The Evolution of a Nation: How Geography and Law Shaped the American States: 37 (The Princeton Economic History of the Western World) - Hardcover

Berkowitz, Daniel; Clay, Karen; Clay, Karen B.

Hardcover

ISBN 10: 0691136041 ISBN 13: 9780691136042

Publisher: Princeton University Press, 2011

Synopsis

Although political and legal institutions are essential to any nation's economic development, the forces that have shaped these institutions are poorly understood. Drawing on rich evidence about the development of the American states from the mid-nineteenth to the late twentieth century, this book documents the mechanisms through which geographical and historical conditions--such as climate, access to water transportation, and early legal systems--impacted political and judicial institutions and economic growth. The book shows how a state's geography and climate influenced whether elites based their wealth in agriculture or trade. States with more occupationally diverse elites in 1860 had greater levels of political competition in their legislature from 1866 to 2000. The book also examines the effects of early legal systems. Because of their colonial history, thirteen states had an operational civil-law legal system prior to statehood. All of these states except Louisiana would later adopt common law. By the late eighteenth century, the two legal systems differed in their balances of power. In civil-law systems, judiciaries were subordinate to legislatures, whereas in common-law systems, the two were more equal. Former civil-law states and common-law states exhibit persistent differences in the structure of their courts, the retention of judges, and judicial budgets. Moreover, changes in court structures, retention procedures, and budgets occur under very different conditions in civil-law and common-law states. The Evolution of a Nation illustrates how initial geographical and historical conditions can determine the evolution of political and legal institutions and long-run growth.

About this title

About the Author

Daniel Berkowitz is professor of economics at the University of Pittsburgh. Karen B. Clay is associate professor of economics at Carnegie Mellon University.

From the Back Cover

"In this book, Berkowitz and Clay make major contributions to understanding the nature of economic development. They do a superb job examining the evidence about the importance of geography, institutions, and laws in influencing the causes and consequences of state courts and legislatures from the colonial era up to today. Their approach and findings will become central to the ongoing study of economic growth."--Stanley L. Engerman, University of Rochester

"This remarkable book tackles one of the most important and yet underresearched topics in institutional economics: how institutions persist over time and the mechanisms via which they do so. Focusing on political competition and judicial independence across U.S. states, the book combines rich historical narrative with sophisticated social science and is a must-read for anyone with an interest in comparative institutional and economic development."--James Robinson, Harvard University

"Berkowitz and Clay not only produce convincing evidence of the effect of political competition and judicial independence on economic performance in American states. They also present a fascinating and comprehensive institutional history of the United States using the latest quantitative tools in the social sciences. A great piece of modern institutional and historical analysis."--Gerard Roland, University of California, Berkeley

"This book is the latest evidence suggesting that institutions have long lasting effects on the organization and performance of societies. Using the legal origins of American states, Berkowitz and Clay show that accidents of being colonized by a common or civil law power reverberate right up to the present day. Their results challenge those who believe that institutions are not important in economic history. They also challenge those who believe institutions are important to explain how, despite ongoing institutional change, patterns from the past continue to influence behavior in the present."--John Wallis, University of Maryland

"Berkowitz and Clay provide an imaginative integration of recent scholarship from a wide range of disciplines, including economics, political economy, economic geography, the theory of institutions, and law. The result is a fresh look at American history which emphasizes the persistence of institutions and the long-term implications of common law versus civil law traditions in the various colonies."--Barry Weingast, Stanford University

"This book is a tour de force on the persistent but often neglected influence of geography on the development of key political and legal institutions in the U.S. states. Along the way, it pulls off the seemingly impossible by opening up new lines of inquiry in not one but as many as four disciplines: law, economics, political science, and history."--Lee Epstein, University of Southern California

From the Inside Flap

"In this book, Berkowitz and Clay make major contributions to understanding the nature of economic development. They do a superb job examining the evidence about the importance of geography, institutions, and laws in influencing the causes and consequences of state courts and legislatures from the colonial era up to today. Their approach and findings will become central to the ongoing study of economic growth."--Stanley L. Engerman, University of Rochester

"This remarkable book tackles one of the most important and yet underresearched topics in institutional economics: how institutions persist over time and the mechanisms via which they do so. Focusing on political competition and judicial independence across U.S. states, the book combines rich historical narrative with sophisticated social science and is a must-read for anyone with an interest in comparative institutional and economic development."--James Robinson, Harvard University

"Berkowitz and Clay not only produce convincing evidence of the effect of political competition and judicial independence on economic performance in American states. They also present a fascinating and comprehensive institutional history of the United States using the latest quantitative tools in the social sciences. A great piece of modern institutional and historical analysis."--Gerard Roland, University of California, Berkeley

"This book is the latest evidence suggesting that institutions have long lasting effects on the organization and performance of societies. Using the legal origins of American states, Berkowitz and Clay show that accidents of being colonized by a common or civil law power reverberate right up to the present day. Their results challenge those who believe that institutions are not important in economic history. They also challenge those who believe institutions are important to explain how, despite ongoing institutional change, patterns from the past continue to influence behavior in the present."--John Wallis, University of Maryland

"Berkowitz and Clay provide an imaginative integration of recent scholarship from a wide range of disciplines, including economics, political economy, economic geography, the theory of institutions, and law. The result is a fresh look at American history which emphasizes the persistence of institutions and the long-term implications of common law versus civil law traditions in the various colonies."--Barry Weingast, Stanford University

"This book is a tour de force on the persistent but often neglected influence of geography on the development of key political and legal institutions in the U.S. states. Along the way, it pulls off the seemingly impossible by opening up new lines of inquiry in not one but as many as four disciplines: law, economics, political science, and history."--Lee Epstein, University of Southern California

Excerpt. © Reprinted by permission. All rights reserved.

The Evolution of a Nation

HOW GEOGRAPHY AND LAW SHAPED THE AMERICAN STATESBy Daniel Berkowitz Karen B. Clay

PRINCETON UNIVERSITY PRESS

Copyright © 2012 Princeton University Press
All right reserved.
ISBN: 978-0-691-13604-2

Contents

Acknowledgments.......................................................................ixChapter One Introduction.............................................................1Chapter Two Legal Initial Conditions.................................................16Chapter Three Initial Conditions and State Political Competition.....................60Chapter Four The Mechanism...........................................................92Chapter Five State Courts............................................................133Chapter Six Legislatures and Courts..................................................169Chapter Seven Institutions and Outcomes..............................................192References............................................................................203Index.................................................................................223

Chapter One

Introduction

Countries around the world exhibit striking differences in per capita income. For example, in 2008, income in the United States, Singapore, and Switzerland was roughly forty times higher than income in Nepal and Uganda. There are also differences within countries. In the United States in 2000 income in the state of Connecticut was almost twice as high as income in the state of Mississippi. In Russia, income in the city of Moscow was six and a half times higher than income in the neighboring Ivanovo oblast. What drives the disparities?

The disparities appear to be driven in part by political and legal institutions. Political institutions such as legislatures influence key aspects of the economy, including the rights individuals hold vis-à-vis land, labor, capital, materials, and intellectual property. Legal institutions—in particular courts—play an integral role in defining and enforcing rights. This discussion pushes the question back one level. What drives differences in political and legal institutions across countries?

A recent literature suggests that differences in institutions and income are driven by a combination of geographic and historical factors. Gallup, Sachs, and Melllinger (1998), Mellinger, Gallup, and Sachs (2000), Sachs and Malaney (2002), Sachs (2003), and Nunn and Puga (2009) argue that geography influences income through its effects on public health, productivity, trade costs, population growth, and investment. Diamond (1997) makes the case that distance from historically critical trade routes and centers of knowledge influences income through its impact on the diffusion of technology and knowledge.

Several studies argue that geography and the disease environment at time of settlement have influenced the character of institutions in former European colonies. Engerman and Sokoloff (1997 and 2005) argue that climate and soil shaped the subsequent character of political institutions. In colonies that were warm and rainy and had soil suitable for sugar and other staples, "bad" political institutions representing the narrow interests of wealthy elites emerged. In colonies that were colder and dryer and had different soil conditions, "good" political institutions representing broader interests were established. Acemoglu, Johnson, and Robinson (2001) provide evidence that the disease environment at time of settlement shaped the quality of institutions that protect property rights. In colonies where early settlers had a good chance of surviving, "good" institutions that protected property rights and limited the power of the government to expropriate emerged. By contrast, in colonies where early settlers were likely to contract life-threatening diseases, "bad" institutions that allowed settlers to easily extract resources emerged.

Historical factors such as legal and governmental institutions also appear to have been influential. France and many other European countries inherited or appropriated a civil-law legal system early in their histories. Although civil law is conventionally referred to as a legal system, it represents a particular approach to governance that goes well beyond the courts. Through colonization, these countries spread civil-law legal systems to many other parts of the world, including North America, South America, Asia, and Africa. England, for a whole host of historical reasons, developed a quite different legal and governmental system that came to be known as common law. Through colonization, it too spread common law to many other parts of the world.

Documenting how and why geography and other historical factors have had a persistent influence on political and legal institutions is challenging. The challenge arises because many countries lack the detailed qualitative and quantitative evidence necessary to document persistence and to test the relevance of alternative mechanisms. Lacking data on political institutions, Sokoloff and Engerman (2000) investigate a variety of indirect measures such as the timing and intensity of the extension of the voting franchise, the funding of public schools, and the allocation of land grants to immigrants in the Americas. Acemoglu and Robinson (2006) use a model to explain persistence of political institutions even in the face of large changes in the franchise. Glaeser and Shleifer (2002) and Klerman and Mahoney (2007) use historical evidence on England and France to show how legal origins shaped the evolution of legal procedures and judicial independence. Our attempts in two earlier papers to understand how and why colonial legal institutions have had persistent effects on American state constitutions and state courts (Berkowitz and Clay 2005, 2006) were a major motivation for this book.

This book uses detailed historical evidence to analyze how and why geographical and colonial initial conditions have affected the evolution of legislatures and courts in the American states. The American states have relatively diverse geographic and colonial initial conditions, well-documented historical experiences, and rich data on politics and courts going back to the 1860s. At the same time, a focus on the American experience avoids the problem of analyzing countries that often differ along many different dimensions and have had wildly different historical experiences. The primary goal of this book, then, is to understand political and legal institutions. In the conclusion, however, initial conditions are used to shed light on the contribution of political and legal institutions to long-term growth.

Figure 1.1 outlines the structure of the argument in the book. It is useful to begin by considering the two types of institutions of interest—state legislatures and state courts—near the top of the figure. Political competition in state legislatures is of interest because it is thought to lead to better economic and social outcomes. In the international context, Gryzmala-Buesse (2007), Jackson et al. (2005), Rodrik (1999), and Remington (2010) have found strong positive associations between the extent of political competition and outcomes such as government efficiency and corruption, the entry and subsequent growth of new firms, the provision of public goods, tax compliance, and manufacturing wages. The relationship between political competition and economic and social outcomes in the United States has been the focus of considerable discussion, but causal inference has been difficult. Besley, Persson, and Sturm (2010) use the 1965 Voting Rights Act as a source of exogenous variation—the federal government forced many southern states to allow registration of practically all individuals of voting age. They show that political competition was associated with growth through its influence on probusiness policies such as lower state taxes, higher state infrastructure spending, and the increased likelihood of a state having a right-to-work law.

Judicial independence in the state high court is also related to important political and economic outcomes. Using a large sample of countries, La Porta et al. (2004) have shown that judicial independence is associated with stronger security of property rights, lighter government regulation, less state ownership, and more political freedom. A determinant of judicial independence in the American states is whether judges are elected. Former U.S. Supreme Court justice Sandra Day O'Connor has warned of the threat to judicial independence created by the "flood of money into courtrooms by way of increasingly expensive and volatile judicial elections." Moreover, the available evidence suggests that courts in states where sitting judges face partisan elections issue higher tort awards, rule more frequently against out-of-state businesses, have a higher likelihood of siding with state agencies in challenges to regulations, have a lower likelihood of enforcing constitutional restrictions on deficit financing, and also have more punitive sentencing outcomes.

Levels of interparty competition in state legislatures and the levels of independence of judges in the state's highest courts have been highly persistent over the period 1866–2000. Interparty competition is measured by examining the division of seats between the Democrats and the Whigs and later between the Democrats and the Republicans. This division is measured by the Ranney index of political competition. The index runs from 0, when one party holds all of the seats, to 100, when the parties each hold the same number of seats. The level of independence of judges is measured on a nine-point scale that captures what a state high court judge needs to do to remain on the bench. Having to run for reelection in a partisan race is considered the lowest level of independence, because judges may feel pressure to make politically popular decisions, even if they consider the decision to be legally incorrect. Having a lifetime appointment is considered the highest level of independence, because judges can make whatever decisions they believe are correct with virtually no political ramifications.

Figures 1.2 and 1.3 demonstrate the extent of this persistence of interparty competition and judicial independence. Persistence is measured by examining the correlation in political competition or judicial independence over time. If relative levels are persistent—states with high levels of political competition or judicial independence had high levels in other time periods—then the correlation between time periods should be high. Conversely, if they are not particularly persistent, then the correlation will be low. Figure 1.2 shows that the political competition in state legislatures in 1900–1918 was quite highly correlated with other subperiods during 1880–2000. The period 1866–1878 differs, primarily because many southern states had relatively high levels of competition under Reconstruction. Figure 1.3 presents an analogous figure for judicial independence in the state's high court. The high correlation of judicial independence in 1900–1918 with all of the other subperiods is striking.

The fact that levels of competition in state legislatures and independence of judges on state high courts are so persistent is surprising given the many changes that have occurred over the historical period 1866–2000. Population growth, immigration, urbanization, internal migration, the development of manufacturing, wars, the Great Depression, and the New Deal are only a partial list of the changes. Yet apparently these changes had limited effects on political competition in state legislatures and the independence of judges on state high courts.

One outcome of particular salience to many policymakers is per capita income. State legislatures and state courts are believed to shape per capita income. Per capita income, like relative levels of political competition in the state legislature and the independence of judges on the state high court, is highly persistent. Figure 1.4 plots the correlation of per capita income in 1900 with six other years from 1880 to 2000. Although our primary focus is on state political and legal institutions, the last chapter briefly examines their influence on state per capita income.

The high degree of persistence suggests that conditions early in a state's history may have played a formative role in shaping political and legal institutions. The left side of figure 1.1 outlines the initial conditions that we argue shaped political competition in state legislatures and the mechanism through which the initial conditions acted on the legislature. The initial conditions represent state endowments that help determine a state's suitability for agriculture and for trade. States with moderate or warm temperatures and higher levels of precipitation were generally better suited for agriculture than states with cooler temperatures or low levels of precipitation. Similarly, states that were relatively close to the ocean and to internal water sources such as navigable rivers and the Great Lakes were better suited to trade than states that had more limited access to water transportation.

The intuition that initial conditions related to agriculture and trade may have shaped political competition is not especially novel. What is novel is that this book establishes a mechanism through which agriculture and trade acted on political competition in the state legislature. To understand the mechanism, one has to understand how seats in state legislatures were allocated. For most of the nineteenth and twentieth centuries, seats in state legislatures were allocated on the basis of geographic units such as counties and not population. Counties typically had a comparative advantage in either agriculture or trade. Thus the wealth of local elites was typically grounded in one of these two areas. Local elites tended to control who served in the state legislature. The two types of elites tended to have different interests and thus support different political parties. Economic activities in counties tended to change slowly over time. So an agricultural county tended to have agricultural elites who tended to send individuals with the same party affiliation to the state legislature. Similar trajectories occurred in counties with merchants or other types of elites. States with more occupationally diverse elites had higher levels of political competition in the state legislature than states where the elites were more homogeneous.

The wealth of the elite has been offered as a mechanism through which initial conditions might shape political competition. States with wealthier elites would have more limited political competition, because the elites would more fully control politics. States with less wealthy elites would have greater political competition. These elites would choose not to devote resources to controlling politics or, if they did devote resources, would be less effective at controlling competition.

Using data from the 1860 Census of Population and data on state political competition for 1866–2000, the relationships between occupational homogeneity and political competition and wealth and political competition are investigated. Occupational homogeneity of the elite in 1860 was strongly negatively related to political competition from 1866 through the end of the 1970s. In contrast, wealth of the elite had a variable relationship with political competition. In most periods the effect was small and positive, but in two periods it was large and negative.

We argue that the occupational homogeneity caused political competition. As the arrows in figure 1.1 suggest, temperature, precipitation, and distance to an ocean could in principle influence political competition in the state legislature through other channels. The distance to internal water transportation—navigable rivers and the Great Lakes—on the other hand, became much less important with the rise of the railroad. This change was sufficiently dramatic that internal water transportation was arguably only acting on political competition through the occupational homogeneity of the elite. Thus, using internal water transportation as a source of exogenous variation, occupational homogeneity of the elites is shown to have had a causal effect on political competition in state legislatures during 1866–1978 and, in some specifications, during 1866–2000.

The influence of the occupational homogeneity of the elites in 1860 persisted for interrelated reasons. Economic activities in counties tended to change slowly over time. As the underlying mix of economic activities changed, the mix of elites changed, but it took some time for new elites to grow powerful enough to elect individuals with other political affiliations. Persistence was greatly aided by the fact that geographic units were rarely reapportioned to reflect shifts in population. When combined, economic and political factors created strong persistence in the political composition of the state legislature.

(Continues...)

Excerpted from The Evolution of a Nationby Daniel Berkowitz Karen B. Clay Copyright © 2012 by Princeton University Press. Excerpted by permission of PRINCETON UNIVERSITY PRESS. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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Edition details

• Publisher: Princeton University Press
• Publication date: 2011
• Language: English
• ISBN 10: 0691136041
• ISBN 13: 9780691136042
• Binding: Hardcover
• Number of pages: 240