eventually, their societies become extractive and their economies languish.
This resonates with me because here in France these past two weeks, I’ve heard lots of complaining among my friends about how stratified, even fossilized, France’s economy is, in terms of providing entrance to people who don’t have the “right” connections formed through friends, family, or from having gone to the “right” elite institutions. This is a problem that redistributionist economic policies won’t solve. The interesting thing I’ve seen in my friends is that most of them have dynamic entrepreneurial sensibilities, and most of them are doing pretty well. But the fact (they say) that the French economy is relatively closed in the sense Freedland speaks of above is what is so deadly to the creativity a modern economy needs to innovate and create jobs. Or so it seems to this outside observer.
Nevertheless, Freedland makes important points about the way we Americans work against an economy as open as it should be. Isn’t this human nature, though? Walking through the Louvre, Matthew and I stopped in front of a painting of some sort of royal ceremony in the 1780s — the waning days of the French monarchy. It was hysterically over the top in terms of luxury. Perhaps I read too much back into the image, but it seemed clear that this couldn’t last. For that matter, walking around the grand Louvre itself, thinking of it as the residence of kings, when so many were going hungry — again, it couldn’t last. Or it might have lasted, had there been hope for those lower down the economic and social ladder to improve their lot. To put it another way, if aristocratic French society had had the sense and the means to change itself in such a way as to conserve what was most important to conserve — this, as distinct from merely preserving the wealth and privileges of the elites and their closed society — it might have survived, though obviously in a different form. But it didn’t, and was doomed either to violent overthrow or decline into senescence.
Lessons for us, certainly. But which lessons? Mere redistribution — soaking the rich — isn’t going to solve this problem. Other forms of redistribution — affirmative action — are also problematic, in part because based on race, and in part because they don’t identify truly meritorious qualities. It is also the case that no policy prescription can fix the unpreparedness and other deficits imparted to the offspring of dysfunctional families.
So what are the lessons for us? Thoughts?