Josiah Ober, Rise and Fall of Classical Greece
Rule-egalitarianism+competition+innovation+cooperation=Hellas’ wealth
Josiah Ober wrote:
Chapter 5
Explaining Hellas’ Wealth: Fair Rules and Competition
I offer two related hypotheses to explain how and why a particular set of political institutions typical of the classical Greek world (especially, but not uniquely, manifest in democratic Athens) provided Greeks with good reasons to make choices that resulted in Hellas growing wealthy.
Hypothesis 1
Fair rules (formal institutions and cultural norms) promoted capital investment (human, social, material) and lowered transaction costs.
Hypothesis 2
Competition within marketlike systems of decentralized authority spurred innovation and rational cooperation. Successful innovations were spread by learning and adaptive emulation.”
The first, “fair rules, capital investment, low transaction costs,” hypothesis is related to the second, “competition, innovation, rational cooperation,” hypothesis. Each requires valuable information to be actively and regularly exchanged and shared among many individuals. Egalitarian institutions, by creating a fair playing field and limiting expropriation by the powerful, fostered competition and innovation. Lowering transaction costs lowered the costs of movement, learning, emulation, and thus of technological and institutional transfer. Learning in turn increased human capital and local and collective stocks of useful knowledge. Capital investment, competition, innovation, and rational cooperation, in a context of low transaction costs, drove increased economic specialization. Although, for purposes of testing, it is useful to look at each hypothesis individually, the two hypotheses can be combined into a general explanation for the classical Greek efflorescence:
Fair rules and competition within a marketlike ecology of states promoted capital investment, innovation, and rational cooperation in a context of low transaction costs.
I suggested [earlier] that among reasons to care about classical Greek efflorescence is that it emerged in the context of democratic exceptionalism—rules, civic culture, and values that have a more-than-superficial similarity to attractive features of contemporary democratic society. It is, however, necessary to keep in mind that classical Greek rules, even in the most developed states, favored adult male citizens. Rules were fair only in a relative sense—when compared with the norms typical of premodern states. They fall far short of the demands of contemporary moral theories of “justice as fairness.” Likewise, the level of classical Greek innovation was not high enough, nor transaction costs low enough, to satisfy a modern market economist.
Per the argument developed [earlier], the high-level phenomenon of Hellas’ wealth is causally related to the microlevel of more or less rational choices made by many social, interdependent, justice-seeking individuals. Efflorescence was not a result of central planning, nor did any Greek have the conceptual means to measure or to explain the phenomenon. Like the collective behavior of ant nests as quasi-organisms, classical Greek wealth was an emergent phenomenon. That phenomenon was shaped by social-evolutionary processes that tended to select functionally efficient rules in a highly competitive environment. Rules were made self-consciously, by legislators, individual and collective. But the process by which rules were selected and distributed across the ecology was outside the control of any individual agent. The wealthy Hellas effect arose from uncounted individual choices but was not readily predicted by them. …
… Due attention to geography, climate, geophysical conditions, location relative to other societies, and exploitation must be part of any serious attempt to explain the performance of the Greek economy. Yet even in the aggregate, these factors are inadequate to explain the phenomenon of wealthy Hellas. …
FAIR RULES, CAPITAL INVESTMENTS, AND TRANSACTION COSTS
The first hypothesis for explaining the phenomenon of Hellas’ wealth during the era of classical efflorescence centers on the general Greek (and especially democratic Athenian) commitment to what I will call “rule egalitarianism”.
Rule egalitarianism means in practice that many people within a society, rather than just a few elite people, have equal high standing in respect to major institutions: e.g., to property, law, and personal security. They have equal access to information relevant to the effective use of those institutions and to the information produced by institutions (e.g., laws, public policy). They are treated as equals by the public officials responsible for enforcing institutional rules. In sum, they can expect to be treated fairly. In an ideal rule-egalitarian society, all people subject to the rules would be treated as equals. In the Greek world, those enjoying equal high standing were, in the first instance, the adult male citizens—although, in some poleis, equal standing in respect to certain institutions was eventually extended beyond the citizen body.
Rule egalitarianism drove economic growth, first by creating incentives for investment in the development of social and human capital, and next by lowering transaction costs. A rule-egalitarian regime produces rules that respect individual equality of standing, as opposed to establishing a strictly equal distribution of goods. Yet rule egalitarianism has substantial distributive effects: Equality in terms of rules pushes back against extremes of inequality in the distribution of wealth and income. Rule egalitarianism may best be thought of as a limited form of opportunity egalitarianism. It is limited because equality of access and treatment is in respect to institutions and public information, not to all valuable goods. Of course someone committed to rule egalitarianism might also be an outcome egalitarian and/or a full-featured opportunity egalitarian—but the classical Greeks were neither. The key points are, first, that it is possible for a society to be committed, as the most developed states of classical Greece were, to equality for citizens in respect to rules governing standing without being committed to complete equality of outcomes or all social opportunities, and, next, that more equal rules tend to moderate extremes of wealth and income inequality through progressive taxation and limiting opportunities for rent-seeking by the powerful.
It is uncontroversial to say that classical Greek society was characterized by historically exceptional levels of equality in terms of access of native males to key public institutions. The norms and rules of Greek communities tended to treat native males as deserving of some level of standing before the law, association in decision-making, and dignity in social interactions. No Greek community was ever rule-egalitarian “all the way down”—women, foreigners, and slaves were never treated as true equals. But among native males, the level of equality was remarkable when compared to other premodern (indeed pre-twentieth century CE) societies. A turn to relatively stronger forms of egalitarianism in Greece began in the eighth century, and the general trend continued (although not without interruption) through the classical era.
In many classical Greek poleis, rule egalitarianism among native men was codified as citizen-centered government. In focusing on the citizen, Spartan-style citizen aristocracy and Athenian-style participatory democracy may be regarded as strikingly different versions of the same general regime type. Some Greek communities were, in George Orwell’s memorable phrase, more equal than others. But even Greek oligarchies were strikingly egalitarian by the standards of most other premodern societies. The constitutional development of individual polis communities was certainly not uniformly in the direction of greater equality of access and treatment for natives. Yet, with the increasing prevalence of democracy, the median Greek polis was more rule-egalitarian in the later fourth century BCE, at the height of the classical efflorescence, than it had been 500, 300, or even 100 years previously.
Social norms and rules that treat individuals as equals can have substantial effects on economic growth by building human capital—that is, by increasing median individual skill levels and by increasing the aggregate societal stock of knowledge. Relative equality in respect to access to institutions (e.g., law and property rights) and to the expectation of fair treatment by officials within institutions encourages investments by individuals in learning new skills and increases net social returns to employment of diverse skills. It does so because norms and rules that protect personal security, property, and dignity lessen fear of the powerful. …
… Along with providing citizens, and at least certain noncitizens, with institutionalized security against arbitrary expropriation, some Greek states encouraged investment by citizens in learning skills relevant to the provision of valuable public goods, notably security and public services (e.g., clean water, drainage, reliable coinage, honest market officials) that conduce to the general welfare. Public goods benefited all citizens, and in, some cases, all members of the community. In Athenian-style Greek democracies, incentives, in the form of pay and honors, were offered for providing public goods through public service. The opportunity to perform public service was made readily available to all citizens by opening access to decision-making assemblies and by the use of the lot for selection of most magistrates and all jurors. At Athens, by the fifth and fourth centuries BCE, incentives included pay for service as a magistrate, a juror, or an assemblyman. Incentives offered to citizens who gained the skills necessary to be an effective provider of public goods included not only pay but also honors and sanctions. Those individuals whose service was deemed especially valuable by the community were rewarded with public proclamations and honorary crowns. Those whose service fell short, on the other hand, faced the potential of both legal punishment and social opprobrium.
A third set of rule-egalitarian incentives for human capital investment came in the form of institutions that limited certain forms of individual risk. All things being equal, people are more likely to make capital investments with potential upside benefits when the risk of downside loss is limited. … Finding the right balance, such that the rules allowed risk-taking without inflating moral hazard, and such that the incentives of producers were not dampened by excessively heavy taxation, was a matter of institutional innovation and experimentation. We [later] look at how public insurance institutions were developed and how they worked in practice ..
… Examples of economically valuable individual human capital investments in the Greek (and a fortiori Athenian) world that could plausibly have been promoted by rule equality include literacy, numeracy, and mastery of banking and credit instruments. Other, perhaps less obvious, investments in human capital included military training, mastering various aspects of polis governance (e.g., rhetoric and public speaking, public finance, civil and criminal law), and individual efforts to build bridges across localized and inward-looking social networks. …
… Rule egalitarianism can be a major factor in lowering transaction costs because inequality, in respect to access to information relevant to a transaction, or in respect to access to and fair treatment within the institutions potentially affecting a transaction, drives up transaction costs. Relevant sorts of information include, for example, the laws governing market exchanges; weights, measures, and quality standards; and the reliability of the currency in circulation. Institutions relevant to transaction costs include property rights, contracts, and dispute resolution procedures. ….
… Relatively egalitarian institutional regimes, like those of Greek city-states, ought, according to the transaction-cost argument sketched here, to be (all else being constant) more economically productive than rule-inegalitarian regimes. Moreover, the transaction-cost benefit ought to increase if access is made more equal over time. In fact, Greek weights and measures were standardized in several widely adopted systems in the archaic and classical periods. In the case of democratic Athens, access to information and institutions did become somewhat more open and equal as the laws were increasingly standardized (e.g., in the legal reforms of 410–400 BCE), better publicized (e.g., by being displayed epigraphically), and more efficiently archived. The Athenian state provided traders with free access to market officials and specialists in detecting fraudulent coins. Parties to certain commercial transactions were put on a more equal footing with the introduction of the special “commercial cases” in which resident foreigners, visitors, and probably even slaves had full legal standing.
COMPETITION, INNOVATION, AND RATIONAL COOPERATION
The second hypothesis for the wealth of classical Hellas is that economic growth was fostered by competition, innovation, and rational cooperation. innovation and cooperation were driven by competition. Competition among individuals to create more high-value goods and services and to provide more valued public goods (and to be compensated accordingly with pay and honors) was promoted by the even playing field created by fair rules equalizing access to institutions and information. Meanwhile, competition between states within the decentralized city-state ecology created incentives for cooperation among many individuals with shared identities and interests. Competition also promoted innovation in institutions faciliating interpersonal and interpolis cooperation. Innovation and cooperation, in the context of low transaction costs, encouraged interstate learning and borrowing of institutional best practices.
Continuous innovation is a primary driver of sustainable economic growth; the economist William Baumol emphasizes that societies dependent on stable regimes of rent extraction, rather than continuous innovation, face low and hard ceilings restricting growth. Today we often think of economically productive innovations as technological; improved energy capture (use of fossil fuels) was, for example, a major driver of the historically remarkable rates of economic growth enjoyed by some relatively highly developed countries in the nineteenth and twentieth centuries. Highly successful technological advances that spread quickly through the Greek world and beyond include the oil lamp, terra cotta roof tiles, and wine.
Although the classical Greek world unquestionably benefited from these and other technological advances, technological development does not seem likely on the face of it to account adequately for the intensity and duration of the classical efflorescence. Technology is, however, only one domain in which continuous growth-positive innovation is possible. The Greek world was arguably a standout in its development of new public institutions that served to increase the level and value of social cooperation without resort to top-down command and control. Valuable institutional innovations were spurred by high levels of local and interstate competition, and they were spread by the circulation of information and learning.
Just as it is uncontroversial to say that the Greek world was, when compared to other premodern societies, comparatively egalitarian in its norms and formal rules, so too it is uncontroversial to say that the Greek world was characterized by high levels of competition. The competition among Greek communities could be a high-stakes affair, potentially ending in the loss of independence, loss of important material and psychic assets, or even annihilation. The high level of competition between rivals placed a premium on finding effective means, institutional and cultural, to build and to sustain intracommunity cooperation. One of the basic lessons that the fifth century BCE Greek historian and political theorist Thucydides offers his readers (positively in Pericles’ Funeral Oration in book 2, negatively in the Corcyra civil war narrative in book 3) is that communities capable of coordinating the actions of an extensive membership had a better chance to do well in high-stakes intercommunity competitions.
Social institutions can provide both incentives for cooperation and mechanisms for facilitating coordination, and classical Greeks were well aware of this potential. One result of endemic Greek intercommunity competition was, therefore, a proclivity to value cooperation- and coordination-promoting institutional innovations: A state that succeeded in developing a more effective way to capture the benefits of cooperation across its population gained a corresponding competitive advantage vis-à-vis its local rivals. Notably, as has recently been demonstrated in detail, and contrary to the “standard modern premise”, in the classical era many Greeks … had freed themselves from “the grip of the past” in that they were quite willing to embrace the positive value of novelty in many domains.
Greek communities readily learned from one another. Every new institutional innovation was tested in the competitive environment of the city-state ecology. Many innovations were presumably performance-neutral—that is, they had no significant effect on the community’s relative advantage in competitions with rivals. Other innovations would, over time, prove to be performance-negative. If, however, an innovation adopted by a given polis was believed to have enhanced that polis’ performance, there would be prima facie reason for other poleis to imitate it.
There were, of course, many reasons for polis B not to imitate polis A’s performance-positive institution. Most obviously, the new institution might be disruptive to polis B’s existing social equilibrium, a disruption that would, among other undesired outcomes, result in a net loss of cooperative capacity. Classical Sparta was a case in point. The Spartan social system was overall resistant to disruptive innovation, which proved a disadvantage in the early phases of the Peloponnesian War. Yet in other cases, the perceived chance to improve polis B’s performance, and thus do better relative to its rivals, would be a sufficient incentive to adopt polis A’s innovation. The Spartans eventually recognized the need to adapt; they did so by developing a substantial navy in the later phases of the Peloponnesian War.
Some innovations, such as the federal leagues of central Greece, were widely adopted across certain regions. Other highly successful innovations were adopted across the polis ecology. Widely (although never universally) adopted institutional innovations that we consider in the next chapters included coinage, euergetism, the “epigraphic habit,” diplomatic arrangements, theater, and cult.
Of course not all Greeks, and not all Greek communities, were equally innovative or equally willing to emulate successful innovations developed elsewhere. But the Greek world overall saw what appears to be a strikingly high level of institutional innovation and emulation across the ecology of states over the 500 years from the beginning of an age of expansion in about 800 BCE to the classical peak in the late fourth century. Major domains of institutional innovation … include citizenship, warfare, law, and federalism. In the domain of state governance, both democracy and oligarchy were especially hot areas of institutional innovation and interstate learning. And, ominously for the continued independence of the leading Greek poleis, interstate learning readily jumped from city-states to potentially predatory central-authority states, through the medium of highly mobile Greek experts. Several such states were developing quickly on the frontiers of the Greek world in the fourth century BCE, an era in which expert mobility seems to have reached new peaks.
Within the city-state ecology, a regional hegemon might encourage or discourage adoption of a given institution. Oligarchical constitutions were required by Sparta of the ca. 150 states of the fifth century BCE Peloponnesian League (Thucydides 1.19). Meanwhile, in the later fifth century, Athens imposed monetary and weight standards on the 300+ states of the Athenian empire. Yet, as we have seen, there was no general central authority in the classical Greek city-state ecology to mandate when or how widely a given innovation was adopted across the ecology as a whole. The extended city-state environment thus operated as something approaching an open market for institutions. Opportunities for imitation were facilitated (transaction costs lowered) by the ease of communication across polis borders, which was in turn facilitated by the shared culture of the Greek world. Some impediments to institutional learning between modern nations, e.g., differences of language and religion, were much less salient in the Greek world. Because this “market in institutions” favored the development and dissemination of more effective modes of social cooperation, Hellas grew wealthier—and meanwhile, Hellenism grew increasingly attractive to some of Greece’s neighbors.
PROSPECT
The “fair rules, capital investment, low transaction costs” and “competition, innovation, rational cooperation” hypotheses, taken together, suggest an explanation, not only for why Hellas grew wealthy through increased specialization, but also for the creative destruction of inefficient rule-inegalitarian institutions and for the high culture of the archaic and classical periods—the new and influential forms of art and architecture, literature, visual and performance art, and scientific and moral thought that so impressed Byron.
The classical efflorescence is at least partially explained by the conjunction of deep investment in human and social capital, low transaction costs, continuous competitive innovation and rational cooperation—all of which increased incentives to specialize, exchange, and learn.
Individuals and communities alike obviously benefited from higher levels of economic specialization and higher value exchanges of goods and services. The chance to gain greater payoffs—fame and honor as well as wealth—drove incremental improvements in existing domains (heavy-infantry tactics, lyric poetry) and led innovators to pioneer new domains (light-armed infantry tactics, tragedy and comedy). Innovations spread readily across the ecology (Doric and Ionic architectural orders, epic poetry).
Advances in communications technology (alphabetic writing) were quickly adapted to multiple domains (poetry, philosophy, law, contracts). Goods and services developed in the high human capital/low transaction cost/innovation-and-learning-driven Greek context were readily exported to regions on the periphery of the Greek world (red-figure pottery; mercenary soldiers, doctors, architects). In return, the Greeks imported grain, raw materials (timber, tin, copper)—and labor in the form of slaves.
In order to be of real explanatory value, hypotheses must be testable and at least potentially falsifiable. The two hypotheses offered here as explanations for classical Greek efflorescence can be tested by examining changes over time in individual poleis and the Greek world as a whole, differences among communities within the Greek world, and differences between Hellas and other premodern socieites. The explanandum (i.e., the thing we are seeking to explain; in the language of social science, the dependent variable) is the rapid and sustained growth of wealth, in Hellas as a whole and in individual poleis, across the period 1000–300 BCE. The “fair rules, low transaction costs” hypothesis would be falsified as an explanation (i.e., as an independent or explanatory variable) if, as wealth increased, rule-egalitarian institutions declined across the Greek world. Likewise, it would be falsified if, when we compare poleis, there proved to be a negative correlation between wealth and egalitarian rules. If the least egalitarian poleis were also the wealthiest, the hypothesis must be wrong. The “competition, innovation, rational cooperation” hypothesis can be falsified by showing a negative correlation between innovation and wealth: If the poleis that were most institutionally conservative were also the wealthiest, then continuous innovation cannot be the right explanation for why Hellas was wealthy. The narrative of Greek history traced in the next six chapters supports neither falsification condition.
Evolutions of social order from the earliest humans to the present day and future machine age.
The Source:
Josiah Ober, The Rise and Fall of Classical Greece, Princeton 2015 [Chapter 5]