Urban Governance, Economic Growth, and Civic Capital: History Counts, in the South As Well

What is the most common interpretation the media have given of the recent local elections? The answer: a major test of the strength of the center-left and center-right coalitions in view of the upcoming national political elections. No surprise here, provided that this perspective never makes us forget how important urban governance can be to influence the economic and civic growth of citizens; even after centuries.

This is one of the most intriguing results of a recent current of academic research that takes the name of “persistence.” The idea is ultimately simple: the economic and social differences between countries, regions, and cities can originate from shocks that took place earlier, even centuries ago. The best known example, brought to light by the pioneering work of Daron Acemoglu – a scholar who has recently been systematically included in predictions for future Nobel prizes – is that of the effects of the colonial past that characterizes the history of most emerging and developing countries.

The hypothesis that is tested empirically states that the colonizers - all coming from countries on the Old Continent – had attitudes towards the conquered colonies that were not at all uniform, as regards the type of institutions, laws, and rules to establish there. The fundamental classification is that which distinguishes the types of policies: the colonizer could enact exclusive or inclusive policies. Exclusive policies are characterized by creating, protecting, and perpetuating positions of privilege and advantage for specific individuals, classes, and categories of persons, thus excluding all of those who are not within the perimeter of the privileged group as identified. Inclusive policies, on the other hand, promote equal opportunity. An Italian example of inclusive rules cited often regards the history of the Republic of Venice. On February 28, 1297, the top legislative body at the time – the Major Council – made its members’ positions hereditary. That reform of governance was considered an obstacle to the social elevator that had characterized the civic life of the Republic until that time, producing negative economic and social effects.

The challenge in this current of research is to demonstrate the causal effect between the historical shock and current economic and social conditions. In addition to the difficulties linked to the measurement of phenomena belonging to the past, it is necessary to correctly identify the historical event that triggered a potentially long-lasting change, distinguishing its effects from other factors, such as geographic considerations or other historical events. So it becomes clear that a multidisciplinary approach is necessary, combining on the one hand more sophisticated econometric techniques, with historical, social, and economic skills. Another decisive aspect is to then identify the mechanisms through which an institutional shock echoes over time showing persistent effects, sometimes even after the institutional structure to which it refers has been modified in the meantime.

Here emerges the fundamental assumption that characterizes research on persistence, applied to the specific case of urban governance: an institutional shock has effects that, like a karstick river, can remain, re-emerge, or disappear, even after a long period of time. Why? The hypothesis is that the institutional shock sets into motion inter-personal mechanisms first, and inter-generational mechanisms subsequently, that affect individual capacities from a fundamental point of view: people learn to be more efficient, including through collective actions. Collective action becomes a tool that produces a positive-sum game; single individuals benefit, but so does society as a whole. But how is the effect of persistence transmitted? Here two mechanisms generally come into play: the institutional dynamics interact with the cultural dynamics, as explained in the works of Guido Tabellini and Alberto Bisin, among others.

Regarding urban governance, the most commonly cited example is that of the Italian Communes, brought to light by the works of Luigi Guiso, Paola Sapienza, and Luigi Zingales. The institutional shock is that which hit Northern and Central Italy in the Middle Ages: urban centers became free cities, earned their independence, the positive seed of collective action was sown, the effects on economic growth and civic capital are still visible centuries later. Here as well, the fundamental intuition is simple: while in the fief citizens did not count at all, in the free cities citizens had to independently produce so-called public goods: currency, defense, justice, and the infrastructure everyone used, with the consequent need for taxation. The activity of production of public goods led to the development of individual qualities that had immediate positive effects on society, but that through parental relations and cultural effects, can also be transmitted over time, and thus persist. The phenomenon of free cities has also been studied in the case of the United Kingdom, Germany, and Switzerland.

What about Southern Italy? Until now, the alternative was between free cities and feudal cities, and in Southern Italy there were no free cities. But if we look closely, Southern Italy, especially during the Spanish domination, was characterized by king-owned cities. These cities had a form of urban governance that was free of the feudal yolk, as they answered directly to the sovereign, including through forms of negotiation of their rights and privileges. Who acted to earn the status of king-owned cities, or to renegotiate their rights? It was the local urban classes of cities such as Bari, Matera, Trani, but also Isernia, Campobasso, and l’Aquila, among others. The initial empirical analyses are encouraging: the king-owned cities of the South show, at a distance of centuries, better economic and social performance than cities without this status. This seems to provide additional proof that urban governance, economic growth, and civic capital go hand in hand; in southern Italy as well.

So what are the implications? Certainly, the persistence of historical events must not be interpreted as a destiny already fixed in past centuries. To the contrary, the results of this current of academic research show that the consequences of choices relating to urban governance are seen not only in the short term, but can have implications for future economic and civic growth.

To learn more:

Acemoglu, D., Johnson, S. and Robinson J.A., 2001, The Colonial Origin of Comparative Development: An Empirical Investigation, American Economic Review, 91(4), 1369-1401.

Borghi, E., Gatti, F. and Masciandaro D., 2022, Neither Communes nor Fiefs: King Owned Towns, Right Negotiations and Long Run Persistence. The Case of South Italy. Bocconi Baffi Carefin Working Paper Series, n. 182.

Bisin, A. and Verdier, T., 2017, On the Joint Evolution of Culture and Institutions, NBER Working Paper Series, n. 23375.

Guiso, L., Sapienza, P. and Zingales, L., 2016, Long Term Persistence, Journal of the European Economic Association, 14(6), 1401-1436.

Tabellini, G., 2008, The Scope of Cooperation: Norms and Incentives, Quarterly Journal of Economics, 123(3), 905-950.

Elisa Borghi is a Lecturer in Political Economy at the Bocconi University.

Donato Masciandaro is a Professor of Political Economy at the Bocconi University, where he holds the Intesa Sanpaolo Chair in Economics of Financial Regulation. Since 1989 he has written for the newspaper il Sole 24 Ore. Since 2005, he has contributed to Economia & Management drawing on and developing his comments and analysis published in that economic-financial daily.