Greece’s fiscal and economic crisis has sharpened debates among economists, political scientists, and policymakers about political institutions and economic growth. Do good institutions—democracy and the rule of law—promote growth? Or are good institutions only made possible by the prior development of a thriving economy? Major decisions about Greece’s future are likely to turn out quite differently, depending on how policymakers answer this question.
History is the obvious testing ground for the competing theories. But most historical tests of core ideas in political economy have, until recently, focused on the last several hundred years of primarily European history. Limiting the sample for studying the relationship between politics and economic growth to modern states is problematic, however, because factors other than institutional innovation, such as the exploitation of the New World and technological advances, have influenced modern economies. Perhaps ironically, the road to a solution leads back to Greece—indeed, all the way back to ancient Greece, the history of which offers a detailed “out of sample” demonstration of how good institutions promote economic development.
THE GREEK MIRACLE
Thanks to a recent monumental data collection by the Copenhagen Polis Center, and to advances in field and lab archaeology, we now have the evidence to track major trends in the demography and economy of the ancient Greek city-states (poleis). As we now know, by the time of Plato and Aristotle in the fourth century BCE, there were over 1,000 more or less independent Greek poleis. They varied tremendously in size and power. Larger states sought to dominate their neighbors and smaller states organized into federal leagues. But there was never anything approaching a central government of “Greece.” Greek states competed fiercely with one another, and with their imperial neighbors, notably Persia. Wars were frequent and bloody. But in the midst of conflict came new forms of social cooperation and a sustained era of rapid economic growth.
The total population of Greek speakers rose from some 330,000 persons in 1000 BCE to 8-10 million
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