Institutions and the Decline of Venice

It’s not clear why Daron Acemoglu and James Robinson (A&R) wrote a short chapter on Venice in their recent book, “Why Nations Fail: The Origins of Power, Prosperity, and Poverty.” The Republic didn’t play a significant role in the research that led to the book, and even their telling of its rise doesn’t align with their emphasis on political inclusion as the first-mover (here, they state, economic institutions led to the political institutions.)

Yet the chapter is short and quickly digested, and spurred a Times article based on their book’s narrative of how broad-based economic opportunity and political participation led to Venice’s growth and inequality and concentration of political and economic power to its decline. The Times article writes itself: in today’s America, we are seeing the same “self-destruction of the 1 percent.”

A&R’s history of Venice therefore not only resonates with a deep-seated moral discomfort, but seems to substantiate it, to affirm its primacy as the determinant of national prosperity. In reality, Venice’s rise and fall speaks more to the importance of geostrategic factors outside the control of even the elite than the pernicious effects of concentrated elite power or “extractive” political and economic institutions. It’s not that political or economic institutions don’t matter at all, but that “good” institutions aren’t always the most externally competitive, and that technological changes and new competitors can lay to waste the greatest institutions and elevate the worst.

As told by A&R, the rise of Venice begins with a sea-trading bourgeoisie supporting the formation of inclusive political and economic institutions which, in turn, lead to the rise of Venice as a world power. To be more specific, inclusive economic institutions emerge in the colleganza contracts, which allowed citizens with little capital to participate in the upside of long-distance trading. These institutions supported the development of more inclusive political institutions in 1171, when the doge’s political power was dispersed to a council of up-and-coming merchants, which, in turn, led to Venice’s rise as one of the world’s superpowers.

Then, of course, there is the fall, precipitated by legislation that made political institutions less inclusive. The infamous serrata, conceived toward the end of the 13th century and consummated shortly thereafter, closed off political access to the governing council and created a hereditary oligarchy.  The once inclusive political institution became “extractive,” and this rot spread through the economic institutions of the city, eliminating the colleganza to reduce the upward mobility of non-elites.  Finally, since political institutions determine “power, prosperity, and poverty”, we see the the decline of Venice, with the population falling from the 14th to 16th century, and then continuing to shrink in the 17th and 18th centuries as the rest of Europe grows.

This post will focus on the “decline” of Venice, and argue against the narrative that political institutional change at the beginning of the 14th century caused an economic decline of Venice by objecting to the implied timing of that decline, the degree of that decline, and the narrative’s omission of new large competitors entering the maritime trade market due to new military and naval technologies. More broadly, it places the locus in technological rather than institutional change, arguing that Venetian institutions reflected, rather than determined, the state of the Venetian economy and external environment. My next post will look at the role of institutional and geostrategic changes in the rise of Venice.

To begin, A&R imply that Venice had a near immediate decline following the serrata, which would lend credence to their argument that the creation of a hereditary oligarchy in the beginning of the 14th century caused the decline of Venice. As evidence of this decline, they point to Venice’s dwindling population:

By 1500 the population had shrunk to one hundred thousand. Between 1650 and 1800, when the population of Europe rapidly expanded, that of Venice contracted.

Their account emphasizes a decline of 10,000 residents from 1330 to 1500, and implies a continued contraction thereafter. This does not align with the historical record. First, in 1347-49, a plague hit Venice that left approximately 50% of the population dead. Yet Venice showed remarkable resiliency (and attractiveness to foreigners), continually replenishing its population despite additional waves of plague penetrating the lagoon in the 16th and 17th centuries.  Not until the the 16th century would the population of Venice peak at 190,000, while generally fluctuating between 100,000 and 140,000. Contrary to A&R’s implication, institutional change did not lead to a decline in population, a strong indicator of economic performance before the industrial revolution. The timing of Venice’s decline can be debated*, but it was certainly hundreds of years after the serrata.

A&R’s brief treatment of Venice doesn’t address competing explanations of Venice’s fall — understandable given the chapter’s short length and the intended audience for the  book. But since I have argued that decline occurred much later than A&R suggest, I’ll offer an alternative narrative drawn from Findlay and O’Rourke’s “Power and Plenty.”

Venice did not lose its maritime dominance and accompanying rents due to the creation of hereditary oligarchy centuries earlier, nor Vasco de Gama’s journey to connect Iberia directly with the East in 1498. Rather it would be the Dutch and English trading companies in the 17th century who would take their fight for market share to the Mediterranean. These powers would take pepper market share and win over Venice’s best woolen cloth customers — the Ottoman Empire — by providing cheaper clothes that wouldn’t pass the quality standards of the Venetian guilds. Finally, after the famous Battle of Lepanto, the Ottomans sought allies in the English and Dutch, providing the powers with better trade terms than even the Venetians.

Venice could hold its own with the Genoese and Ottoman trading powers, losing some market share depending on naval battles and diplomacy, but capitalizing on its flexible trade network to deal with an increasingly saturated sea. The large Atlantic powers would take a larger chunk out of Venice’s maritime trade. What’s more, the dramatic expansion of overseas trade outside the Mediterranean made possible by the powers ensured that Venice’s share of trade growth would shrink.

The institutionalist may argue that while three centuries would pass between the political change and the relative decline of maritime trade, Venice would have been able to fend off the Atlantic powers were it not for its extractive institutions. In this narrative, Venice’s decline can still be credited to institutional change, as La Serenissima‘s institutional backwardness rendered it unable to adapt to a technological shift that would eventually occur. However, Venice did respond to the changing technologies by investing in larger ships and “nationalizing” the trade of Venice’s high-value routes, the dominant strategy for the Atlantic powers. Yet the institutionalists criticize this centralization as a reflection of the corrupt oligarchies guaranteeing their rents, rather than a recognition by all powers at the time that in a crowded mercantilist world, foreign policy and trade were inextricably linked. When Venice made its trade legislation less inclusive, it was adapting to the times and making itself more like the trading companies in England and the Netherlands that would supplant the republic. Venice, however, was a city of a hundred thousand, and the Atlantic powers were nations of millions.

This new breed of nation-state emerged after the consolidation of city-states due to new military technologies (and common enemies). Perhaps if Venice had been able to take Milan, which might have occurred were it not for their dependence on duplicitous mercenaries for landed incursions, it would have been a different story. As it was, the small power (15-40x smaller than the Dutch and English), formed before the great political consolidation that shaped Europe, fell behind in the new world of ocean-going giants: its geographic position lost strategic importance for world trade, its lumber resources grew scarce, and while its maritime trade increased, its share of total trade shrank.

In 1797, when Venice fell, Napoleon succeeded in taking the lagoon where the Genoese and others before him failed, and likewise he sneered at the rapacious aristocrats of Venice. Yet 600 years earlier the Pope had similarly sneered at the Venetians, and 400 years earlier the Genoese were also close to taking the lagoon. What actually changed? For the first time, an invader’s guns could reach Venice from outside the lagoon.

*More recent Venetian scholarship goes further, arguing that, “Not only the currently highly criticized myth of the decline of Venice proves to be flawed, but the idea of a relative decline no longer appears methodologically satisfactory.” This position considers Venice in the context of the greater Veneto region, and has been excluded for simplicity. It’s point is well-taken that a true economic history of Venice should include the mainland, which saw considerable economic growth in the age of relative decline of maritime trade. It again contrasts with the notion of Venice as stagnant state unable to respond to changing market dynamics.

This post draws from a number of sources. The treatment of England and the Dutch from Ronald Findlay and Kevin O’Rourke’s “Power and Plenty.” The English language literature on the rise of industrial Venice can be found in Paolo Lanaro’s “At the Centre of the Old World: Trade and Manufacturing in Venice and the Venetian Mainland, 1400-1800.”