Globalization, Development, and Constitutionalism

in Historical Perspective:

Lessons from the West on the Rest

Victoria Tin-bor Hui Assistant Professor

Department of Political Science University of Illinois

361 Lincoln Hall 702 South Wright Street

Urbana, IL 61801 Email: tvhui@uiuc.edu

Prepared for presentation at the 99th Annual Meeting of the American Political Science Association, Philadelphia, August 28-31, 2003.

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Abstract

This paper evaluates globalization in the longue dure. Anti-globalization protesters argue that globalization is corrosive of development and human rights. Supporters for globalization respond that, although globalization may have some undesirable side effects in the short-term, it should eventually enrich the poor and empower the underprivileged in the long-term. In the debate about the merits and demerits of globalization, both sides have focused on the impacts of globalization and overlooked the origins of development and human rights. When multinational corporations are blamed for being bed-fellows with authoritarian regimes, it is often overlooked that globalization and the ruler-trader alliance are hardly new phenomena. Rather, both international trade and the resulting ruler-trader alliance have been important aspects of political life for nearly a millennium. Moreover, such developments have not been inherently bad for either human rights or economic development. Capitalism and the so-called European miracle are well-known. But it is often forgotten that the constitutional rights that are so taken for granted in the Western world now were born of concessions which traders and financiers extorted from rulers in the medieval and modern periods.

Nevertheless, globalization does not have universal effects on development, nor do all

forms of ruler-trader alliance have salutary effects on constitutionalism. In the early modern period, there was once a growing gap between the successful stories of the Dutch Republic and England/Britain on the one hand and the dismal stories of France and Spain on the other hand. As the successful stories illustrate, ruler-trader coalitions that were embedded with state-society cooperation and with improvement in state capacity were conducive to constitutional as well as economic developments. However, if rulers relied on capital-holders just for easy cash and overlooked to develop cooperative relations with national entrepreneurs or to enhance the states capacity in mobilizing national resources, then the long-term results could well be erosion of both development and constitutionalism. Such divergent trajectories in the early modern West shed important light on the divergent trajectories in the Rest in the post-WWII era. The trade-off between enhancing international competitiveness at the price of making concessions to society on the one hand, and maximizing state autonomy at the price of economic stagnation on the other hand is the same now as then. The developmental paths of the East Asian NICs are reminiscent of those of the Dutch Republic and England/Britain. The lessons from history are that catching up is possible, and that both economic development and constitutional rights are to some extent shaped by state policies. As such, the solution to the widening gap between the haves and the have-nots should be to assist in state-building efforts in the developing world, rather than to stop the unstoppable tides of capitalism and globalization.

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Introduction

In the midst of the euphoria at the end of the Cold War, many liberals were hopeful that

the collapse of communism and dictatorship in the Eastern block would soon propel the whole

world to move toward convergence of capitalism and democracy. The concomitant revolution in

communication technologies and the economic booms in the early 1990s further added to this

optimism. However, by the turn of the twenty-first century, it has become obvious that the end

of history is nowhere in sight.1 In many corners of the globe, authoritarian regimes have

retained tight grips on power. The collapse of the Soviet Union and the withdrawal of strategic

support by both superpowers further unleashed waves of ethnic and civil conflicts, generating

ethnic cleansing and genocide in the former Yugoslavia and Africa. The economic picture has

not been much better. With the debt crisis in Latin America and the financial crisis in Asia, many

developing economies have remained as poor as ever if not even poorer. At the same time, the

conditionality of the International Monetary Funds and the World Bank (which require loan

recipients to balance budgets, reduce social spendings, privatize public sectors, and liberalize

financial markets) have simultaneously heightened the developing worlds vulnerability to

economic downturns and restricted states abilities to provide for their populations.2 It is no

wonder that in the eyes of some disgruntled critics from the Third World, Western governments

which claim to promote capitalism and democracy are no more than neo-Bolsheviks who love

expropriating other people's money, imposing undemocratic and alien rules of economic and

political conduct and stifling economic freedom.3

1 Fukuyama 1989. 2 Stiglitz 2002. 3 Cited in Huntington 1993, 40.

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It is not difficult to understand the rage at Seattle in 1999, and Quebec and Genoa in

2001. However, if democracy and capitalism require that statesmen and businessmen be selfless

angels, then it is doubtful that either phenomenon would have emerged even in the Western

world. In the debate about the benefits versus problems of globalization, both sides have focused

on the impacts of globalization and overlooked the origins of development and constitutionalism.

I thus examine globalization in the longue dure. I show that the constitutional rights that are so

taken for granted in the Western world now were born of concessions which traders and

financiers extorted from rulers in the medieval and modern periods. Faced with constant fiscal

crises, European rulers one after another turned to traders and financiers for loans and credits. In

return, such capital-holders were offered public offices and some ad-hoc participation in public

affairs. To avoid appropriation of private properties and to ensure repayments of sovereign debts,

traders and financiers gradually pushed representative assemblies to the forefront as guarantors.

As the revolutionary slogan No representation, no taxation testifies, it was this group of self-

serving capitalists who brought about the birth of constitutionalism as well as capitalism.

Nevertheless, not all forms of ruler-trader alliance have salutary effects on development

and constitutionalism. The anti-globalization camp has rightly pointed out the widening gap in

both aspects between the West and the Rest. However, there was also once a growing gap

between the successful stories of the Dutch Republic and England/Britain on the one hand, and

the dismal stories of France and Spain on the other hand during the early modern period. The

successful stories illustrate that ruler-trader coalitions that were embedded with state-society

cooperation and with improvement in state capacity were conducive to constitutional as well as

economic developments. However, if rulers relied on capital-holders just for easy cash and

overlooked to develop cooperative relations with national entrepreneurs or to enhance the states

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capacity in mobilizing national resources, then the long-term results could well be erosion of

both development and constitutionalism.

The divergent trajectories of European states in the early modern period shed important

light on the divergent trajectories of developing countries in the post-war era. Whether West or

Rest, then or now, states have faced the same trade-off between enhancing international

competitiveness at the price of making concessions to society on the one hand, and maximizing

state autonomy at the price of economic stagnation on the other hand. The developmental paths

of the East Asian tigers are reminiscent of those of the Dutch Republic and England/Britain.

Unfortunately, many rulers of newly independent countries have followed the French-Spanish

path of relying on international capitalists and ignoring development of state capacity and state-

society cooperation. Such a course has always been a tempting one, because it accords dictators

with a high degree of autonomy from societal demands, but at the expense of dragging their

countries further and further behind in international competition. The lessons from history are

that catching up is possible; and that both economic development and constitutional rights are to

some extent a function of state policies. As such, the solution to the widening gap between the

haves and the have-nots should be to assist in state-building efforts in the developing world, but

not to stop the unstoppable tides of capitalism and globalization.

In the following analysis, I will discuss first, processes of globalization from the

medieval period onward; second, the ruler-trader alliance and the emergence of medieval

constitutionalism; third, the growing divergence between the Dutch-English trajectory and the

French-Spanish trajectory in both economic and constitutional developments; and fourth, the

implications of such historical developments in the West on current developmental problems in

the Rest.

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Globalization in Historical Perspective

Globalization or dramatically thickened and widened interdependence networks is

often seen as a post-Cold War phenomenon. Most notably, breakthroughs in the internet, which

has facilitated e-commerce, e-trade, and other internet-based transactions, are connecting distant

markets and distant individuals in manners and at speed unimaginable even several decades ago.

However, if communication and transportation technologies are seen as the driving force for the

dramatic widening and thickening of interdependent networks in the current era, then neither

development is entirely new. As Buzan and Little point out, interaction capacity that is,

technological capabilities such as caravans, ships, railways, aircraft and shared norms, rules,

and institutions have always shaped the type and intensity of interaction between political

entities throughout world history.4

Although the debate about globalization began as quite historically myopic,5 more and

more analysts are looking back to the late nineteenth and early twentieth centuries. Just as the

current wave was unleashed by the internet, the earlier wave was unleashed by the railways, the

telegraph cable, the telephone, the commercial aircraft, and other innovations made possible by

the industrial revolution. Most notably, after the first transatlantic telegraph cable was laid down

in 1866, the entire world was to become connected by telegraph by the turn of the twentieth

century, allowing communication times to fall from months to minutes.6 Hence, world markets

were just as highly integrated then as now according to a variety of indicators. First, the openness

to foreign trade as measured by imports and exports combined as a proportion of GDP was

4 Buzan and Little 2000, 80. Similarly, Ruggie speaks of dynamic density, or the quantity, velocity, and diversity of transactions. Ruggie 1986, 148. 5 Krasner 1999a, 34. 6 Wolf 2001, 181-182.

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not significantly higher in 1993 than in 1913 for all major capitalist countries except the United

States.7 Second, foreign direct investment accounted for over 9 percent of global output in 1913

and this proportion was not surpassed until the early 1990s.8 Third, foreign capital flows relative

to domestic savings were larger at the start of the twentieth century than at its end.9 Fourth,

British capital investments abroad averaged 4.6 percent of GDP between 1870 and 1913 and this

ratio has remained unparalleled in various major economies.10 Fifth, the correlation between

domestic investment and savings, which measures the extent to which savings remain within one

country, was lower between 1880 and 1910 than now.11 Sixth, international migration was far

more prevalent in the late nineteenth and early twentieth centuries when borders were not as

closed as now.12 In addition, the City of London, whose banks financed large portions of German

trade, was far more vulnerable to potential disruptions than the City of New York now.13 In

short, the current wave of globalization is not quantitatively much different from the earlier

wave.14

Most historically-oriented analysts are content to trace globalization to the late nineteenth

century. But if communication and transportation technologies form the driving force for the

7 Arrighi 1999, 54. Wolf elaborates on this point: In the United Kingdom, for example, exports and imports added up to 57 percent of GDP in 1995 compared to 44 percent in 1910; for France the 1995 proportion was 43 percent against 35 percent in 1910; and for Germany it was 46 percent against 38 percent in the same years. But Japans trade ratio was actually lower in 1995 than it had been in 1910. In fact, among todays five biggest economies, the only one in which trade has a remarkably greater weight in output than it had a century ago is the United States, where the ratio has jumped from 11 percent in 1910 to 24 percent in 1995. Wolf 2001, 180. 8 Arrighi 1999, 54. 9 Charles Wolf 2001. 10 Wolf 2001, 180. 11 Wolf 2001, 180. 12 Krasner 1999b, 39. But immigration in the US may have returned to the pre-1914 level. Mann 1999, 249. 13 Papayoanou 1996.

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widening and thickening of interdependence networks, then we may go further back in history to

the early centuries of the second millennium. According to North and Thomas, the rise of the

Western world should ultimately be traced to trade expansion that began in the eleventh

century.15 Moreover, it is often overlooked that Europe, the initiator of one of the worlds major

processes of conquest, colonization and cultural transformation was itself the product of

Europeanization that took place in the period 950-1350.16

Europe experienced unprecedented economic growth in the eleventh century. Innovations

in the three-field system and the heavy plow improved agricultural productivity, allowing

surpluses for trade.17 At the same time, increases in populations brought about large-scale

migrations. With differences in natural resources and land-to-labor ratios, the opportunity to gain

from specialization and trade emerged.18 As a result, old Roman towns were revived and new

towns established, with townsmen building trading networks with surrounding agricultural areas

and with other towns. Although Europe was hard hit by the Black Death in the fourteenth

century, the fundamentals for trade had been laid down. When the European economy

rejuvenated in the Renaissance, Italian cities, led by Venice, stretched their trade routes

throughout the Mediterranean and reached ever farther along the Atlantic coast on one end and

Egypt, Asia, and Russia on the other.19 From the last years of the fifteenth century on,

breakthroughs in shipping technologies and discovery of the New World further set Europe on a

14 However, the two periods are qualitatively different. While the earlier wave was characterized by a world of unilateral and discretionary policy, the current wave is a world of multilateral and institutionalized policy. Wolf 2001, 184; see also Hobson 1997; Ruggie 1982. 15 North and Thomas 1973. 16 Bartlett 1993, 314, 269. 17 Jones 1988, 54-58, 91; North and Thomas 1973, 41-43; Spruyt 1994, 61. 18 Jones 1988, 90; North and Thomas 1973, 26. 19 North and Thomas 1973, 12.

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course of dramatic commercial expansion, both within the Eurasian continent and between the

continent and other parts of the world.

Such increasingly long-distance international trade simultaneously required and

facilitated the development of international finance. Banks of deposit, which had origins in the

Roman times, began to emerge in Venice and Genoa in the late twelfth and early thirteenth

centuries.20 Although international finance suffered retraction in the fourteenth century, its

revival during the Renaissance was accompanied by improved instruments in mercantile credits,

bills of exchange, and bills of insurance. Various distinctly modern international banking

services (including deposits at interest, transferring monies, clearing bills of exchange, floating

loans, and the like) were gradually developed and expanded in subsequent centuries.21 From the

sixteenth century on, Europes economic centers gradually shifted from Italy to Antwerp and

then to Amsterdam. During the ascendance of Amsterdam in the seventeenth century, the first

market for securities emerged, and the Dutch East India Company became the first global

corporation financed by shares sold and bought on the securities market.22

It should be emphasized that big firms of the early modern period were not merely local

or regional, but global. Following developments in shipping and in discovery of other parts of

the world, various trading and finance groups had global reach as early as the first decades of the

sixteenth century. For instance, the Welsers of Augsburg operated in Europe, the Mediterranean

and Venezuela in 1528. In the heydays of Antwerp, its dominant firm, the Fuggers, controlled

mines in central Europe and the Alps, had correspondents in Venice, and had branches in

20 North and Thomas 1973, 54. 21 Kennedy 1987, 69. 22 Pomeranz 1999, 80-81.

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Portugal, Spain, Chile, Fiume, and Dubrovnick.23 Moreover, in such an increasingly integrated

world, the gold and silver mined in the Americas were circulated not only in Europe, but were

also shipped to China in exchange for Asian luxurious merchandises.24 Given these

developments, it is not surprising that Wallerstein argues that capitalism began in the sixteenth

rather than the nineteenth century.25

Trade Expansion, the Ruler-Trader Alliance, and the Emergence of Medieval

Constitutionalism

I discuss the history of globalization not just for its own sake, but also for its relations to

economic development and political rights in earlier centuries. Trade expansion that began in the

eleventh century brought about not just economic growth across Europe, but also the rise of the

burgher class, the revival of Roman towns, and the emergence of new towns that lied in the

interstices between feudal lords. This phenomenon significantly enhanced the bargaining power

of the burgher class and towns.26 The most prosperous cities and towns developed their own

government and independence from kings and lords alike. Various new-found towns obtained

written charters from kings who promised townsmen freedoms and immunities in return for

taxes, weapons, and specialized services.27 Even burghers who came under the formal control of

23 Krasner 1999a, 221. 24 Pomeranz 1999, 89. 25 Wallerstein calls capitalism proper industrial capitalism, and the early stage agricultural capitalism. What was happening from the sixteenth to the eighteenth centuries is that over a large geographical area going from Poland in the northeast westwards and southwards throughout Europe and including large parts of the Western Hemisphere as well, there grew up a world-economy with a single division of labor within which there was a world market, for which men produced largely agricultural products for sale and profit. I would think the simplest thing to do would be to call this agricultural capitalism. Wallerstein 1974, 399. 26 North and Thomas 1973; Spruyt 1994, chapter 4; Tilly 1990. 27 Downing 1992, 22.

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kings were able to establish themselves as a separate privileged order along with the traditional

orders of the clergy and the nobility.

The burghers economic wealth was further translated into political power as geopolitical

competition stepped up and kings could no longer finance wars out of their traditional sources of

revenue. As Thomas Ertman puts it, under the pressure of war, the increasingly assertive and

ambitious rulers of France, the Iberian states, and Sicily were forced to call national

representative assemblies into being.28 Representative assemblies first appeared sporadically in

the Iberian kingdoms and Sicily in the late 1100s and early 1200s. They became fully

institutionalized across the European Christendom cortes in Spain, parlements in France, and

parliament in England during the period 1250-1350.29 Thus, out of trade expansion in the

medieval period emerged medieval constitutionalism, or a system of decentralized

government in which aristocrats, burghers, and clerics were given a voice in the fundamental

affairs of war, foreign policy, taxation and justice.30

Nevertheless, it is important to keep in mind that the emergence of a phenomenon and its

consolidation are quite different matters. Neither continuation of economic growth nor

maintenance of medieval constitutionalism in subsequent centuries can be taken for granted.31

For one thing, we cannot presume rulers to be selfless angels who would voluntarily tie their

own hands in maintaining constitutionalism. As Ruggie puts it, European rulers did not set out

to weaken their constitutional powers by convening assemblies to raise taxes; they sought only

28 Ertman 1997, 60. Thus, the revolutionary slogan No representation, no taxation has a medieval origin. 29 Ertman 1997, 68. 30 Downing 1994, 10, 21-22. 31 In the economic sphere, the Black Death wiped out most gains in living standards that were achieved in previous centuries.

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to raise revenues.32 Hence, medieval assemblies were convened only when rulers desired so,

which means that they might not meet for many decades.

More importantly, the ruler-trader alliance forged in the shadow of interlocking political

and economic competition was a highly uneasy one, which made the consolidation of medieval

constitutionalism highly uncertain. As Tilly points out:

Throughout most of the last millennium, European cities and states have carried on a

series of liaisons dangereuses, love-hate affairs in which each became at once

indispensable and insufferable to the other [C]apitalists drew indispensable protection

for their commercial and industrial activity from the specialists in coercion who ran

states, but rightly feared interference in their money-making and diversion of their

resources to war, preparation for war, or payment for past wars. States and military men

depended on capitalists for the financial means to recruit and sustain armed force, yet

properly worried about the resistance to state power engendered by cities [and] their

commercial interests... [Capitalists] and states found the grounds for uneasy bargains in

the exchange of protection for access to capital, but until the nineteenth century such

bargains remained fragile.33

In other words, rulers and traders were involved in a simultaneously mutually beneficial and

mutually suspicious relationship.

32 Ruggie 1993, 166. See also North and Weingast 1989; Tilly 1990. 33 Tilly 1990, 58-59. Similarly, Spruyt observes that the burghers had two competing preferences. On the one hand, they had a preference for the greatest amount of independence possible On the other hand, a stronger central authority would benefit translocal trade. Protection from robbers, pirates, and demanding feudal barons, as well as reduction in the prolific amount of feudal exactions and tolls, would benefit long-distance trade. Spruyt 1994, 63. Note that Tilly takes a broad definition of capitalists. For him, capital includes any tangible mobile resources, and enforceable claims on such resources. Capitalists, then, are people who specialize in the accumulation, purchase, and sale of capital Through most of history, capitalists have worked chiefly as merchants, entrepreneurs, and financiers, rather than as the direct organizers of production. Tilly 1990, 17.

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In the symbiotic relationship between rulers and traders, the bargain of taxation for

protection is legendary. Indeed, this bargain is so taken for granted that one of the standard

definitions of government is an organization that provides protection and justice in return for

revenue.34 The rationale is that capital-holders would prefer to have rulers provide military

protection against roving bandits along trade routes than to develop private security on their own.

As the emerging states increased their territorial size, traders could also enjoy safer travel in

increasingly larger areas. In addition, capital-holders also needed rulers to create a more

business-friendly environment, including establishment of a reliable and unified legal framework

to protect their private properties and to adjudicate disputes among themselves, and

standardization of currencies and measures to facilitate transactions. In return for these services,

rulers collected taxes on merchandises and trade activities.35

But the mutual benefits provided by the ruler-trader alliance ran much deeper than this

simple caricature of taxation for protection. In earlier times, rulers faced not only external

enemies, but also internal contestants to the throne. In the face of interlocking internal and

external rivalries, no ruler who seriously pursued war avoided reliance on capitalists of some

sort.36 Even when they just wanted to buy off rivals, rulers still needed money. In return for

ready cash, the nouveaux riches earned not just protection and handsome interests, but also social

status. The burgher class was originally despised by the clergy and the nobility. Their inability

to bear arms and their birth marked them inevitably as inferior to the nobility, and their pursuit

34 North and Thomas 1973, 6. Many rational-choice approaches take a similar definition. 35 North and Thomas 1973; Spruyt 1994. 36 Tilly 1994, 11.

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of profit violated the Churchs proscription against usury.37 Hence, it was not preordained that

burghers could translate economic wealth into political power.38 However, kings and princes

who were desperate for cash had to rely on formally independent capitalists for loans, for

management of revenue-producing enterprises, and for installation and collection of taxes.39 By

helping political rulers maintain survival or achieve their ambitions, the burgher class not only

achieved estatization40 on par with the clergy and the nobility, but also became indispensable

equals to rulers and interacted with them on terms of relative equality.41

Such mutually beneficial affairs between rulers and burghers, however, were shadowed

by mutual suspicions right from the beginning. Rulers sought to establish centralize control, but

found themselves confronted with powerful economic actors whose external relations they

could never entirely control, and who found it relatively easy to escape with the capital to

another business site if the rulers demands became unbearable.42 Moreover, the immense

wealth of the new class had double-edged meanings: Although such wealth provided rulers with

new resources to subjugate feudal aristocrats and local magnates, it also provided resources for

its owners to challenge the Crown. On the part of burghers, they had a preference for the

greatest amount of independence possible43 and lacked confidence that rulers would fully carry

out the bargain of taxation for protection. As Blockmans observes, [m]onarchies furthered the

37 Spruyt 1994, 72-74. For the same reason, during the Reformation, the most important converts were merchants and craftsmen who were excluded from political privilege. Philpott 2000, 231. 38 As Gilpin cautions us, [t]he seeming ease with which this aggressive class achieved ascendancy in both domestic and international society in the western world obscures how extraordinary a development this was. Gilpin 1977, 25. 39 Tilly 1990, 29. 40 Downing 1992, 30. 41 Tilly 1990, 130, 60, 30. 42 Tilly 1990, 52. 43 Spruyt 1994, 63.

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development of [commerce] only as long as they were unable to impose their dynastic or

imperial dreams, which unlimited as they were necessarily exhausted even the most

flourishing economy.44 As kings were above the law, capital-holders were also worried about

arbitrary actions, including debt repudiation, debasements, confiscations, expulsions, irregular

levies, forced loans, judicial murders, and the like.45 For instance, the repudiation of debts by

Edward III of England in 1339 precipitated a financial crisis in Italy and led to the first clearly

recognizable business cycle in Europe.46 Nevertheless, the fact that traders and financiers had

the exit option of escaping to neighboring polities with their movable assets served as an

implicit rein on arbitrary power.47

Heightened Fiscal Crises and an Invidious Form of the Ruler-Trader Alliance

The inherently uneasy relations between rulers and burghers was further strained after the

modern period dawned at the French invasion of Italy in 1494.48 While technological

breakthroughs in shipping allowed Italians, Portugese, and Spaniards to expand their trading

networks to the New World, the concomitant military revolution significantly pushed up the

costs of war beyond the means of any European rulers. The military revolution refers to not just

the invention of gunpowder, but also the process whereby small, decentralized, self-equipped

44 Blockman 1994, 245. North and Thomas also argue that [t]rade and commerce were protected only when their promotion suited the lords and the Crowns interest; frequently they were impeded or hindered for the same reason. North and Thomas 1973, 70. 45 Jones 1988, 93. 46 Krasner 1999a, 129. 47 Jones 1988, 118; also Bates and Lien 1985; Levi 1988, 97-112. 48 According to Levy, the French invasion of Italy at the end of 1494 and the Treaty of Venice in March of 1495 mark the coalescence of the major European states into a truly interdependent system of behavior. Levy 1983, 21. Tilly concurs: We can reasonably date a comprehensive European state system from the French and Spanish invasions of Italy, which greatly expanded the scale of European warmaking, and opened the age of mass mercenary armies. Tilly 1990, 164.

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feudal hosts were replaced by increasingly large, centrally financed and supplied armies that

equipped themselves with ever more sophisticated and expensive weaponry.49 The combination

of technologically advanced military weapons and ever larger army size quickly made war so

fearfully expensive50 that [n]o state in this period could pay immediately for the costs of a

prolonged conflict.51 Moreover, ordinary revenues were not just insufficient, but they also

dribbled in small amounts throughout the year and could not therefore provide the large sums

needed to put an army in the field.52 As before, European rulers turned to capital-holders for

additional revenues. However, although the ruler-trader alliance had the salutary effects of

facilitating both economic growth and nascent constitutionalism in the medieval era, an invidious

form of this alliance had the opposite effects of eroding both development and constitutionalism

in the early modern period.

As discussed above, medieval constitutionalism originally emerged when monarchs

wanted to levy new taxes to pursue war. After the dawn of the early modern period, various

European rulers did convene representative assemblies to approve new taxes. However,

representatives were loath to approve dramatic increases in taxes which monarchs claimed were

demanded by the exigencies of the time. Representatives were also suspicious that kings and

princes would use the standing armies thus created to establish autocracy. To solve the fiscal

crises and constitutional strains, various kings tried to subvert representative assemblies. They

did so by packing estates with supporters, bribing representatives into approving taxes that would

49 Downing 1992, 10. 50 Kennedy 1987, 65. 51 Kennedy 1987, 72. 52 Kaiser 1990, 20.

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be passed on to the powerless lower classes, or bypassing estates altogether in the name of raison

detat.53

In the art of subverting representative assemblies, Charles VII of France was the pioneer

ahead of other European powers. During the last decades of the Hundred Years War, Charles

VII originally had a hard time fighting the English king both as a foreign enemy and as a rival

claimant to the French throne. The turning point occurred in 1428 when the English assaulted

Orlans. This threat permitted Charles to raise 500,000 livre tournois from the assembly he

called at Chenon. From then on, the king increasingly treated imposition of taxes as royal

prerogative which did not require approval. In the face of incessant warfare, the Estates General

gradually surrendered their constitutional right to approve taxes. The assembly at Orlans in

1439 became the last national assembly to approve the taille (a direct tax).54 Together with the

establishment of the Compagnies dOrdonnance the first standing army in Europe in 1445,

Charles VII thus created a royal monopoly of both coercion and taxation.55

Frances invasion of Italy in 1494 compelled the Habsburg house to defend its Italian

possessions, thus kicking off a century-long Spanish-French rivalry. Desperate for new taxes, the

Emperor of the United Habsburgs Charles V proceeded to subvert the Castilian Estates.56 He did

so by reducing the Cortes to a single chamber of 36 deputies, then paying the deputies generous

salaries and expenses, granting to them a lump sum payment each time they voted increases in

servicios (a direct tax), and allowing them to keep 1.5 percent of newly approved alcabala (a 10

53 Downing 1992, 10, 14, 74-75. 54 North and Thomas 1973, 120-121. 55 Ertman 1997, 86-87. 56 Through intricate diplomatic marriages by the previous generation, Charles V simultaneously ascended to the crowns of Castile, Aragon, Burgundy, Austria, and the Holy Roman Empire in 1519, and also to the thrones of Hungary and Bohemia in 1526. However, Charles enjoyed de facto control only in Castile.

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percent sales tax) and millones (a tax on foodstuffs).57 As a result, although the Cortes led a

national revolt against Charles in the late 1510s, from 1520s onwards they loyally voted ever

larger sums in taxes for the emperors wars.58 Unfortunately, Charles subversion of the Cortes

not just eroded medieval constitutionalism, but also retarded economic development that was

reviving elsewhere in Europe. The new taxes granted preferential rates and even complete

exemptions to the privileged, but tended to hit at trade, the exchange of goods and the poor,59

with the result of destroying Spains economy in the long-term.60

The fiscal problems did not end there. As even dramatic increases in tax revenues were

insufficient to meet skyrocketing costs of war, both France and the United Habsburgs soon

resorted to a variety of expedients that were easy in the short term but disastrous for the long-

term good.61 Increasingly, they contracted loans and credits with Italian and German bankers,

and sold public offices to the highest bidders. But such ready cash came at a high price not just

because rulers had to pay high interest rates, but also because they signed away both the yield

and the administration of these revenues for years on end.62 While sovereign debts had begun in

the thirteenth century,63 they assumed much higher salience in the sixteenth century. Bankers

learned from widespread sovereign defaults in earlier centuries that there was simply no effective

57 Ertman 1997, 112-116. 58 Ertman 1997, 112-116. 59 Kennedy 1987, 53. 60 There was also the problem of the Mesta or shephards guild in Castile. The Crown had earlier granted the Mesta the right to drive their sheep across Spain in their accustomed manner. This means that no land owner could have exclusive rights to his property and so there were few incentives to engage in arable agriculture and much less to improve it. North and Thomas 1973, 130. However, as it was relatively easy to tax the Mesta, the Spanish king not only did not change this policy, but even outlawed farmers own efforts at enclosures. The result was widespread discontent and depopulation. North and Thomas 1973, 4-5. 61 Kennedy 1987, 54. 62 Kaiser 1990, 20. 63 Blockmans 1994, 244.

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means to enforce repayments because kings were above the law. Bankers thus demanded a high

risk premium in the form of higher interest rates.64 In France, Francis I (1515-1547) began to

borrow from Parisian businessmen at interest rates of 12-16 percent per annum.65 In Spain, the

annual interest charge for juros (interest-bearing government bonds) consumed 36.6 percent of

the Crowns total ordinary revenue in 1522.66 This interest payment climbed to 65 percent of

ordinary revenue in 1543,67 then to 103.9 percent by 1560.68 From then onward, the income from

nearly all of the Crowns most reliable and predictable taxes were pledged to bond holders.69

As the amounts of sovereign debts quickly exceeded the kings abilities to repay, bankers

became increasingly reluctant to lend even at handsome interest rates. French and Habsburg

rulers thus gradually transferred control over future sources of revenues into the hands of

creditors. Successive Spanish kings contracted asientos which pledged as collaterals shiploads of

gold and silver from the New World.70 In France, Henry I and II launched the sale of rentes and

guaranteed interest payments by signing over to lenders the right to income streams from pieces

of property (land or building). This means that, until reimbursement, the Crown had in fact

permanently alienated the revenue source against which the interest payments were guaranteed.71

In addition to contracting loans, French kings and Habsburg emperors also put up public

offices for sale. As Shultz and Weingast explain, [a]lthough an absolute monarch could not be

64 Shultz and Weingast 2000, 13. 65 Ertman 1997, 97. 66 Ertman 1997, 116. 67 Kennedy 1987, 54. 68 Ertman 1997, 116. 69 Ertman 1997, 116. 70 Ertman 1997, 117. Although the United Habsburgs seemed to be blessed with such an external source, the empire was also more burdened with the need to defend a far-flung empire. 71 Ertman 1997, 98-99.

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trusted or forced to pay back a loan, granting offices was a way to ensure that lenders would

receive compensation.72 Francis I first created 20 new positions in the Parlement of Paris in

1522. Henry II then established an entirely new system of courts in 1552, and later the alternatif

or the practice of sharing an office between two holders in 1554.73 Louis XIVs ministers even

created a host of entirely absurd offices, including official burial announcer, barrel roller, and

wall and room inspector.74 Bidders continued to be forthcoming because even absurd offices

carried exemptions from taxes and other privileges. Such massive sale of public offices gradually

led to the formation of corporate bodies of lenders who advanced cash to the Crown in exchange

for the right to levy a tax, to administer justice, to enforce laws, and to enjoy exemption from

taxes and other privileges.75 Similarly, in Spanish Castile, the royal court sold many whole

villages and towns into private hands, so that only about 30 percent of the territory of Castile

remained under royal authority in the late 1500s.76 A natural consequence of venality of public

offices was corruption of public finance. As each official could take his cut before passing

public revenues to a higher level,77 there were huge discrepancies between the amount of taxes

paid and the revenues that actually reached the courts. For instance, in France in 1752, the

overhead on a total revenue of 270 million livres amounted to 40.2 million, or nearly 15

percent.78

72 Shultz and Weingast 2000, 31. 73 Ertman 1997, 100-101. 74 Ertman 1997, 136. 75 Shultz and Weingast 2000, 30. 76 Ertman 1997, 119. 77 Kennedy 1987, 82. 78 Riley 1986, 60.

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Overall, the French and Spanish responses to heightened fiscal crises in the early modern

period involved not just erosion of medieval constitutionalism, but also retardation of economic

development in the long-term. The fiscal expedients they pursued only generated a vicious cycle

leading to ever-escalating fiscal crises: the more the crowns ordinary income became alienated,

the more desperate was its search for extraordinary revenues and new taxes;79 the more offices

were sold and the more loans were contracted, the more difficult it became to relinquish sold

offices and contracted loans. At various moments of acute desperation, the French court and the

Habsburg house also repudiated debts, debased their currencies, and declared bankruptcies,

thereby further hurting both the courts credit-worthiness and economic activities.80 Equally

ominous, the privatization of public finance turned the ruler-burgher alliance into an invidious

one. The emerging bourgeoisie who could potentially have played a progressive role in the

transition from the medieval to the modern were thus feudalized and made weak, craven, and

spineless.81

An Alternative Form of Ruler-Trader Alliance Which Promoted Development and

Consolidated Constitutionalism

The patron-client relations between rulers and traders in the French-Spanish trajectory

should resonate with various dismal stories in many corners of the world today. But there was an

alternative trajectory tracked by the United Provinces/Dutch Republic and then England/Britain.

Compared with the large and resourceful United Habsburgs/Habsburg Spain and Bourbon

France, the Dutch Republic and England were puny. Although the center of commerce gradually

79 Kennedy 1987, 54. 80 The Spanish Crown declared bankruptcies in 1557, 1575, 1596, 1607, 1627, and 1647, with grave impacts on the long-term credit market. North and Thomas 1973, 141.

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shifted from the Mediterranean to the Atlantic from the early sixteenth century on, the

subsequent rise of these countries was not at all obvious at the beginning.82

Indeed, the Netherlands was under Habsburg rule during the reigns of Charles V and

Philip II. It is paradoxical that, although Charles V resorted to dubious expedients which

simultaneously eroded the Cortes and impeded the economy in Castile, he laid down fiscal

institutions which both facilitated economic growth and strengthened the provincial States

(provincial assemblies) and States-General (an assembly of representatives from different

provinces) in the Habsburg Netherlands. Charles authority was more tenuous in the Netherlands

than in Castile, because he acquired the former from Burgundy by indirect inheritance through

dynastic marriages. He thus engaged in more bargaining than coercion in the far-away

possessions. To secure loans from wealthy Dutch burghers, the emperor shifted the responsibility

for debt collection and repayment from the Habsburg regent in Belgium to the provincial States

in 1515.83 On top of the fiscal institutions laid down by Charles, Dutch merchants further

adopted and adapted various credit instruments that had been developed by the Italians, including

bills of exchange, demand notes, deposit certificates, and the bonds of states and towns. As a

result, the Low Countries reaped full benefits from the dramatic expansion of international trade

and international finance in the sixteenth century. Antwerp soon came to dominate Europes

business transactions, and the Dutch provinces became the jewels of the Habsburg Empire,

furnishing the Crown with the bulk of its revenues.84

81 Hirschman 1992, 130. 82 For instance, Portugal had tried to divert the Mediterranean trade by military force but failed. The Dutch later succeeded not by violence, but by price competition resulting from more efficiency in both ships and economic organization. North and Thomas 1973, 112. 83 Shultz and Weingast 2000, 30. 84 North and Thomas 1973, 134.

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Charles Vs policy in the Netherlands was more or less in line with that of the preceding

Burgundian house, allowing a high degree of autonomy and extracting only reasonable amounts

of taxation. This changed, however, under Philip II (1556-1598). Faced with ever-escalating

fiscal crises, Philip decided to squeeze the Dutch harder by coercion. As Downing puts it, the

Spanish governor, the Duke of Alva, set about castilianizing the land: taxes were forced through

the States; the States-General was dismantled; and opponents were arrested and summarily tried

by Alvas Council of Blood.85 The Dutch revolted. Over night, Philip lost the bulk of his

ordinary revenues and even had to divert other resources to suppress the revolt. On the other

hand, the States-General and the efficient fiscal institutions which Charles had fostered allowed

the United Provinces to have sufficient political unity and financial resources to fight an

intermittent war of independence. Although Antwerp was sacked, it was quickly replaced by the

even more magnificent rise of Amsterdam. With the wealthiest economy of the time, the tiny

United Provinces not only repelled the bankrupt Habsburgs, but also established a trading empire

connecting Europe to Asia. The Dutch Republic gained Spanish recognition for its independence

in 1648.86

In the course of the Dutch war of independence, England was dragged into the War of

Armada (1585-1604) with Habsburg Spain, thereby diverting Spanish pressure on the United

Provinces. After the Dutch Republic gained independence, the two countries in turn became

entangled in three naval wars in 1652-54, 1665-67, and 1672-74. It is worth noting that England

looked more like Habsburg Spain and Bourbon France than the Dutch Republic at the time. In

the early sixteenth century, England had pursued the most desperate of expedients: the sale of

85 Downing 1992, 216. 86 The Dutch gained formal recognition from Spain in the Treaty of Mnster in January 1648. Note that this was a bilateral treaty and was not part of the Peace of Westphalia later in the same year. Osiander 2001, 268.

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religious properties at low rates, the seizure of the estates of nobles on trumped-up charges,

repeated forced loans, the great debasement of the coinage, and finally the recourse to the

Fuggers and other foreign bankers.87 Hence, by the reign of Charles I, the English state had

become a kind of parasite, extracting resources from the productive sectors of the nation and

redistributing them among a small political class with access to power, offices, and contracts.88

During the Second Anglo-Dutch War, English defenses had deteriorated to the point where the

Dutch were able to sail up to the Thames and burn the great naval dockyard at Chatham in

1667.89

Nevertheless, such humiliation also triggered a thorough review of corrupt practices in

the Navy and other government departments. Sir George Downing, who had been ambassador to

the Hague, sought to introduce Dutch institutions, most notably the public credit system. The

public credit system was so called because the Crown would directly borrow from the general

public rather than from financiers. To fully implement this policy, England needed an efficient,

centralized administration. First, the English Crown established the Treasury as the master

department over all other departments in 1679 and the Bank of England in 1694. Second, the

court abolished tax farming in customs tax, excise tax and hearth tax in 1671-84. At the same

time, it built up the efficiency and probity of the chief revenue-collecting (excise, customs, and

land tax) agencies and of main spending departments (most notably the army and navy). Third,

venality was replaced by meritocracy in the whole government structure civil and military.

While venality pitted officials private interests against a countrys national interest, meritocracy

87 Kennedy 1987, 60. 88 Ertman 1997, 184. 89 Ertman 1997, 194.

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could bring social and private rates of return into closer parity.90 In addition to administrative

and fiscal efficiency, the public credit system also required guarantees to investors that only a

representative assembly could provide.91 The Parliament thus came to the forefront of this

operation, with market forces and informed public opinion providing additional scrutiny.92 This

system came to maturity during the subsequent War of the Spanish Succession: Every year

Parliament voted supply of between 4 and 6 million pounds to prosecute the war, and every year

the general public advanced to the government the full amount of supply voted in cash in

exchange for Treasury Orders secured on the tax funds If for any reason the price of Treasury

Orders or departmental bills fell below par, the Bank of England stood ready to intervene at the

Treasurys request to prop up the market.93 In short, the public credit system provided a long-

term solution to the perennial problem of how to come up with large amounts of ready cash in

time of war without having to rely on such expedients as high-interest loans and sale of offices.

With an unprecedented ability to mobilize national resources, Britain soon took over the

preeminence of the Dutch Republic in the economic sphere,94 and Bourbon France in the military

sphere in the eighteenth century.

Britains ascendance over France was a surprise to contemporaries, because Frances

population was three times as big and its economy twice as large. But money formed the sinews

90 North and Thomas 1973, 2. To North and Thomas, this is the most important factor that defines efficient administration. Of course, meritocracy did not stamp out venality in one stroke. Britains ruling class continued to be dominated by the landed aristocracy well into the twentieth century. Nevertheless, the principle of meritocracy did help to make sure that it was the more competent among the aristocracy who enjoyed the power to rule. 91 Ertman 1997, 225. 92 Ertman 1997, 218. 93 Ertman 1997, 218. 94 North and Thomas emphasize that the Netherlands did not really decline. It is simply that the center of the economic stage shifts to England. North and Thomas 1973, 145.

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of power95 in the modern period, so that superior finance96 could be translated into superior

military strength. After the administrative-fiscal reforms, the British state could levy higher taxes

on its citizens and secure higher credits at lower interest rates. The following figures are

illustrative. While Frenchmen paid about 8.1 livres per capita in annual taxes in the first quarter

of the eighteenth century, Englishmen paid 17.6 livres. By the 1780s, Frenchmen paid 17 livres

per capita, but Englishmen paid 46 livres.97 While the French courts ratios of public spending to

national output were 8.7 percent and 10.3 percent in 1689-1699 and 1702-1715 respectively, the

British government could lift public expenditure from 4.2 percent in 1687, to 11.4 percent in the

1690s, and then to 14 percent the 1700s.98 Moreover, with superior access to credits, Britain

could sustain larger and longer wars well in excess of normal receipts without exhausting its

economy.99 In the average war year, Britains military spending amounted to 1-1.5 years worth

of revenue, while Frances comparable figure was 0.5-0.8. During the Seven Years War, Britain

outspent France by 40 percent, but it was France which went to the brink of bankruptcy.100 In

addition, while Britains credits took the form of perpetual redeemable securities and at the low

interest rates of 3-4 percent in the period 1689-1815, France had to rely on amortizing loans at 2

percentage points higher.101 As the British-French rivalry intensified in the eighteenth century,

France witnessed three major episodes of defaults. The centuries-old fiscal problems eventually

culminated in the fateful calling of the Estates General in 1789.

95 Brewer 1989. 96 Shultz and Weingast 2000, 22. 97 Brewer 1989, 89. 98 Ertman 1997, 134. 99 Shultz and Weingast 2000, 3-4, 47-48. 100 Shultz and Weingast 2000, 25-26. 101 Brewer 1989, 133; Ertman 1997, 141; Shultz and Weingast 2000, 24.

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Ruler-Trader Alliance, State Capacity, Development, and Constitutionalism

The French-Spanish and Dutch-English trajectories may now be examined together. In

the face of growing fiscal crises brought on by increasingly larger armies and increasingly

expensive weapons, rulers could mobilize additional revenues (1) by seeking approval and

guarantee from representative assemblies, or (2) by circumventing assemblies and turning to

bankers, financiers, and other wealthy individuals. Rulers had to bargain with capital-holders in

both scenarios, but the institutional settings in which the ruler-trader alliance occurred were very

different, with dramatic consequences. In France and Spain, the invidious ruler-trader alliance

subverted medieval constitutionalism, feudalized the emerging bourgeoisie, retarded economic

growth, and eroded military strength. In contrast, in the Dutch Republic and England/Britain, the

alliance between rulers and the emerging bourgeoisie not only enhanced military and economic

competitiveness, but also consolidated constitutionalism.

How do we account for the divergent trajectories? First, England was fortunate that the

Parliament was better able to resist the blandishments of ambitious rulers102 than the Cortes in

Spain or the Parlements in France. The English Parliament was territorially-based, whereby

privileged classes sat together in an upper house and representatives from localities sat in the

lower house. In contrast, the estate-based assemblies in France and Spain were divided into

separate chambers with each composed of one privileged group: the nobility, the clergy, or the

burghers. Ertman argues that estate-based assemblies were far more vulnerable to divide-and-

rule tactics, while territorially-based assemblies facilitated collective actions against the

encroachment of the Crown.103 England was also fortunate that it was less entangled with

102 Ertman 1997, 21. 103 Ertman 1997, 21-22.

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continental warfare than Spain or France in the sixteenth and seventeenth centuries. With less

severe fiscal crises, England had fewer sold offices and smaller amounts of debts to redeem

when it decided to pursue reforms.104 By the time England did become entangled with France

when William of Orange became king of both England and the Dutch Republic, the weak foreign

king was so committed to resist France that he was willing to yield to a united, reformist

Parliament. After the Glorious Revolution, all matters of war and peace and taxation had to be

jointly decided by the Crown in Parliament.

The superiority of the ruler-trader alliance in constitutional settings also rested with the

simultaneous building of state capacity. State capacity refers to the human and material

resources the state can mobilize for is purposes and the effectiveness with which it can achieve

its goals.105 It has become a clich to say that absolute rulers in Europe were not really absolute.

Indeed, [t]he doctrine of the absolute right of monarchs was a theoretical claim of weak rulers

for a far-off utopia they hoped to establish.106 For most of the early modern period, various

European states had small and ineffective bureaucracies, armed forces they did not control very

well, and all sorts of strong local authorities and overlapping jurisdictions.107 England suffered

from the same problems in the sixteenth and seventeenth centuries. But the Treasury established

in the reform era enabled Britain to become the first major European state to keep full accounts

of total government revenue and expenditure.108 Moreover, Englands reform package replaced

intermediate power-holders with centrally appointed officials. While reliance on tax farmers and

104 Brewer 1989, 69-70. 105 Wong 1997, 82. 106 Wallerstein 1999, 23. 107 Wallerstein 1999, 23. 108 Brewer 1989, 129.

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venal officials set serious limits on the quantity of resources rulers could extract from the

ambient economy,109 use of centrally appointed administrators allowed the central government

to identify potential tax bases, to assess tax liabilities in accordance with specific activities, and

to effectively collect revenues at the local level.

The symbiosis between constitutionalism and state capacity may also be analyzed in light

of the evolving literature on state strength. In the early round of scholarship to bring the state

back in,110 state strength was taken to mean the states ability to formulate interests and policies

on its own, independent of and even against the will of resistant societal interests.111 This

unidimensional view has been replaced by a multidimensional conception which differentiates

state autonomy from state capacity, and despotic power from infrastructural capacity.112 While

state autonomy and despotic power refer to rulers ability to act against societal interests, state

capacity in general and infrastructural capacity in particular refer to the ability to mobilize

resources and to deploy them effectively. As Barkey and Parikh put it, [s]tates with despotic

power are often characterized as strong, but their levels of autonomy and capacity are highly

variable. By contrast, states with infrastructural power enhance their capacities to carry out their

goals.113 Hence, although the English state was weak vis--vis the Parliament, it had a

tremendous capacity for extracting considerable sums in taxation and loans.114 In contrast, the

109 Tilly 1990, 104. 110 Evans, Rueschemeyer and Skocopol 1985. 111 Krasner 1984. 112 Katznelson 1992; Mann 1988. 113 Barkey and Parikh 1991, 526. 114 Barkey and Parikh 1991, 529.

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French state had a more conventional, despotic kind of power but it had very limited capacity to

mobilize resources from its populace.115

The multidimensional conception of the state also provides insight for the type of state-

society relations that best enhances state capacity. While the despotic power of the state is in

zero-sum conflict with society, the infrastructural power of the state is best achieved by state-

society cooperation. Constitutionalism was traditionally seen as a standoff between a would-be

despot and parliamentary opposition.116 But theorists of the state now speak of state-society

synergy,117 state-society partnership,118 and mutual empowerment of state and society.119

As Hobson puts it, state power is enhanced when the state co-operates with, and embeds itself

in, strong social power.120 In the image of the Crown-in-Parliament, the state-in-society

perspective now views constitutionalism as state-society partnership in the joint pursuit of

national interests.121

If economic development, constitutional rights, and even military capabilities are heavily

shaped by state capacity and state-society cooperation, then it is possible though by no means

easy for those that lagged behind to catch up. Thus, the United Provinces/Dutch Republic was

able to catch up with Italian city-states in the sixteenth century. England was able to catch up

with the Dutch Republic in the economic sphere and with France in the military sphere in the

eighteenth century. Even more dramatically, France was able to catch up with Britains military

115 Barkey and Parikh 1991, 529. 116 Downing 1992, 54. 117 Evans 1997, 81. 118 Unger 1987, 170. 119 Wang 1999, 234. 120 Hobson 2002, 74. 121 See Migdal et al. 1994.

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prowess after the French Revolution. After revolutionaries overthrew centuries-old expedients

and installed unprecedented direct rule,122 France could engage in near total mobilization by

imposing national taxation and universal national conscription.123 Napoleonic France came very

close to dominating the European continent. Britain eventually defeated France only with the

assistance of allies.

Lessons from the West on the Rest

Smith, Solinger and Topik argue that, by beginning with the history of globalization, we

are better able to appreciate the situations and dilemmas of states in the world today, as well as

the forces that have shaped them over time.124 Can we draw any lessons from the Western

world in the medieval and modern period on the Rest in the contemporary era? The contrasting

trajectories of France and Spain on the one hand and the Dutch Republic and England on the

other hand have important implications for economic growth and constitutional rights in

developing countries. In the early stage of the post-colonial era, there was an optimism that all

developing countries should sooner or later share the fruits of both economic and political

modernization. However, that did not happen in most parts of the world. Instead, growing trade

expansion in the post-WWII era only accentuated the gap between the West and the Rest. In the

late 1960s and 1970s, Latin American scholars thus propounded the theory of development of

122 As Tilly observes, no European state made a serious attempt to institute direct rule from top to bottom until the era of the French Revolution. Tilly 1990, 25. More or less simultaneously [the revolutionaries] recast the French map into a nested system of departments, districts, cantons, and communes, while sending out reprsentants en mission to forward revolutionary reorganization. They installed direct rule. Tilly 1990,109. 123 In response, Britain introduced the income tax (which was repealed after the Napoleonic Wars) but not yet direct rule. 124 Smith, Solinger and Topik 1999, 10.

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underdevelopment, arguing that underdevelopment in the periphery was the necessary

corollary of development in the West.125

The dependency theory, however, was soon shattered by the East Asian miracle.126

After Japans miraculous127 rise to become the worlds second largest economy, four East Asian

newly industrialized countries (NICs) Taiwan, South Korea, Hong Kong, and Singapore also

witnessed phenomenal economic growth in the 1980s. Like the literature on the European

miracle,128 the literature on the East Asian miracle has little patience with the pessimism of

the dependency school or the cynicism of anti-globalization critics. Indeed, scholars of East

Asian political economy emphasize that catching up is possible and that economic development

is a function of state policies.129 Although the task of catching up has become increasingly

difficult because late developers face increasingly large-scale markets and high entry costs,

success is still possible if the state mobilizes national resources, builds efficient institutions, and

support infant industries in the national pursuit of the developmental project.

While scholars of both the East Asian miracle and the European miracle agree on the

possibility of catching up, they tend to diverge on the relationship between development and

constitutionalism. Constitutionalism now means more than just checks on the king; it refers to

democratic elections with free and fair multiparty contests, human rights and freedom of

125 Wallerstein 1974, 392. 126 The World Banks 1992 report coins the success of the East Asian NICs as the East Asian miracle. World Bank 1992. 127 Johnson 1982. 128 Jones 1988. 129 It is typically argued that the East Asian NICs have been more successful than Latin American economies because the former have pursued export-led growth while the latter pursued the import-substitution policy. See Haggard 1990.

Victoria Hui 33

expression, and the rule of law.130 Specialists of East Asia argue that such Western-style

democracy and human rights are not suitable to Asian culture and may even be harmful for

development.131 In this view, the global market presents a hard choice between economic

development and constitutional rights. East Asian experts argue that the so-called

developmental state should be authoritarian because the developmental project involves high

extraction and short-term sacrifices for societal actors.132 As Haggard explains, [s]ince

authoritarian political arrangements give political elites autonomy from distributionist pressures,

they increase the governments ability to extract resources, provide public goods, and impose the

short-term costs associated with efficient economic adjustment. Weak legislatures that limit the

representative role of parties, the corporatist organization of interest groups, and recourse to

coercion in the face of resistance should all expand governments freedom to maneuver on

economic policy.133 This argument is squarely at odds with the European experience that it was

constitutional Britain, rather than absolutist France, which could extract higher rates of taxation,

surpassed France in military competition, and kicked off the industrial revolution. The

developmental thesis often points to Germany, which caught up with Britain in the late twentieth

century by pursuing ruthless state-led industrialization. But Germany is hardly representative of

the European experience.134 Ertman, who studies all countries in the European Christendom,

observes that, if the European past holds one overriding lesson for todays state-builders, it

130 Davis 2002, 5. 131 Haggard 1990; Kausikan 1997. 132 Johnson 1982. See also Deyo 1987; Woo-Cummings 1999. 133 Haggard 1990, 13. 134 Germany was quite a different story apart from both the French-Spanish and Dutch-English trajectories. In the early modern period, geographical Germany constituted the Holy Roman Empire. After the Thirty Years War, the Peace of Westphalia restored constitutional checks and balances within the empire. The levels of state capacity

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would be this: it is the combination of a strong center and strong, participatory localities

which, over the long run, will best permit states to balance the demands of infrastructural

expansion, political participation, economic growth, and geopolitical competition.135

Although the early literature on the East Asian miracle was disconnected with the

Western experience, more and more scholars of East Asia have over time turned to the literature

on state-society relations to challenge the claim that the developmental state must be

authoritarian. For instance, Friedman argues that [a] strong state is not an authoritarian or

parasitic state. A strong state is one with the capacity to formulate, legitimate, and implement

crucial policies.136 Among the four East Asian NICs, South Korea and Taiwan underwent

successful transitions to democracy in the 1990s. Like the Dutch-English model, these states now

enjoy both development and constitutionalism. Asian economies were hard hit by the Asian

financial crisis, but those that are more democratic have been more resilient.137

What about the rest of the Rest? It is worrisome that South America and Central

America now risk becoming another Africa.138 Various Latin American economies are again on

the verge of another financial crisis. Argentinas economy has already collapsed. But Argentina

is not alone, most of Latin America, in particular, Uruguay, Paraguay, Bolivia, Colombia,

Venezuela are as badly off or worse.139 The current problems are, to some extent, a legacy of

varied across autonomous principalities, highest in Brandenburg-Prussia but lower in others. Osiander 2001, 269-277. 135 Ertman 1997, 324. 136 Friedman1999, 247. 137 Emmerson 1998; Haggard 2000. 138 Kristof 2002. 139 Ibid.

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easy credits in the 1970s and debt crises in the 1980s.140 As the French and Spanish experiences

illustrate, it is very difficult to get out of the vicious cycle of unsustainable debts. Africa is in

even worse shape. The World Banks World Development Report points out that state failure in

sub-Saharan Africa has reached crisis proportions as the state has failed to deliver even such

fundamental public goods as property rights, roads, and basic health and education.141 Not

surprisingly, such [f]ailed states, disorderly states, weak states, and corrupt states are shunned

as the black holes of the global economic system.142

To some extent, the worst cases in the contemporary Rest are similar to the worst case in

the early modern West, Spain. The United Habsburgs enjoyed access to treasures from the New

World and payments from the rich Netherlands and Italian city-states (Naples and Milan). At the

empires height, Spain itself (mostly Castile) provided only about 10 percent of the empires

revenues. While such enviable external sources helped to explain Habsburg power under Charles

V, they equally explained its decline from Philip II on. The availability of easy cash meant that

Charles had no need to engage in the difficult tasks of building up administrative capacity or

mobilizing support from the productive sectors of the empire. However, when the Dutch

provinces revolted, and when the influx of bullion leveled off at the end of the sixteenth century

and then declined precipitously from the 1630s onward, Habsburg Spain was constantly on the

verge of bankruptcy.143 Similarly, in the developing world, the worst cases now often appeared

to be the most blessed at the moment of independence they were either richly endowed with oil

or other precious minerals, or strategically located and enjoyed handsome foreign aids. With

140 Frieden 1991. 141 Cited in Krasner 1999a, 145. 142 Wolf 2001, 191. 143 North and Thomas 1973, 128-131.

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such easy sources of revenues, rulers of these newly independent states did not have to extract

taxation from their populations and did not have to bargain with societal actors. They could

therefore enjoy high degrees of state autonomy and despotic power. However, when economic

crises hit, or when demand for their minerals plummet, or when their natural resources dry up,

these states have little viability to survive. Even in oil-rich countries where resources seem

inexhaustible and the global demand robust, rulers often exercise despotic power with little state

capacity.

If different states East and West, now and then could achieve development and

constitutionalism, then it is difficult to agree with anti-globalization protestors to place all the

blame of such dismal conditions on the West. At the same time, advocates for globalization

should understand that catching up is a daunting process, requiring extraordinary efforts if not

revolutionary changes and extraordinary luck. Failed states are unlikely to be able to pick up

such extraordinary efforts on their own. The World Bank has taken steps to rebuild state

effectiveness through an overhaul of public institutions, reasserting the rule of law, and credible

checks on abuse of state power.144 Even the IMF, whose original mandate was merely to

maintain international balance-of-payments stability, has moved toward structural reforms to

build up administrative capacity necessary for sustainable economic development. These state-

building efforts should be intensified. It may be said that World Bank and IMF conditionality has

made indebted states more vulnerable to the exigencies of the international market, thereby

generating further disruptions rather than promoting growth.145 These Bretton Woods institutions

have acknowledged that some of their earlier conditions were excessive. But the more

144 Cited in Krasner 1999a, 145. 145 Stigliz 2002.

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fundamental problem is probably not liberalization per se, but weak administrative capacity and

regulatory oversight that have made debtor countries so vulnerable to economic downturns.146 As

Evans puts it, high stateness is a critical competitive advantage in a globalized economy.147

From this perspective, it may be more useful to see the globalized market as a realm of

opportunity into which [states] can dip in order to push through reforms.148 In the long-run,

the winners will be those whose government and society are resilient enough to withstand the

shocks and surprises that the fast-changing global economy inevitably brings.149 It may be

further argued that any efforts by international institutions to engage in state-building would

violate state sovereignty. It is important not to overlook that Spanish and French rulers were once

far more vulnerable to international financiers. The lesson from history is that debtors are

inevitably at the mercy of creditors150 -- the only way to break out of dependence on external

actors is to build up state capacity and to depend on societal actors.

Concluding Remarks

This paper evaluates globalization in the longue dure, analyzing not only its impacts on

development and constitutionalism, but also its origins and evolution over time. I have discussed

processes of globalization from the medieval period onward, the resultant ruler-trader alliance,

and the emergence of medieval constitutionalism. It is often overlooked that constitutionalism as

well as capitalism were brought about by self-serving capital-holders who are denounced by anti-

146 Eichengreen 2002. 147 Evans 1997, 68. 148 Hobson 2002, 75. 149 Plattner 1999, 168. 150 As Mann puts it, Restructuring is now extreme across much of [Latin American] region, virtually eliminating macroeconomic planning and trimming welfare states. But this may result less from transnationalism than from the power conferred on finance capital and its major institutions by the burden of debt. Mann 1999, 247.

Victoria Hui 38

globalization protestors.151 However, not all forms of ruler-trader alliance have salutary effects.

The divergence between the Dutch-English trajectory and the French-Spanish trajectory in terms

of both economic and constitutional developments is instructive. While the former achieved

international competitiveness at the price of making concessions to society, the latter maximized

despotic power at the price of economic stagnation and constitutional erosion. To achieve

simultaneous economic growth and constitutional rights, the ruler-trader alliance should be

embedded with state-society partnership and with state capacity. In short, the challenge of

globalization is the same now and then, Rest and West. Just as European states had to build up

state capacity in the early modern period, developing countries have faced the same daunting

task in the post-WWII era.

151 While the self-serving bourgeoisie should be credited for the emergence of constitutionalism, they played no progressive role in the expansion of constitutionalism. Capitalists pushed for their own inclusion in state affairs, but they were very reluctant to extend the franchise to the lower classes. See Rueschemeyer, Stephens and Stephens 1992.

Victoria Hui 39

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