1000 years of urban history

One of the biggest questions in economic history is Why did the Industrial Revolution begin in northwestern Europe? Why countries like England and Holland? Looking back to the turning of the first millennium, the chances of Europe becoming the economic power house of the world weren't great. It was a backward part of the world economy with low levels of urbanisation and income. But between 1000 and 1800, Europe surged from a backwater of the world economy to its most dynamic region. The big question is why?

There are many answers, or partial answers, to this question. Some scholars, like Douglas North, stress that socio-political institutions constraining the predatory actions of the state mattered most. But the likes of Avner Greif have challenged this view. Greif maintains that it was contracting institutions that mattered most. These facilitated economic exchange and this is what made the difference. Daron Acemoglu and Simon Johnson make the same distinction between 'vertical' socio-political institutions (property rights) and 'horizontal' economic institutions (contracting institutions). The evidence they present suggests that it is the vertical institutions that matter most for long-term economic growth.

This debate is continued in a recent paper, From Baghdad to London: The Dynamics of Urban Growth in Europe and the Arab World, 800-1800 by Maarten Bosker, Eltjo Buringh and Jan Luiten van Zanden. Bosker, Buringh and van Zanden provide a summary of their argument in a column at VoxEU.org.

The paper looks at the long-term development of the urban systems of Europe and the Arab world between 800 and 1800. Using a dataset of individual cities in Europe, North Africa and the Middle East, Bosker, Buringh and van Zanden are able to assess the importance of various factors that drove urban expansion. They argue that

Consideration of factors such as geography, religion, and institutional provides some answers to the question why, during this millennium, the urban and economic centre of gravity moved from Iraq, or more generally the Arab world, to Europe and the shores of the Atlantic in particular.

More specifically, we are able to provide insights into the relevance of the economic institutions governing exchange on the one hand and socio-political institutions on the other in a way that explains Europe’s rise and eventual overtaking of the Arab world in terms of economic prosperity.

They use the number and size of cities as a measure of economic performance. Their focus is on the existence and development of positive feedbacks between cities. In particular, they consider as to whether or not cities profit from other cities insofar as the presence of many, large, cities in a given city's neighbourhood acted as a spur to growth. An important section of their results concerns the changes that occurred in these neighbourhood effects over time.

Bosker, Buringh and van Zanden write

Our maintained hypothesis here is that a powerful neighbourhood effect signifies that the institutions governing exchange are efficient, so the growth of one city stimulates expansion in others. Our analysis shows some striking results.

From about 800 to 1200, the level of positive spillovers among Muslim cities was high – suggesting that the institutions governing exchange in the Arab world were efficient.

Around 800, the position of Arab cities was quite favourable. The Arab world enjoyed a highly integrated urban system reaching from Cordoba to Baghdad. Transaction costs were low as the region was politically united, shared a common language and a common (Islamic) legal system that included a number of institutions promoting exchange (such as the rule of using written contracts). There was also a highly efficient means of transportation between urban centres in the form of the caravan routes.6

During this same period, the neighbourhood effect did not exist in Europe. Europe did not have an integrated urban system, perhaps due to very high transport and transaction costs following the break-up of the Carolingian Empire around 900. Europe fragmented into a large number of political entities. Merchants spoke many different languages and a variety of legal regimes regulating exchange (Roman law in the south, customary law in the north) were in place.

As this period drew to a close, fundamental changes rocked both Europe and the Arab worlds – but with very different economic effects. Our empirical results for the 1000 to 1500 period show that Europe and the Arab world switched places in terms of their respective neighbourhood-effects.

Changes occurred from 1100 onwards. Europe started to enjoy an efficient urban system with positive feedbacks between cities which was based largely on on sea and river trade. This was in spite of the fact that it remained politically fragmented. By contrast, the neighbourhood effects stated to disappear in the Arab world. Bosker, Buringh and van Zanden note,

There the break up of the Abbasid Caliphate was eventually followed by a new empire, the Ottoman Empire. To some extent, this took over the role of its predecessor – but without restoring the efficient system for economic exchange that was present during the Golden Age of Islam.

An interesting result from the Bosker, Buringh and van Zanden study is the importance of religion to city growth.

Muslim cities interacted strongly positively with other Muslim cities, and Christian cities with Christian cities, but we find hardly any evidence of positive feedbacks between the two sets. This suggests that different institutions regulated exchange in these two worlds, and that exchange over religious borders was handicapped by much higher transaction costs, and oftentimes outright hostility, compared to exchange within each urban system.

The study also reveals insights into the socio-political situation in the two regions from looking at the differences between the two urban systems.

Cities in the Arab world were on average much larger than those in Europe, and the size of the “primate” city – the megapolis such as Baghdad, Damascus, Cairo or Istanbul – was much bigger; a fact that is indicative of a predatory state and low trade openness.7 Europe, on the other hand, developed a very dense urban system, with relatively small principle cities. Big cities in Europe were quite often located near the sea, being able to optimally profit from long-distance trade, whereas the largest cities in the Arab world were almost all inland.

The Arab cities were much more centres of government and military protection or occupation than the European cities. Arab cities provided services such as administration and protection in return for rentals from land, taxes and some non-market transactions. These cities were intimately linked to the state in which they are embedded. Growth in the state acted as a spur to growth in these cities. This was particularly true of the capital city.

European cities, on the other hand, had as their basis the production and exchange of goods and commercial services with the city's hinterland and other cities. The relationships between the city and the state were typically much weaker. This follows from the fact that these cities have their own economic bases. Bosker, Buringh and van Zanden go on to argue that

Between 1000 and 1300 Europe acquired an urban system dominated by typical producer cities, which prospered in spite of Europe’s political fragmentation. In fact, this fragmentation was strongly enhanced by the rise of independent communes – city-states, or cities with a large degree of local authority – which form the core of the political system of Europe’s urban belt stretching from Northern Italy to the Low Countries. Indeed, we still find this pattern in the so-called ‘Hot Banana’ – the industrial agglomeration that stretches from the southern UK to the Netherlands, through Germany and down to northern Italy.

Arab cities at this time were, by contrast, heavily influenced by strong, predatory states that could, and oftentimes did, impose a heavy tax or military burden on the cities in their realms. Under these predatory regimes it was typically only the capital city thrived, with this honour shifting from Baghdad to Damascus, Fez, Cairo and finally to Istanbul.

So why in Bosker, Buringh and van Zanden's view was it possible for Europe to overtake the Arab World in the period between 800 and 1800? Their answer being,

Arab cities were part of the ‘predatory’ structure of the state. When the region was unified under the Abbasids, this worked well and the region experienced its ‘Golden Age of Islam’. Efficient institutions regulated exchange, allowing high levels of commercialisation and urbanisation. When state systems disintegrated, so did the urban system and the underlying commercial networks.

In Europe, after a period of disintegration, a different urban system more or less independent of ‘predatory’ states emerged. These managed to claim their own niche in the political economy of the period and developed increasingly effective ways of organising commercial exchange in spite of the fragmented political system.

It is this development in Europe of an economically well integrated urban system largely independent of large territorial states, spurred on by the effect of the Great Discoveries that can explain to a large extent why London, an economic backwater in 800, was able to overtake Baghdad, the formerly thriving capital of the Abbasid caliphate.

One thing I would like to know is how does China fit into all of this. Does this also explain why the industrial revolution didn't occur in China?