Organizations, Civil Society, and the Roots of Development

October 24-25, 2014
Naomi Lamoreaux, Yale University, and John Wallis, University of Maryland, Organizers

Margaret Levi, Barry Weingast, and Frances Zlotnick, Stanford University, and Tania Melo, University of Washington

Opening Access, Ending the Violence Trap

Open access to the corporate form of organization in the United States occurred in the 1840s. Yet open access to labor organization took nearly a century more, occurring as part of the New Deal in the mid-1930s. Open access to labor organizations seemed impossible as long as the commitment problems remained unsolved and the violence problems continued. Levi, Melo, Weingast, and Zlotnick review the history of labor unions, business responses, and government interventions over nearly a century and investigate the legislative history and the development of administrative law during the New Deal. From this material, the researchers build a game-theoretic model that allows us to answer their three major questions: why did labor violence persist for so long; what did the NLRA do that solved the problem of violence; and why did the government have incentives to design the NLRA and to become a neutral player in the NLRB regulatory process?

Victoria Johnson, University of Michigan, and Walter Powell, Stanford University

Poisedness and Propagation: Organizational Emergence and the Transformation of Civic Order in 19th-Century New York City

The emergence of novelty, especially of new categories of people and organizations, is undertheorized in the social sciences. Some social worlds are more hospitable to novel introductions or exogenous perturbations than are others. Explaining this relative "poisedness" is essential to understanding when and why new organizational forms appear, persist, and expand, both cognitively and geographically. This task, which calls for multi-level analysis on an expansive temporal scale, poses a considerable -- and as yet unmet -- challenge. Johnson and Powell offer a comparative analysis of two cases of emergence in 19th-century New York City that examines the conditions under which a new organizational form -- a research-intensive botanical garden -- developed and took root. The researchers show that social worlds are highly poised when macro-level processes reinforce one another as well as galvanize meso-level processes. Poisedness is amplified when the social character of the individuals produced by specific historical milieux attunes these innovators to the larger social and material processes that favor the creation of new modes of organization. Through their analysis of poisedness in a specific time and place, New York City over the course of the 19th century, the authors generate theoretical and methodological insights to explain the emergence of new organizational forms in other social realms.

Dan Bogart, University of California, Irvine

Securing the East India Monopoly: Politics, Institutional Change, and the Security of British Property Rights Revisited

The history of the English East India Company yields new insights on the relationship between politics, institutional change, and the security of property rights in Britain. The Company had a legal monopoly over all trade between Britain and Asia, but its privileges and property were far from secure especially in the seventeenth century. In this paper, Bogart shows how fiscal extractions and government supported attacks on its trading privileges were common in the 1600s. Extractions and attacks were also costly to the Company in terms of market value and the loss of assets. Most notably, the Glorious Revolution did not increase security in the short-run as the Company was forced to share its monopoly profits with a government sanctioned rival. The eighteenth century proved to be more hospitable to the East India Company's rights because acts of parliament provided stronger legal protections than royal charters and because British politics were more stable. Greater fiscal capacity in the eighteenth century also made the Company a less attractive target for government extractions.

Qian Lu, University of Maryland, and John Wallis

Banks, Politics, and Political Parties: From Partisan Banking to Open Access in Early Massachusetts

Eric Hilt, Wellesley College and NBER

General Incorporation and the Shift toward Open Access in the Nineteenth-Century United States

In this paper, Hilt analyses general incorporation acts for manufacturing firms up to 1860. The researcher presents a new chronology of the adoption of these acts across the states and territories, and documents the terms they contained. The paper then analyzes the political and economic forces that influenced the decision to enact general laws, and the regional variation in the terms of the laws. The results indicate that several states enacted general laws much earlier than previous scholarship has indicated, and that there was substantial variation in the degree of flexibility offered to incorporators across states, with some statutes granting near total freedom over the internal governance of corporations, whereas others imposed strict regulations. Southern states often enacted particularly liberal statutes, but they also granted control over access to the statute to a government official, or even explicitly excluded nonwhites from using their laws. The states that failed to adopt general incorporation tended to offer particularly generous access to corporate charters through special legislative acts. Taken together, these results imply that the transition to general incorporation did not always represent a discrete change in the degree to which entrepreneurs enjoyed access to the corporate form. Rather than moving from limited access to open access, early general acts often represented more of an intermediate step.

Barry Weingast, Stanford University

From "The Lowest State of Poverty and Barbarism" to the Opulent Commercial Society: Adam Smith's Theory of Violence and the Political Economics of Development

What accounts for the differences in the "wealth of nations"; that is, the differing levels of opulence across countries? Adam Smith's answer to these questions is complex and has yet to be fully understood. Moreover, Weingast argues that it is as relevant today as it was in Smith's time. On the economic side, Smith's answer is well-known and includes the division of labor, the role of capital, and the absence laws and regulations that encumber competition and markets. Yet Smith did not confine himself to economic issues, instead turning equally to politics. As the researcher demonstrates, violence is central to Smith's approach to development, and Smith scholars have systematically under-appreciated the importance of violence in his approach to economic and political development. In the face of violence, individuals have little incentives to be industrious, to save, or to invest. Development, therefore, requires solving the problem of violence. The author also shows that Smith's theory of opulence depends on three mutually reinforcing elements, liberty, commerce, and security. If commerce represents the development of markets in Smith's approach, we can think of liberty and society as providing the legal and military infrastructure to sustain markets.

Jacob Levy, McGill University

Corps Intermédiares, Civil Society, and the Art of Association

In this paper, Levy traces the shifts in treatments of intermediate groups among some liberal and democratic political theorists in the 18th and 19th centuries: Montesquieu, Smith, Constant, and Tocqueville. The decades of the late 18th and early 19th centuries are traditionally understood to encompass the emergence of fully liberal political and social theory, and an early version of liberal political practice, in France, the U.K., and the U.S.; they have lately been identified by North, Wallis, and Weingast as the decades when those three societies substantially made the transition to "open access" political, economic, and legal orders. This transition consists in part in the democratization of organizational tools that had previously been open only to members of the elite, such as the shift from specially chartered monopolistic corporations to general incorporation laws, and that from parliamentary oligopolistic party competition to modern parties competing in wide-suffrage elections. Although the early liberal theorists did not fully perceive the changes happening around them, their analyses and reactions can help us see things about the shift to open-access orders that might not be fully visible in retrospect. To varying degrees they looked forward to the possibility of a pluralism without privilege, but they also had doubts about its possibility. They offered some reasons to prefer pluralism with privilege to the absence of both.

Ruth Bloch, University of California, Los Angeles, and Naomi Lamoreaux

Legal Constraints on the Development of American Non-Profit Groups, 1780-1900

Nonprofit organizations, also commonly called (and referred to in this paper) as voluntary associations, have long been viewed as an essential ingredient of modern civil society. Indeed, no other type of institution, with the possible exceptions of the free press and entrepreneurial business, has received as much credit for the historical emergence of liberal democracy. What has made nonprofit groups so vital to free societies is their presumed independence from governmental control. Their position "outside the state" has, according to this logic, rendered civic-minded groups capable of constructive criticism of the government in much the same manner as a free press. Since the time of Tocqueville, the early history of the United States has been used by scholars of democratic civil society as a prime illustration of these themes. This chapter revises the standard Tocquevillian account of United States history by accentuating the role of state courts and legislatures in the creation and regulation of American nonprofit groups between the Revolution and the end of the nineteenth century. From the outset, Bloch and Lamoreaux argue, the development of American civil society was significantly constrained by the law. The narrative the researchers present in the following pages is broken into three overlapping chronological periods, roughly 1750-1820, 1800-1850, and 1830-1900. Each of these periods is in turn subdivided thematically in order to highlight continuities and changes in access to corporate rights on the part of nonprofit groups.

Richard Brooks, Columbia University, and Timothy Guinnane, Yale University

The Right to Associate and the Rights of Associations: Civil-Society Organizations in Prussia, 1794-1908

Civil-society organizations are thought to form an important "third sector" of society, one that plays a central role in both democratic and non-democratic regimes. Today one mark of a repressive government is its effort to suppress or limit civil-society organizations. These limitations have a long history, and existed even in relatively democratic societies. Brooks and Guinnane outline a simple framework for thinking about the right to associate and the rights of associations, and illustrate it using examples from U.S. history. Then the researchers focus on Prussia, tracing the history of limitations on association and civil-society organizations in Prussia from the late eighteenth century to the outbreak of World War I. Prussian governments restricted the right to associate, but, just as importantly, they denied to most civil-society organizations corporative legal rights such as the ability to contract in their own right. The researchers argue that the latter rights are crucial to effective civil-society organizations, and trace the process by which Prussia (later Germany) liberalized its treatment of such groups. In a brief overview the authors show that similar limitations operated in France in the nineteenth century, even though France after the Revolution had a very different constitutional order. The rights demanded by civil-society groups were virtually identical to those offered to business organizations. The researchers document the close association between the rights of business organizations and those of civil-society groups.