Britain’s ‘good’ institution Evolution Essay - Essay Prowess

Britain’s ‘good’ institution Evolution Essay


Kindly ADD to CART and Purchase an Editable Word Document at $5.99 ONLY


How did Britain’s ‘good’ institutions evolve and how good were they?


Britain is the reference point and benchmark for the literature and policy-making on ‘good institutions’. This is partly because it was the first country to have its agricultural and then industrial revolutions in the eighteenth century, the starting point of the Great Divergence between those countries whose growth rates accelerated in the nineteenth century and Asian countries – whose GDP per capita had been on a level with Western Europe’s in 1700 but who were left behind at that point (Piketty, 2014:73; Pomeranz, 2000; Landes, 1998).

Britain’s institutions are then looked at, in the 21st century institutional economics literature, as a template for successful commercialization and industrialization. But it is unclear what it is that should be copied, because it is unclear, abstracting from the historical contingencies, which lessons to draw from the British experience in terms of its institutional evolution (Rodrik, 2000). The shopping list of institutions which Britain is thought to have acquired consist of secure and clear property rights, limited government with constraints on the state, clear contract enforcement, strong legal and fiscal capacity creating an independent legal system and rule of law that applied to all its citizens impersonally, and fiscal capacity to create public goods. [1]

But it is not clear how and whose property rights and what type of property rights – in land, traded assets or industrial assets – were established and clarified and whose were weakened in this process. ‘Independent legal system and judiciary’ does not spell out how a legal system, set up by and administered by the state, becomes independent of that state; how the rule of law is made impersonal and applicable to those in government impartially as to everyone else, and indeed how, when and the extent to which that happened in Britain.

This connects with state legal and fiscal capacity, which has to be seen in terms of both power to enforce law and to raise taxes. The state needs to be strong enough to provide functions such as defence, and to have a monopoly of violence in doing so (Tilly 1992); to have enough administrative capacity to collect taxes and enough legal capacity to provide contract enforcement that is backed up by the state’s legal machinery; and to provide public or collective goods that cannot be provided in the private realm. States differ, however, in how they acquire ability to tax, what they tax and what they spend revenues on. As outlined in chapter 2, states with strong effective legal and fiscal capacity can overstep the mark and encroach on the property rights of its citizens. There has been a lot of emphasis in the literature on the necessity for institutions that constrain the state and limit the powers of government; indeed Hoffman (2015) argues that the literature places too much emphasis on constraining the state and too little on how states acquired their legal and fiscal capacities and what they used them for. In addition states differ in whether ‘public’ goods such as infrastructure and education were provided by the public sector or by the private or semi-private sector.

This chapter first outlines the histories of how individual private property rights and the common-law legal system coevolved in Britain, especially after the Civil War and Glorious Revolution, with the triumph of common law courts and statutory law over prerogative courts  and the establishment of Parliamentary sovereignty – a Parliament composed of large landowners and merchants – limiting the power of both the Crown and the executive government. These private property rights were protected from the state, forming one of the main constraints on state power. They were protected by the common law and by law passed in Parliament, and by a largely independent and decentralized judiciary formed of notables. This constituted the decentralized and contestable legal system (Milhaupt and Pistor 2008), with property and contractual disputes being settled in courts rather than by state administration.[2]

Another theme here is the process of how Britain developed its exceptional fiscal capacity in the eighteenth century. It is true that limited government and fiscal capacity developed alongside each other. But I argue that it is not true that the raising of taxes and consent to them implied that revenues would be spent on public goods such as domestic infrastructure. The eighteenth century British state waged war a lot. This required Parliamentary cooperation to raise taxes which were spent on extending the navy, on war and expanding the Empire and trading routes, which in turn increased revenues.[3]

I trace a line from the creation of the liberal state in the late eighteenth century to the 1820s which was a coalition of interests between the landed and commercial gentry and middle classes, with a priority given to private property and freedom of expression and intellect over political rights. British economic liberal institutions were built despite political institutions, such as the mass franchise, lagging behind. This was especially the case for the populations of Scotland and Ireland, whose political capacity was highly restricted. This itself brings out a distinction between England – whose institutional evolution has set the template for and has dominated the rest of the United Kingdom – and Scotland and Ireland, whose institutional evolutions were in fact quite distinct and different from that of England. I return to this in chapter 9 when relating to implications of the Brexit vote in 2016.

I discuss the distinctive nature of this liberal state, some aspects of which form a continuity with the 1820s state through to the post-1980s state, although certain aspects are very different. 6 (2015) argues that the post 1980s British state regulation in a number of spheres has been more prescriptive, mandatory, and intrusive particularly compared with immediate post-war Britain and that it is wrong to characterise the post-1980s British state as having a liberal resurgence. How does one square this with the Varieties of Capitalism characterisation of the post-1980s British state as liberal and arms’ length? Is there any resemblance or continuity between the liberalness of the 1820s-1870s state and that of the post-1980s period, as suggested by Mandler (1989)? To explore this fully is beyond the scope of this book, but I wish to sketch out an argument for future work.

Rather than seeing this liberal state as ‘small’ in terms of government expenditure as a proportion of GDP – which it is not, in comparison with its Continental counterparts and in historical terms – the continuity rests in the nature of state-business relationships, the type of regulation through setting a legal framework, the use of courts in interpreting that legal framework, and the role of local officials for monitoring and inspection. This contrasts with  a continental tradition of more centralized and direct state bureaucratic and administrative oversight of and links with industrial enterprise (which I explore in chapter 5).

I use the ideas about English individualism (Macfarlane 1978) and the social fabric of England in the 18th century (Porter 1982) combined with the Douglas (1982) schema outlined in chapter 2 of grid (degree of social regulation) and group (extent of social integration) to suggest that the particular type of individualism that grew up in commerce and various types of enterprise in Britain from relatively early – the post-Black Death 15th century, well before the agricultural and industrial revolutions but that continued into the 18th and 19th centuries –  was accompanied by a large degree of self-regulation that relied on Acts of Parliament setting the framework for regulation, backed up by courts adjudicated by local notables, rather than relying on centralized bureaucratic regulation. (Moran 2003; Bartle and Vass 2005). This was combined with guidance and standard-setting in the form of 19th century inspectors of certain sectors of industry, finance, health and education. This has to be set against very close state-business relations in areas of government procurement, such as the defence industries, which closeness goes back centuries, with examples of British state involvement in the supply chain in provisioning the navy fighting the Napoleonic Wars (Knight 2013).  It is in the form of some areas of state-business relations, the institutions underlying those relations that there is both the distinction from Continental European structures and the continuity over time between the embryonic version of these relations in the 19th century and their version in the post-1980s liberal state.

This liberal state, despite periods of challenge and expansion – such as during the Age of Reform 1830s and during the post-Second World War thirty years – has re-emerged since the 1980s with a different composition of groups with aligned interests but around similar economic interests of private tradable property protection, as opposed to political interests of worker solidarity and civic equality. Critical to this process has been a further blurring of the distinctions between private and public interests, allowing private interests to expand further in the case of Britain (and the US) than in Continental Europe. Constraints on the state through independence of the rule of law – common law and the judiciary and judicial appointments – from central government were consolidated in England after the Glorious Revolution, from the late seventeenth and eighteenth centuries.[4] The triumph of common law after the Civil War meant the legal system was decentralized and contestable, in the parlance of Milhaupt and Pistor (2008). Old Corruption remained – Hanoverian privileges and appointments – but was diminished by the Age of Reform, at least in central government by the end of the nineteenth century. By and large commentators, such as North, Wallis and Weingast (2009), argue that private property was independent of the state by around 1832.[5]

The post-Glorious Revolution period saw the growth of decentralized, self-regulated financial institutions of local stock and bond markets in the eighteenth century. Alongside this was the use of the corporation as a business form, of joint-stock companies, of the issuing of shares and securities and the precocious development of local stock exchanges, that were unregulated by the state executive, although overseen by the courts. These created a capitalism around publicly-listed companies and that were relatively free from state regulation. Major infrastructure – canals and railways – was built by private enterprise (although authorised by public courts in issues of access to land), and financed by local stock exchanges. Local government rather than central government was key in the provision of other public goods, such as water or schools, and much spending on public goods was done through the voluntary and quasi-private sphere – of charities, voluntary organizations – although local government spending did also increase. This chapter argues that the crystallization of these institutions in the first half of the nineteenth century around landed-mercantile-financial interests, but not around manufacturing interests, protected the property rights of tradable assets of shares and bonds at the expense of property rights in strategic non-tradable assets built up in industrial firms and their labour forces.

All the case studies are structured in a parallel way: picking up on the frameworks developed in chapters 2 and 3 on primary institutions and on the meso-institutions of the Varieties of Capitalism. The next section is on primary institutions of property rights and the legal system; then I look at primary institutions of the state, its fiscal capacity and who were the dominant elites; and the last part is on meso-institutions of corporate governance and organizational forms related to business.

Primary institutions: Property rights and legal system

The story of this section is that property rights in Britain evolved towards private property rights backed by the rule of law, which became independent of the state executive, although the rule of law was enforced through the judiciary. [6] This took centuries of incremental change. Property rights were not only in land, but importantly for a maritime trading kingdom, concerned property at hazard in trade and such issues as contract enforcement, insurance, bills of exchange over goods and assets traded through seafaring business. There were laws over property rights in goods traded at sea, and in the units of financing for maritime trade since medieval times, but particularly since the maritime expansions of the 16th century. By Tudor times these property rights in valuing goods at hazard in trade and in financial instruments for them were quite advanced, if we think of Antonio in Shakespeare’s The Merchant of Venice. Such rights were particularly developed in Venice or Genoa and in the northern Hanseatic League, when England was still relatively speaking a trading backwater (Paine 2013:328-345)

In thinking about the balance between different kinds of property rights pre-17th century – maritime trade and in land and commerce – the focus in the institutional economics literature has been on those based on landed property. To some extent I redress that balance here and want to highlight the significance and development of property rights in maritime trade, in forestry, in artisanal commerce in the post-Black Death, post-feudal era from the late 14th century in England (Paine 2013; Braudel 1983). But I also argue that the reason the focus has been on rights to landed property from the 16th century and particularly on the settlement that was the Glorious Revolution at the end of the 17th century, is that this period represents a major crystallization of English and then British institutions around the shift in power from Crown to Parliament. This elevated the status of Parliament as a law-making body, the importance of local courts in implementing the law, and the importance of landed wealth in the formation of that aristocracy of the 18th century. This institutional settlement was significant in the rise to power of Britain through that century. British power in the 18th century was less based on agrarian wealth than that of its Continental rivals; but the power base within Britain was reflected in ownership of land.

Property rights are complex. When the institutional economics literature talks about rights to property (De Soto 1989), in the first instance it means property as land, especially in an agrarian society. But property was also in British trading companies, joint stock companies, which grew in importance from the seventeenth century, and property rights also referred to security of rights over those commercial and financial assets. Piketty (2014: 114), in assessing the stocks of wealth of England and France in 1700, argues that a large part in England was held in non-land form as financial assets (usually government bonds). In 1674 a former landowner wrote ‘I choose rather to keep my estate in money than in land for I can make twice as much of it that way, considering what taxes are upon land and what advantages there are of making money upon the public funds’ (HMC Fifth Report Appendix I 375 in Hill 1961: 236). This became more so in the eighteenth century. Dean Swift wrote in The Examiner: ‘The wealth of the nation used to be reckoned by the value of land is now computed by the rise and fall of stocks’ (Hill 1961: 236). Hill argues that moneyed and landed interests were not opposed, but that the moneyed became the senior partner. Property rights in goods at hazard in trade, which had been developed from the 15th century, themselves became more tradable. What developed from the late 17th century was the alienability, the tradability of these assets, through the development of capital markets in those property rights.

The North and Weingast (1989) thesis is that the development of English land law was central to developing the legal system and rule of law. It also was central in shaping the nature of the state, as the dominant elite used the control of land to structure their relationships. North and Weingast (1989: 803) ‘interprets the institutional changes on the basis of the goals of the winners’ which were to secure their property rights and protect their wealth from an overweening government. Central to this process is evolution towards making property rights – in land in particular – independent of the state executive; by the eighteenth century the British state had no rights of interference in private property relations. This was not the case before the Civil War. [7]

Private individualist property rights

Britain developed economically on the basis of private property.[8] Land was central to feudal relationships and feudalism crumbled earlier in Britain, in the thirteenth and fourteenth centuries, after the Black Death, than elsewhere (North et al., 2009: 78, Braudel, 1983: 281). Legal concepts over land ownership in England crystallized in the twelfth to thirteenth centuries. Macfarlane (1978) argues that land became owned by individuals rather than the family group from the 13th century (Macfarlane 1978:103). The influence of this on enterprise is stressed by Bracton, writing in the 13th century, who argues that ‘a citizen could scarcely be found who would undertake a great enterprise in his lifetime if, at his death, he was compelled against his will to leave his estate to ignorant and extravagant children and undeserving wives’ (Macfarlane 1978:103). The creation of a market for land, through its alienability, progressed through the thirteenth century. Macfarlane stresses that land was sold outside the family. ‘There was no legal link between family and land under Common Law’. (Macfarlane 1978:104). North et al (2009) stresses the breakdown of feudal structures as manifest in the establishment of fee tail and fee simple: De Donis in 1285 regulated fee tail creating alienability of land with conditions; Quia Emptores in 1290 governed alienation without conditions, leading eventually to tenure of free and common socage, meaning the alienation of land without any obligation of feudal services. This was transferred to the colonies and became known as fee simple in the United States (North et al., 2009: 82; see chapter 6).  Rather than focusing on a transition from feudal society to capitalist structure, Macfarlane (1978:34) argues that the transition should be seen as one from a peasant society, which was over in England by the late 14th century, towards an individualist capitalist one, with production by farmers not for their own use but for the market. The more ‘informal’ institutional features that Macfarlane highlights in this transition are individual ownership of land with landholdings being sold outside the family, as opposed to the family stewardship of landholdings more commonly practised in peasant structures; the greater geographical mobility within families, with sons settling away from their father, on top of the greater use of the market in commercializing the earnings from agricultural activity and rents (Macfarlane 1978:94-100). Individual ownership of land combined with primogeniture meant that land was inherited and passed on, but there was also greater mixing up of social ranks with second and other sons going into other occupations and mixing through marriages. This contrasts with the French custom of both keeping land within the family and of partible inheritance, dividing it into smaller holdings amongst children. (see chapter 5). This was furthered by the shortage of labour in England after the Black Death in the 14th century which shifted power away from landlords and towards tenants, forcing landlords to offer more generous terms for tenancy, including options to buy after a period of tenancy. (6 2016)

Linklater (2014) highlights the importance of individual land ownership in Henry VIII’s reign, with the shift from communal obligations around the manor. He attributes the shift from arable strip farming in feudal manorial arrangements towards seeking profit from pasture, wool and enclosure to the incentives of rising wool prices from 1450-1530s alongside a rising population. The dual incentives of enclosure and individual ownership led to more intensive farming; pasture with its increased manure on fields, less labour and higher prices for wool meant a wave of enclosures of land of those who lacked written tenancy agreements. For example, in a day in 1567 Sir Thomas Gray of Chillingham in northern England cleared off his manor 340 people, villeins, cottagers and labourers whose rights were by tradition, or customary rather than written agreements. Villages and townships were emptied. It proved more difficult to shift tenants who did have written leases but landlords could double rents and dues (Linklater 2014).

The sixteenth century was, therefore, the time when these customary rights to the land were challenged in England. The Crown and Church in 16th century England often defended customary rights against those of the nobles who were evicting their tenants. The new Church of England had a prayer pleading with landlords not to raise rents; Sir Thomas More in Utopia condemns the powerful magnates who ‘enclose all in pasture, throw down houses, plucke downe townes’. (More, 1516; Linklater, 2014: 17). There were nine statutes, royal proclamations and government commissions trying to prevent enclosures and turning land to pasture, depopulating the countryside and creating homelessness which threatened security. The royal courts fined and imprisoned those who broke the law against enclosures in the period 1517-37. This land revolution, as Linklater terms it, affected only five per cent of the country, but was a shocking change in attitude of promoting individual interests with no thought to the consequences on the community. The shifting power towards Parliament against the King is evidenced by the House of Commons rejecting the royal bill against enclosure in 1547.

The battle over the monasteries represents another episode where aristocrats increased their power and rights over land. The monasteries were rich, Henry VIII needed funds for wars, the Crown confiscated the land and sold it off. As Linklater says, within two generations England’s most productive land had been bought and sold twice over and the people who got it were not ancient nobles but those with cash – merchants, farmers, officials including Cromwell who bought 20 properties in the South East of England. Profits were made from the rising value of land (Linklater, 2014).

Braudel (1983: 281) describes the change from feudal relations to capitalist farming relations as follows: that feudal relations and traditional life was swept away, with feudal dues replaced by taxes to the state;  large landowners leased rural property to tenant farmers who took over responsibility for it themselves; tenant farmers employed landless labourers who constituted a rural proletariat; and there was a vertical division of labour whereby the landowner leased land and took the rent, the tenant farmer was the entrepreneur and the wage labourer ‘brought up the rear’ (Braudel, 1983: 282). This, Braudel termed the English model, which was taken up in various other parts of Europe, but not as early as in England and not as completely in other countries.

Civil War effects on land ownership

Hill (1961) argues that property rights swung in favour of landlords and enclosure before 1688, as a result of the Civil War. Land had become capitalist with all the accoutrements of capitalism: profit and loss, book keeping, virtues of thrift and accumulation that stemmed from mid-seventeenth century Puritanism. There was an extension of cultivable land over commons, marsh and royal forests, drawn by the incentive of private ownership.

The Civil War had profound effects on land ownership. Royalist lands were confiscated, comparable to the Dissolution of the Monasteries. Parliament became the guardian of private property from the 1650s (Hill, 1961). Landowners acquired greater rights to settle inheritance, although copyholders remained insecure and could be evicted for enclosure and consolidation. This was a victory for large landowners over small landowners. The Civil War had seen popular protests against enclosure of common lands, but the Restoration defeated the radicals; new areas were brought into cultivation by rich men. In the 1660s Parliament passed an Act for the drainage of the Fens.

The first Bill for Enclosure dates from 1621, but in 1633 there was still a powerful anti-enclosure lobby with depopulators being prosecuted for enclosures. Enclosures were both a violation of smallholder and customary property rights and enforcement of large landowners’ private property rights. Enclosure aided agricultural improvement (Hill, 1961) – they resulted in larger farms, greater clarity and enforceability of property rights for those who won them.

Landowners – freeholders or copyholders – had certain inalienable rights over common land if they paid rents; neighbours could graze animals after the harvest was in; when legal rights were extinguished, compensation was paid. But for traditional rights over common lands, no compensation was paid when they were lost through enclosure. The losers were smallholders with informal rights over other lands who were supplementing their incomes and fuel from common lands. The winners were those with larger plots. Enclosures changed the geography of the land, creating larger plots. In 1700 average farm size in open field land was 65 acres; in 1800 it was 150 acres in southern England and 100 acres in the north.[9] Farms were enclosed, run by professional stewards on market principles. By the early nineteenth century the peasant proprietor had disappeared from England[10]; land was owned by landlords and leased to tenant farmers who employed day labourers, with farmers supplying capital and know-how. Jane Austen has the Martin family in Emma portrayed as sturdy tenant farmers. According to Mokyr (2012: 172-6), by 1790 75 per cent of British soil was cultivated by this kind of tenant.

Primogeniture in Britain played an important part, whereby the oldest male child inherited, in fostering larger-scale and more capitalistic estates. Primogeniture kept the estate together, increasing the economic burden on the head of the family to run the estate in commercial fashion, and forced the rest to earn their livings. This kept the larger holdings together and gave incentives for improving them, in money-earning ways (Landes, 1998: 67). Landowners leased land to tenants, enclosed land, concentrated holdings, and found tenants who would introduce crop rotation and new techniques. Improving landlords formed part of the agricultural revolution. Landes (1998), through Arthur Young’s observations, also argues that the concern of British gentlemen to acquire a fortune pushed them towards social mixing between nobles and gentry; below the level of gentry there was no barrier between land and trade (Landes, 1998: 70).

Inheritance created a lot of stability and continuity: Tawney (1941: 2) estimates that of the 62 leading landowners in the 1642 Parliament, one half of their descendants owned over 3,000 acres in 1874. It is clear that by the end of the seventeenth century the land was capitalist, run according to profit and loss, with book keeping, that the freeholders to the land had secure rights although copyholders had not. Lands confiscated during the Civil War were restituted and North et al. (2009) gauges that by the end of the seventeenth century land ownership was outside political control and manipulation by the state, which they argue is a characteristic of a mature natural state.

Legal system: triumph of common law and statutory law over prerogative law

Property rights of landowners were increasingly protected through the rising power of Parliament, as a result of Parliament’s victory in the Civil War over absolute monarchy culminating in the Glorious Revolution, or what Churchill called the bloodless revolution when the English aristocracy, Anglican and Catholic, banded together to invite William of Orange to replace the absolutist-leaning and Catholic James II. (Harris T.2006; Pincus 2009; Churchill [1956] 1998). Pincus argues that in James II’s reign there was an attempt to create a centralized, bureaucratic state based on monarchal authority, along the lines of Louis XIV’s state, and it is this that was toppled by the Whig aristocrats inspired by the Dutch model of modernity (Goodlad 2010; Pincus 2009).

Locke’s Two Treatises of Government, written in the 1670s (after the Civil War but before the Glorious Revolution) underscores the English connection between individual property rights and liberal government to which there is active consent of the people. For Locke, the formation of political society rests on individual property. Locke emphasises that ‘every Man has a Property in his own Person…that whatsoever he removes out of the state that Nature hath provided and left it in, he hath mixed his Labour with…and thereby makes it his Property’ (II para 27 in Laslett, 1960). In retrospect, this captured something (although at the time Locke was in exile and was read only by a few radical Whigs). Property extended from man’s labour to the land. It established that rather than everything being commonly owned, the relationships between men in society were based on their contacts with the world of property (Laslett, 1960: 115). Civil society and government was set up in order to preserve and regulate this property. By property Locke meant man’s life and liberty as well as material things; abstract rights of the individual were bound up with this broad idea of property.

The establishment of common-law-based property rights independent of the state executive is also bound up with the nature of the rule of law in England. The rule of law operating impersonally across the whole society including over elites and over government requires that all government officials and citizens be bound by law. It binds officials and also constrains the state by imposing legal limits on law-making power (Tamanaha, 2007).  Villaverde (2015) argues that the rule of law in England needs to be interpreted in its ‘thick’ version (Tamanaha, 2004), going back to Magna Carta, embodying commitments to individual liberties, especially property rights. He traces the formation of ‘rule of law’ through thirteenth century Bracton, with the King subject directly to the law ‘for there is no rex where will rules rather than lex’ (Bracton, Vol 2: 33), through to Sir Edward Coke in the seventeenth century, who upheld the common law as embodying ‘common right and reason’ even in the face of statutory Acts of Parliament. Villaverde argues that it was the English Constitution of Coke that upheld limited government of checks and balances on the King by the Lords and Commons. He traces this through to A.V. Dicey’s 1885 treatise Introduction to the Study of the Law of the Constitution. ‘For Dicey the law in rule of law was the common law and its protection of individual freedoms’ (chapter IV 145-146, in Villaverde 2015: 6). The Glorious Revolution unleashed Parliamentary sovereignty, as argued by Blackstone, which was defended by the winners of 1688 and was opposed by both Tory monarchists and radicals like John Wilkes (Villaverde, 2015:14). There was a shift of power towards Parliament and a strengthening of common law in the course of the Civil War and Glorious Revolution that reinforced each other and reflected the interests of the propertied elites in protecting their assets.

Decentralized, contestable legal system and constraints on the state


The Lex Mundi project on ‘Courts’ of Djankov, La Porta, Lopez-de-Silanes and Shleifer (2002, 2003) emphasises the difference in legal systems between common law systems of the United States and United Kingdom and the civil code systems of Continental Europe. In tracing through how Britain gained this conceptualization, institutional economists have focused on the transitions in England and then Britain of the Glorious Revolution. But what were those transitions? How accurate is it to describe this transition as a triumph for common law?

The thesis of North et al., (2009) and Acemoglu and Robinson (2012) is that after the Civil War, property rights of the dominant elite were established. All freehold tenures of land in fee simple or common socage gave owners impersonal rights beyond the reach of the state. Their argument is that elite privileges were turned into rights, as it was in the propertied classes’ interests, as rural capitalists required alienable rights in land, to have property rights made independent of the state, severing their status as privileges and placing them under the rule of law.

The balance between different types of law was shifted in the course of the seventeenth century. Pre-Civil War, royal and church prerogative courts, such as Star Chamber and the High Commission, were dominant, with notables in charge of local courts. This ran in parallel with the courts of common law, administered by local Justices of the Peace, also composed of local notables. There were three common- law courts: Common Pleas, King’s Bench and Exchequer, institutionalized in the formation of English common law between the twelfth and fourteenth centuries (Harris R., 2000: 25). The Civil War was, in part, a fight over the relative status of the common law courts against the prerogative courts controlled by the Crown, but also about the status of statutory law made by Parliament. The Civil War and then Glorious Revolution shifted power, including law-making power towards Parliament. Private Acts of Parliament were chiefly responsible for enacting enclosures, as well as for incorporating the Bank of England, as they had been responsible for chartering the great monopoly companies earlier.

Before the Civil War, one of Charles I’s offences had been to disregard both common law courts and the authority of Parliament over fiscal matters in bringing cases to the Star Chamber (Hill, 1961). Prior to the Civil War, the King had control of the judicial bench. He could dispense with Parliament if there was no war and hence no need to raise taxes to finance war. He had the Privy Council and Star Chamber to enforce his will. The pre-Civil War courts of High Commission and church courts ran as a parallel system, financed by tithes and fines. During the Civil War, the courts of Star Chamber and High Commission were abolished and not restored, along with other prerogative and church courts. The ecclesiastical courts lost power and the bishops never controlled government again.

Through the Civil War, common law and statute law triumphed over prerogative and church courts. The common law courts – of the King’s Bench and Court of Common Pleas – were overwhelmingly in favour of private property rights and larger landowners. The local Justices of the Peace, largely coming from the local gentry, came to play an important role in the enforcement of order and business contract. The revolt against Charles I was not fought to defend common law (Adamson 2007) but as Porter (1982:69) puts it ‘the purposeful solidarity of property interests in rejecting James II heralded greater cohesion to come’. It resulted in diminishing royal court control, freeing business from government regulation, abolishing government privileges of granting industrial monopolies, loosening state regulation of wage rates.

Post-1660, with the Restoration and then the Glorious Revolution, the common law courts increased their power. The King’s Bench and Parliament took over supervision of legal processes of the Privy Council. This saw the primacy of the common law of Coke and the Parliamentarians, adapting medieval law to commercial society. There was a common lawyer as Lord Chancellor. In 1668 it was ruled in the House of Commons that it was illegal for judges to menace juries. Justices of the Peace came out of local notables; judges were under the control of Parliament but not of the King. This was a big step towards constraining the monarchy.  Macaulay (1849, 1968: 200) argues that the transfer of supreme control of the executive administration from Crown to House of Commons was done noiselessly but rapidly and stealthily. Just how noiselessly this revolution was accomplished is challenged by more recent historians (Pincus 2009; Harris T. 2006), who stress the violence involved especially in Scotland and Ireland (the Battle of the Boyne) in transferring authority to Parliament. There is a distinction between the evolution of English institutional forms and their imposition on Scotland and Ireland, whose tensions resound to the present day.

Implementation of law became more decentralized and contestable (in the Milhaupt and Pistor, 2008 framework), although the increasing ‘Parliamentarization’ of the 18th century has been characterised by Tilly (1997) as centralized contention. Nevertheless private Bills of Parliament (of enclosure for example) were initiated from all over Britain. Tilly (1997) highlights the tensions between decentralizing and centralizing pulls in the 18th century, between localized assemblies of notables in English politics alongside the growing power of centralized Parliament in politics from the 1780s, and in law-making during the 18th century.

So how does this link to the ‘legal origins’ debate about the differences between common-law, more reliant on judge-made case law, and civil-law systems, more grounded on civil codes and statute law, in being shaped by different political power and in turn affecting the kinds of investment that economies undertook (Glaeser and Shleifer 2002; La Porta et al 2008; Hayek 1960). The economics literature has focused on the cross-country comparative adaptability and flexibility of legal systems, comparing case law/common law against civil codes/statute law, especially in the area of company law (Anderlini, Felli, Riboni 2008), whereas the historical literature in assessing the evolution of differential powers of types of law within any country, such as Britain, points to the mix of statute and common law and highlights which types of law were strengthened in particular periods.

The point I would make is that, in parallel with the tradition of individual property rights, England, Britain and then the UK have been characterised as having a long-standing common-law-based legal system, going back at least to the 13th century, and that common law was bound up with interpreting property rights. This was bolstered by increasing use of statute law affecting property rights in the post-1688 period. Overall I conclude that the legal systems of the UK (and US) have been structured differently, in a more localized, decentralized, contestable fashion than those on the Continent, and this has formed one of the pillars that supported the protection of private property rights and that constrained the government from encroaching on those rights. Kagan (2001) has labelled this Adversarial Legalism for the United States, with law as a bulwark against government. It applies also to the UK. The prominence of lawyers, use of the courts and accessibility of the legal system has continued to the present. If one compares numbers of lawyers per thousand citizens in the early twenty-first century, the UK (with 1.49) is behind the US (with 3.11), but well ahead of Germany (0.53) and France (0.41) (Cross, 2003).

Distinguishing between landed elites and non-landed wealth


Land was an important source of wealth and status. But the English economy and society had grown up since the 15th century on the back of the great seafaring cities of Bristol and London, with their property rights associated with trade, shipping, ship-victualling as well as other forms of enterprise. There were property rights associated with forestry, vital for wood for shipbuilding; and the artisan community not based on land but involved in smithing, tavern running, wheelwright workshops, had property rights in their traded goods. Journeymen in artisan businesses made the transition from apprentices without property into property-owning enterprises; the textile industry was not only about sheep-farming but had artisan operations in workshops, in traded raw materials and semi-finished goods. In these kinds of enterprises, property-owning was not about inheritance but about tradability. The key argument being made throughout the book is that the ‘liberal’ economies were based on and protected tradable property rights and emphasised their tradability, to a much greater extent than Continental or developing economies in my other case studies.

Why then the focus on land-ownership? To be in the elite you had to be a large landowner and this was a highly concentrated structure. Porter (1982:78) has described the establishment in 18th century England of the ‘more or less autonomous magnates as satraps of local communities, scarcely checked by Crown, Church or intendants of the kind who emerged in France’. These magnates dominated parliamentary legislation, sponsoring local private bills – for enclosure, canals, regulating trade. The Great House, Parliament, was the power-house of dominion. (Porter 1982:78). Moreover this autonomy of the magnates had been strengthened by the Glorious Revolution, restored to levels that they had not enjoyed since the 15th century, prior to Henry VII, whose dynasty had been consolidated by curbing the power of the local nobility (Penn 2011; Porter 1982).

The problem of concentration of ownership is complicated by concepts of seisin – title that could be held by multiple people – and the difference between proprietary and possessory rights, between those who owned and those who worked the land. North et al.’s (2009) estimate for the end of the fifteenth century is that between 50-200 nobles owned 20 per cent of the land; the powerful gentry of 200-2,000 controlled a substantial proportion of land but were not in Parliament; and the lesser gentry of 5,000-8,000 had above average landholdings. They estimate the nobility and gentry to be a half to one per cent of the population, that the nobles, gentry and lesser gentry owned 45 per cent of the land, the King owned five per cent and the church 20 per cent. The other 99 per cent of the population did not own much at all, but were spread over the land. (North et al., 2009: 93). By 1688, based on Gregory King’s estimates of social categories, ownership was somewhat more diffuse and not just in land: with 1.2% of society classified as landowners, 24% farmers and freeholders, 3% professionals, 4% merchants and shopkeepers, 4% artisans, 27% labourers, 30% cottagers and paupers and 7% in armed forces. (Porter 1982:63). Porter says these figures  underestimate the numbers of merchants, shopkeepers and craftsmen.

Porter (1982) makes the argument that English society in the post-Glorious Revolution century was a gently graded one, with very fine differences in status all along the gradations in the social ladder. Yes, there were huge differences between rich and poor at either end of the social spectrum. But there were myriad grades in between, who had a stake in the society. ‘England had more prosperous folk than any other nation: self-employed masters and men of movable property, men of money.’ (Porter 1982:85). These included master craftsmen, manufacturers, tailors, jewellers, carriage-builders and then men servicing the ‘quality market’: lawyers, bailiffs, clergy, surveyors, stewards, mortgage-brokers.

The post 1688 settlement tilted the balance in favour of Parliamentary settlement of property rights: there was an explosion of Parliamentary Acts relating to enclosure and a major clarification of property rights. Acts were used for constructing roads and canals, for draining wetlands and embanking, as well as other infrastructures such as building workhouses, paving streets, constructing marketplaces. Post-1690 Parliamentary Acts take off in number compared with the Stuart reigns. The number of Acts from 1600-1815 was: on roads 2,692; on canals 255; on ports 248; for river navigation 188; for urban improvements 553; for drainage 123; and for churches 198. Acts authorizing property sales leapt up after 1689 compared with the early seventeenth century. Parliament was a forum for modernizing property rights in a way that was ‘voluntary, effective, peaceful and permanent’ (Bogart and Richardson, 2011). On Enclosure Acts, over 4/5 of individuals possessing rights in villages drafted petitions which formed the basis for Bills of Enclosure. Parliament appointed a commission to implement the terms of the Act; Bogart and Richardson (2011) argue that this extended the range of contract, made investment in infrastructure easier and that Parliament reacted flexibly to economic opportunities.

Mokyr (2012) contrasts formal property rights with customary rights; he argues that the eighteenth century British state came down in favour of formal property rights against historical custom, against the customary rights of the poor and in favour of written rights, of the rich. Adam Smith, writing in 1776, says: ‘Civil government so far as it is constituted for the security of property is in reality constituted as a defence of the rich against the poor’. Toqueville noted the same in the 1830s: those whose property rights were denied were colonials, smallholders, cottagers, beggars, vagrants and women. Parliament acquired greater powers in the eighteenth century and reallocated property away from privileges, but also away from common rights. Britain was characterized by a greater spread and evenness of commercialization and industrialization.

Protection of tradable assets

Land was central to eighteenth and nineteenth century wealth and dominion. Most millionaires were landowners. They became colliery owners and as urban land values rose, landowners bought into urban transport. Canals and railways raised values for adjacent land. Landowners’ investments went into commerce, through private banks and law, through the City into government stocks and trade. But English industrial and commercial capitalism was not based on land, nor was it a spillover from agrarian landownership. The English and Scottish cities had thriving trading capitalism and forms of property rights with sophisticated financial instruments operating before the 18th century. There were stock and commercial property bubbles and busts in the 1690s in London, the product of long commercial and maritime development. (Dillon 2006).

Investments in infrastructure and stock exchanges, financial instruments and joint stock companies grew together. Investments were made through banks, discount houses, bill brokers; land was mortgaged, savings went into insurance companies, who lent to landowners for their investments and consumption. Commercialization was good for property owners. Shareholding grew, given to younger sons, elderly women in marriage and unmarried daughters, widows and aunts, who could own property from the mid-nineteenth century. New provincial stock exchanges to finance infrastructure, such as railways, grew together. In 1865 157 MPs and 49 peers were directors of railway companies. Investors were gentry, professionals, businessmen, merchants from commercial areas, plus propertied middle class with savings to buy shares. This was the development of rentier capital, with wealth moving from land and commerce into industry (Landes, 1998). The wealthy had got rich since the 16th century in commerce, finance and transport as merchants, bankers, ship owners, merchant bankers, stock and insurance brokers, as well as manufacturers. Fortunes were made in trade and the colonies and were invested in land, titles and government stocks. Marriage was into land and industry; aristocrats and landowners were on the Boards of city and manufacturing enterprises. Finance replaced land as the business interest (Cain and Hopkins, 1989; Landes, 1998; Mandler, 1989; Mann, 1993). Property rights of tradable assets were the concern of these moneyed layers of society.

Primary institutions: Nature of the state

State fiscal capacity and limited government

Mark Blyth says of the state: ‘can’t live with it, can’t live without it, don’t want to pay for it’ (Blyth, 2013: 98). In a sense this was not true for the eighteenth century British state. Its fiscal capacity grew stealthily via indirect taxation based on increasing commercialization and spread of markets and increasing public debt, which also stimulated the growth of markets in government securities, which in turn enabled extending an Empire and increasing trade, enhancing further its fiscal capacity.

Besley and Persson (2009) demonstrate the complementarity in the twenty-first century between legal and fiscal capacity, charting the positive relationship between legal capacity – strength and clarity of property rights and their enforcement through the courts – and fiscal capacity, the ability of the state to raise taxes and the depth of its administration that enables it to do so. They chart both the positive correlation between these two aspects of state capacity and the positive relationship with income per capita: that richer countries have higher legal and fiscal capacities, whereas poor countries remain stuck in the south-west corner of the graph, lacking both types of state capacity. But what was the process of building this and how does it connect with the building of constraints on the state?

The story for Britain was of strengthening property rights and growing legal and fiscal capacity of the state, alongside growing constraints on the state. One argument is that limiting government also enabled the British state to raise more revenue through increasing fiscal capacity. Dincecco (2009) argues that centralized states with limited government brought with them increased state capacity through a greater ability to tax than both fragmented states with absolutist powers and than centralized states with absolutist powers. Absolutist regimes in France and Spain in the eighteenth century raised lower levels of taxes per head than the Parliamentary ones in England and Netherlands (Dincecco, 2009: 52).

How did centralization, tax-raising and constraining state powers happen in England? The English state had never been terribly centralized and absolutist. Greif (2008) looks at the balance of military power between Crown and barons in the thirteenth century; centralized monarchical power was relatively precarious. Out of that conflict, the cities got charters of self-governance with 500 autonomous towns (boroughs) being created which collected taxes, administered justice and formed military units, all of which constrained the Crown. There was the transformation of the Great Council into Parliament with representation of the town. In 1265, in response to Henry III dissolving the Great Council and raising taxes, there was a revolt by Simon de Montfort. Edward I’s Model Parliament of 1295 included representatives of the commercial urban sector. In 1297 Edward I confirmed in Magna Carta, that tax-raising required the assent of Parliament. The expansion of English law and the legal system in the thirteenth century extended markets. Whereas the Crown respected the rights of those in England with countervailing power, it did not respect those outside the realm, for instance of Italian traders (Greif, 2008).

By the fifteenth century, public order CEIs took the form of common law courts, with increasing administrative power and independence of jurisdiction. The case of negotiable credit instruments in 1436 is a case in point: it was a tussle between the Mayor of London and the King, where the Mayor’s court had customary rights in cases involving merchants. The King tried to transfer jurisdiction to the King’s Bench; the Mayor refused to consent and the King withdrew. Negotiated credit instruments became legal, expanding the CEIs of credit and bonds.

Henry VII reversed much of this development. His was a brutally centralizing and extractive state, in order to quash the independence of the barons, ending much of the decentralization of fiscal oversight which had been achieved under the later Plantagenets (Penn 2011). It was regained only partially in Elizabeth I’s time. Only with the decay and defeat of the Stuart aspiration towards absolutism was the trend of the early 15th century restored. (6 2016)

A further aspect of state power that became more constrained from the sixteenth to the seventeenth centuries was in the demise of the Crown granting monopolies and charters to municipalities and craft guilds. (North et al., 2009: 71). Guilds were monopolies, exclusive institutions with high barriers to entry and a set of privileges. In the mid-sixteenth century, the chartering of joint stock companies granted by the Crown were important in overseas trade and colonization. Such companies as the Russia Company, Virginia Company, East India Company, Massachusetts Bay Company and Hudson Bay Company were granted charters by the Crown. Commercial and trading interests were an intrinsic and important part of the English economy from the 16th century.

Dincecco’s (2009) argument is that fragmented states did not have the administrative capacity to collect taxes and that absolutist states did not have the consensus of the people to pay taxes. He argues that unconstrained absolutist monarchs spent on wars, and limited government was a way to curb that and create credible commitment to redirect spending towards public services. Constraining government created a pact between government and people, with the people consenting to paying more in taxes, which would be spent on public goods.

However Dincecco’s argument doesn’t take account of the role of war in making the state Tilly 1992), the ‘war machine’ (Harling and Mandler, 1993: 47), the ‘fiscal-military state’ (Brewer, 1989: 18) that was the British eighteenth century state which paid for its wars through the tax system. The eighteenth century was a period of almost continuous war and military expenditure for Britain. Harling and Mandler (1993) calculate that wartime public spending, in real terms, rose from £94.7m in 1701-13 to £118.7m in mid-century during 1756-63, to the highs of £671.95m during the French wars 1793-1815. The proportion of government spending that went to defence, and the debt servicing that defence spending, rose from around 90 per cent to 94 per cent, meaning that spending on civil government services fell from the meagre ten per cent at the beginning of the century to six per cent (although of a larger absolute total) at the end. This was not a state that was constrained from spending on wars and towards spending on public goods. O’Brien (2011) makes the further argument that Britain’s fiscal exceptionalism of the eighteenth century was grounded in building its capital intensive naval capacity in order to police the oceans and defend its trading interests and growing empire. This military and naval capacity rested on an already well developed set of commercial maritime capabilities, in turn dependent on property rights secured for those capabilities. In other words, its ability to tax and its capacity for war went together during the eighteenth century. As Queralt (2016) argues, in line with Tilly (1992), the effect of war on state-building depended on how warfare was financed, between taxes and loans.

The dominant classes feared aristocratic revolts, like the Monmouth rebellion and attacks from the Pretenders. They were determined to defend the Protestant constitution from the threat abroad of absolutism (Pincus 2009). O’Brien (2006) argues that Britain attained the first Weberian state, able to defend itself against external takeover, politically stable (in England although not in Ireland), commanding sovereignty with a level of revenue, administrative capacity and efficiency that enabled it to deliver a certain level of order in terms of legal and judicial systems and other institutions. External security and internal order were indispensable for the expansion of the commercial economy. [11]Mathias and O’Brien (1976) illustrate the building of fiscal capacity, looking at the growth in share of taxation in GDP, which rose in Britain from around 16 per cent in 1715 to 20 per cent in 1759 to 36 per cent in 1803/12.

O’Brien (1988) examines which taxes were increased and who paid them. The tax burden on land rose during the 1690s and in the early nineteenth century under the threat of French invasions, but stabilized and declined between 1710 and the 1780s until Pitt’s introduction of  income tax in the early nineteenth century. The burden of taxation on the aristocracy fell during the eighteenth century, but during the late seventeenth and early nineteenth centuries wars, landowners paid the state to defend their property. The bulk of increased taxation was increased excise and stamps paid on luxury domestic consumption, which hit city and town merchants as well as landowners. There were many partial exemptions for the rapidly growing sectors of industry (cottons, woollens, metallurgy, pottery, canals, banking), although these sectors also paid additional taxes. Excise taxes were increased for domestic industries and services such as legal instruments, licences, paper, vinegar, patent medicines plus decencies such as beer, candles, coal, soap, leather; and they fell more on those who could afford it, being levied on the more expensive types of those items. In terms of explanations of policy, O’Brien (1988) stresses that the governments were constrained more by structure than events: income taxes were not feasible; customs duties were less productive; the burden fell on excise and stamps. Fiscal policy was aimed at warding off income tax or reform of the land tax. Land taxes did contribute during the wars against the French, but unevenly: manufacturers and merchants got off lightly as did landowners in the North and West whose estates were undervalued.

The other source of revenue was government borrowing. Government debt doubled during the American War of Independence; Pitt introduced a Sinking Fund in 1786 to repay national debt from tax revenue. This expansion of state capacity through issuing public debt, with interest payments financed by taxation, is also a feature of that other liberal economy, the United States. It links to the expansion of financial markets in government securities, spreading the burden of public debt relatively widely.  What made this unprecedented debt sustainable, with lenders prepared to go on lending despite very high public sector debt figures by the end of the Napoleonic wars, was the (correct) belief that the British state was still good for its debts when other European states with that kind of debt were not. This belief was founded on the capacity of the classes voting for Parliament to sustain consent and to collect taxes, aligned with the commitment to repay bondholders above other state creditors (6 2016). This is an argument about whose property rights took priority in terms of protection. It was the case for 18th century Britain, as for the 18th century United States (Edling 2014 and chapter 6) that they honoured and prioritised their payments to bondholders, thus encouraging the development in the market in government securities, and they used taxation to finance those payments.

The other aspect of state capacity of the eighteenth century that O’Brien stresses is the professional and efficient bureaucracy that was created in the Commissioners for Excise whose Excise men were educated (the basis for their selection was meritocratic) from the lower middle strata of society and who were rewarded with good salaries and bonuses, although Tom Paine did not think so. Also in comparison with French and Prussian bureaucracies, British bureaucratic capability was small and underdeveloped.

It was not until the post 1815 retrenchment that there was a reining in of perceived to be extravagant and wasteful public expenditures towards a recognition by elites that there needed to be a broader-based taxation system, that the war-state was too expensive (Harling and Mandler, 1993). The political elite were still landed and mercantile and the role of government was to safeguard property and to protect those elites that depended on property in the first half of the 19th century. Fiscal reforms broadened the tax base through income taxes and took pressure off the excise tax. There was little notion that the early nineteenth century state should be spending on public goods. But there was belief in removing restrictions on trade, reducing taxation and increasing government revenues, a very liberal combination.

Peel, to the Commons (1853 4: 581) quoted in Harling and Mandler 1993): ‘It is not inconsistent with true conservative policy that we should increase the trade of the country by removing restrictions [12]…nor is it inconsistent with sound conservative policy that we should reduce the taxation of the country whilst we increased its revenue’.  Harling and Mandler argue, this unique state in nineteenth century Europe protected and preserved its political elite from being upturned. However the greatest fear of radicalism from within the country was from 1818 until 1848, with the Peterloo massacre and Chartist movements, which represented a serious threat to the establishment and during this period taxes did not rise much. They rose more in the second half of the 19th century when there was less domestic radicalism. The relationship between protecting property rights from revolt or revolution is a complex one. Some saw the repeal of the Navigation Acts as an attack on British shipowners’ property rights.

From fiscal exceptionalism and mercantilism to 19th century Reform and a liberal state

The eighteenth century British state was also mercantilist. Mercantilism meant a system of nationalistic protection through giving certain interests privileges, such as the granting of monopolies, through passing Acts to protect the country’s own shipping (Navigation Acts) or the country’s own industries (Calico Acts). Feudal privileges were out by 1700 but mercantilist commercial privileges remained. The mercantilist state was built on rent-seeking, on gaining privileged access and taking the surplus from that access. Interest groups got exclusionary rents and the government taxed them. Mokyr (2012) argues that there was no systematic mercantilist policy, but that it came out of appeasing various conflicting interest groups, of the landed, merchants and manufacturers. However there had been strategic policy in James I claiming defined zones of the sea around Britain as maritime territory, or in Oliver Cromwell’s western design, which were both strategic and mercantilist, in the formation of the great monopoly trading companies, one for each region, reflecting mercantilist thinking. (Pincus 2009). All nations at that time played the mercantilist game of protecting their national interests at the expense of other nations.

Mokyr (2012) argues that this mercantilism shifted towards more open competition for profitable activities through nineteenth century liberalism and the shift to free trade which took place gradually during that period. Mokyr argues it was partly ideological and due to Enlightenment ideas and Adam Smith’s attack on the mercantilist system. The movement towards free trade was signalled by the repeal of the Corn Laws in 1846 and repeal of the Navigation Acts in 1849.  The Bubble Act, requiring a new company to have Parliamentary permission, was repealed in 1825. The restrictive labour laws of 1562, the Statutes of Artificers and Apprentices and the Calico Acts were no longer enforced. In other words, it was seen as being advantageous to those particular groups in power to move away from protectionism and towards freer trade, at a stage when some in British industry wanted fewer restrictions, although it can be argued that the phase of ‘free trade’ lasted only until the 1870s. (Marsh 1999)

The pressure on state finances receded; in 1816 income tax was abolished but indirect taxes were increased to pay off fund holders. There was pressure to reduce Old Corruption – the various privileges and sinecures attached to offices and church livings (Rubinstein, 1983). The Manchester Guardian was founded in 1821, the Westminster Review in 1824 plus Cobbett’s Political Register – all papers pushing for reform. The elites extended the franchise peacefully, without revolution, although there had been widespread violence in 1830-32 and Parliament was alarmed (Mann, 2012: 122). Lizzeri and Persico (2004) argue that both political and economic changes favoured less patronage and clientelism that was pervasive amongst the narrow Parliamentary elite of the eighteenth century[13], and led them to acquiesce in a wider franchise and increased political competition between parties in the nineteenth century. This was not a smooth process but an act in two stages: the first (of 1832) made the franchise more consistent but without much widening and the second stage (of 1867) dramatically widened the franchise, but against the wishes of many of Disraeli’s party. This combined with economic imperatives to provide public goods to deal with poor sanitation, and sewerage systems to deal with the greater disease that had spread with rapid urbanization.

Mann (2012) puts the case for reform rather than revolution in part down to there being an absence mostly of legal privilege in Britain, unlike in France[14]. Struggles like bread riots or labour disputes did not involve the state and its reform. Economic conditions in Britain remained divorced, or considered separately from political power.

In Britain, one romantic view of the role of property is particularly explicit: ‘Long may Old England possess good cheer and jollity/Liberty and property and no equality’ were lines from an Anti-Gallican songster in 1793 (Dinwiddy, 1988: 62 in Mann, 2012: 19). The Chartists did challenge the state on the basis of linking bread and jobs with political rights; but they were defeated. The trade-off that was made in Britain was in favour of individual rights over property rather than democratic civic equality. This harked back to Lockeian roots of individualism and property as the basis of political power, the role of the state being to protect that existing economic power; it did not extend to giving civic equality to the non-propertied. Economic disputes such as the Peterloo Massacre of 1819 and the Chartist movement, did not manage to overturn state authority (Mann, 2012: 124).

With the 1832 Reform Act, the significance of property became even more entrenched. The £10 property franchise added 300,000 men to the electorate of 500,000 (representing 15 per cent of the adult male population of 3.3m up from about 1.3m in 1688 according to King’s estimates in Macpherson (1962)) and got rid of 140 rotten boroughs. Landowners were still the Commons majority until the 1860s, but there was growing power of the trading and financial City-based class. (Mann, 2012: 125).

The critical laying down of the capitalist liberal state was done in the period 1760-1820 with the giving way of the old state that had regulated wages and prices and apprenticeships, had granted monopolies and had given licences for enterprises. By 1820 most of these restraints were removed and international trade was freed of monopolies (Mann, 2012; Mandler, 1989). Parliament was composed of merchants, bankers, landowners, professionals with merchant and banking interests. There were some industrialists in Parliament in 1804, but they were often people who had bought enough land to get into the system. The legislation of the elder Peel abolished guild regulation to protect apprentices, although it did enforce the Navigation Acts and the monopoly of the carrying trade in British ships.

The priority given to promoting commercial society and the freedom to enjoy their private property and their intellect – over what Mandler (1989) calls ‘legislating civic equality’, political liberalization, created the liberal state in the 1820s, supported by a cross-class coalition between landed and middle classes. These liberal values – for a relatively ‘small’ state that doesn’t interfere in business, for self-regulation, favouring commerce and finance over industrial capital – created deep roots for the development of British capitalism. Mandler (1989) suggests that these roots can be seen in the post-1980s British state. There are however profound differences between this characterisation of the liberal state in the 1820s and what has emerged post-1980s. I return to this below.

Public goods, local (self)government

In the nineteenth century, with the Pax Britannica, there was a changing balance between waging war and providing public goods. In outlining the nature of the British state’s liberalism which has carried through to the twenty-first century, the distinction made by Philip Harling (2004) between the local state and central state is crucial. It was through the local state and local government expenditure that some areas of public goods were provided in the second half of the nineteenth century. In other sectors, such as ports and harbour control and the General Post Office, public good provision was centralized. The GPO was a major central provider of public goods, even more so after the nationalization of the domestic telegraph sector in 1868. The central state also undertook a great deal of regulation to ensure that public goods were provided at private expense. The inspectorates were overseen centrally.

In part this was also motivated through self-interest by the elites in several ways: as public health became a serious concern with the rapid growth of cities and as water-borne disease affected everyone, there was greater impetus to clean up sanitation and provide various kinds of public infrastructure to do so; and as working class conditions worsened and discontent mounted in the 1830s, there were concessions made both on the political front through extending the franchise, and on the economic front through extending public goods. Expenditures on public health to regulate the quality of food and water and high infrastructural investment were made possible by Britain’s high per capita wealth. Harling says that there was a 75 per cent per capita increase in local government spending in the second half of the nineteenth century out of income generated from higher rates (Harling, 2004). It was however very uneven, with higher municipal expenditures in Birmingham for example and backwaters elsewhere.

Alongside this Harling stresses the greater participatory nature of politics at the local level with opportunities for women and working-class men through the local electorate on school boards, as Poor Law guardians, on local councils, as well as participation through voting itself with the introduction of and extensions to the local municipal franchise, in 1835, 1869 and 1888 (Harling, 2004). Local institutions were transformed following the 1835 Municipal Corporations Act that established precursors to the elected municipal councils. Almost all cities became incorporated and their rulers were transformed from being appointed to being elected. (Lizzeri and Persico, 2004)

Thane (1990) argues that, by the mid-nineteenth century, the liberal idea of small government was established, with the state’s role being to provide a framework so that society could run itself. Even though in mid-Victorian Britain the government didn’t match this ideal, it was a widely held and influential view. Thane plays down the presence of a centralized bureaucracy, which was relatively small in headcount terms, arguing that it created greater flexibility and scope for negotiation and adaptation.

The mid-19th century state did however have a regulatory role over the economy, working increasingly through the legal system and inspection, from the Factory Acts onwards. The sanctioning of enclosures, the building of docks, turnpike trusts, canal companies were done through private Acts of Parliament. The mercantilist inheritance of protecting and promoting overseas trade was done through tariffs and prohibitions on corn, timber, sugar.

There were lots of roles for groups of self-governing citizens, often elective but unpaid in an official capacity. These included various local government institutions. In Britain there was not a strong bureaucratic caste group with its own interests (unlike Prussia) and there was no great expectation of what the state should be doing (unlike France). Thane argues that mid-19th century Victorian central government had a vision of its role but its methods of taxing and policing were indirect and discreet. She argues that the only direct contact with the state was through the post office clerk (Thane, 1990). Against this one can argue that this was changing with the institution of the General Post Office, whose charges were explicit and direct. Moreover the founding of the Metropolitan Police in 1829 had increased direct and visible contact with the state in London. The great maritime cities, with their naval recruitment, victualling, ship-building and repair had long meant close contact with the state in the defence sectors and for many people as contractors or workers. This military-industrial state did reach deep into the 19th century economy but particularly built around maritime and naval affairs and procurement.

As well as this, there was local administration, official and voluntary such as Justices of the Peace (JPs) and Municipal Boards of schools and hospitals. The powers of unpaid JPs were extensive, of arresting and punishing offenders, supervising ale-houses, punishing runaway servants and apprentices, fixing prices and wages, maintaining highways, setting poor law policy, suppressing nuisances, overseeing markets, appointing constables and assessing rates. The Poor Law framework was set by central government but administered by local communities. There was a growth in municipal corporations as towns grew in the eighteenth century that dealt with the environment and established free associations to petition Parliament. There were local bill powers to levy local taxes for street lighting, stone paving, watchmen and refuse removal. There were local improvement commissioners (Thane, 1990:7). With this level of local responsibility for local needs, there was not much intervention by central government. Yes the courts favoured the rich over the poor but not invariably; freedom before the law was not a myth. Severe court penalties acted as a deterrent rather than being enforced. This was changing by the 1870s. The civil service and inspectorates grew steadily in the late 19th century and became more professional, particularly in the Foreign Office, Home Office, Treasury, and GPO.

Lizzeri and Persico (2004) document that public spending by local government rose from 17 per cent of government spending in 1790 to 41 per cent in 1890. They argue that increased spending on public goods, especially on health infrastructure, was desired by the elites because of high mortality in the new large cities and the inability of infrastructure to cope (Szreter, 1997). This infrastructure included unfiltered drinking water, unpaved roads and little drainage, so these cities were breeding grounds for disease. Mortality was less class-specific in the early nineteenth century than in the twentieth century (Williamson, 1990: 282)

The nature of the British state in 1850 was not laissez-faire, but the more interventionist laws were not enforced. There remained restrictions on joint stock companies, but alternative institutions such as trusteeships got round the lack of incorporation. Much of the internal administration was left to local authorities, such as magistrates; regulation of labour markets, justice, police, road maintenance, poor relief were all organized at the local level. Ignoring or evading rules, such as those on usury or the Navigation Acts, made Britain more of a free market economy. The Statute of Apprentices was being ignored by 1700; the Calico Acts were unable to keep out Indian calicoes; laws preventing emigration of artisans and machinery were evaded (Mokyr, 2012).

The other point to integrate here is Cain and Hopkins’ (1986, 1987) argument that British capitalism was ‘gentlemanly capitalism’: it favoured the City, financial interests and mercantile interests over industrial interests. They divide this into two phases: from 1688-1850 when the landed interest predominated, and from 1850 onwards when the financial and commercial magnates of the City and the growth of services in the south east of England gained the upper hand.

The financial revolution of the eighteenth century (see below) was based in London, the creation of the Bank of England being part of it. It involved the creation of the national debt, the rise of the stock exchange, the decline of Amsterdam’s financial predominance. London in the 1780s was the first financial centre with an influx of refugees from the French wars. The Gold Standard evolved from the early eighteenth century and was confirmed in 1819. By 1850 other monopolies had ended, excepting the Bank of England which under the 1844 Bank Act confirmed its exclusive rights. In the second half of the nineteenth century the service sector grew, based on shipping, insurance, bills of exchange. Cain and Hopkins’ thesis is that the gentleman capitalists composed of the financial and merchant class always had the upper hand over the industrialists (Cain and Hopkins, 1986). This gentlemanly capitalism pushed for stronger protection of tradable assets than those of assets associated with industrial capital.

Meso-institutions: Corporate governance – organizational forms, financing, capital-labour institutions

This section focuses on organizational forms: the formation of joint stock companies, the role of the corporation, unincorporated companies and other organizational forms such as trusts, and the centrality of the corporation in Britain’s equity-based capitalism.

Joint stock companies in financing and ownership

Why did the corporation win out in the nineteenth century as a legal form for business organizations over the partnership or trust? As Ron Harris (2000) argues, this was not a preordained conclusion. The corporation was attached to the power of the King, whereas the trust and partnership forms were free from state interference. As one of the key questions in this book is why family-owned concentrated shareholding has persisted on the Continent much longer than it did in Britain and the US, one of the key issues is to trace when dispersed shareholding happened in Britain, the role of the corporation, the role of common law and the use of equity markets in that process.

The trading companies of the sixteenth century, such as the Russia Company and East India Company, used the permanent joint-stock form, although there were difficulties (Harris R. 2000: 44). Harris dates the rise of the corporation to the early seventeenth century, the companies relying on state monopoly and protection and the state deriving revenues from them. It was after the Glorious Revolution that the business corporation revived in importance through the big three moneyed companies: East India Company, Bank of England, South Sea Company. They became important in public finance. The joint stock feature of companies grew more popular with many new unincorporated joint stock companies forming in the 1690s promoted on a stock market.

The Bubble Act was passed in 1720 requiring Parliamentary approval for setting up a company by taking out a charter. Harris (2000) argues that the Bubble Act, although seen as a turning point in the history of business organization, did not have such pivotal effects. The period from 1720-1810 saw great economic change but little legal change. The unincorporated company in England from the late eighteenth century had, to some partial extent, the four features of a joint stock corporation: transferability of assets; limited liability; managerial hierarchy; and a separate legal personality, but not enough for most entrepreneurs (Harris R., 2000). Harris’ argument is that despite the legal restrictions and lack of limited liability, joint-stock companies were extremely significant in eighteenth century proto-industrialization. It was the needs of financing companies at the end of the eighteenth century that gave rise to calls for changes in the law such as the repeal of the Bubble Act in 1825, the Companies Registration Act of 1844, and the introduction of limited liability in 1856.

In the late eighteenth century, the limited partnership, akin to the commenda, was recognized and used on the Continent and in England, but was not recognized by common law and only came into the English legal system in 1907. Sleeping partners in a partnership who would have limited liability had no standing in an English court. This contrasts with the post-Napoleonic introduction of joint stock partnerships with transferable interests in France, which were not recognized by English common law.

The Financial Revolution, public finance, stock markets

This section draws on Harris R. (2000) and on Leslie Hannah’s (2015) recent reconsideration of corporate financing data and fables, comparing institutions between the UK, US, Germany and France, from the early twentieth century. The importance of what has been called The Financial Revolution in Britain from the end of the seventeenth century, through the development of public credit from the Bank of England and other financial institutions, has been debated (for example, Dickson’s The Financial Revolution in England (1967); Brewer’s  The Sinews of Power: War Money and the English State 1688-1783 (1989)).

The main features that stand out about Britain’s corporate financing in the eighteenth and early nineteenth centuries are the following. There was huge development of equity financing, selling shares in companies, through informal securities’ markets. The UK had precocious development of stock exchanges, what Hannah calls London’s exceptional stock exchange development (Hannah, 2015: 31). He describes the dozens of informal provincial markets where holders and brokers met in bars, matching bargains, reporting in the press. Companies made share issues out of their main headquarters. These exchanges were private, voluntary, largely unregulated associations. Harris (2000: 168-198) describes the plethora of informal, local, entrepreneurial exchanges based in the London Coffee houses and elsewhere across a number of sectors where joint stock played an important role: wool milling, fishing, brewing, flour milling, shipping, mining, as well as the early canal companies of the second half of the eighteenth century. ‘The coffeehouses of Exchange Alley soon acquired a reputation as being meeting places for specialized traders: Lloyds for marine insurance, Tom’s and Carsey’s for fire insurance, Garraways for auctioning, Jonathans for company shares and government stocks’ (Harris R., 2000:119). This gave rise to a building being dedicated to the exchange of shares, the Stock Exchange in 1773, and in 1801 the New Stock Exchange was constructed.

There were separate types of trading: overseas trade and high finance in the official exchanges, and the more modest trading in company shares that characterised the coffeehouses. Harris (2000: 122-123) gives details of the various books, Mortimer’s Everyman His Own Broker, Fortune’s An Epitome of the Stocks and Public Funds, which ran to many editions in the second half of the eighteenth century and are evidence of the widespread interest and activity in trading shares by that time.

These joint-stock companies raised capital in a number of ways, some of which did not rely on any formal market. For example, the Leeds and Liverpool Canal Company was set up after a meeting in Bradford in 1766 to obtain subscriptions. After two years of raising funds in this way, it applied to Parliament for an act of incorporation to enable it to raise larger sums. It opened subscription books in a number of northern towns but did not use any formal capital market. Harris contrasts this with the Atlas Insurance Company, which in 1807 met at Will’s Coffee House in London, advertised in London newspapers and appointed five London banking houses to handle the subscription. Country bankers were involved too and the network covered the whole country (Harris R., 2000: 125). The picture is of a vibrant corporate financing scene – eighteenth century crowd-funding – that did not necessarily go through formal exchanges but was drummed up through meetings in pubs, country banks and other meeting places where shares could be traded. A capital market grew up in the second half of the eighteenth century – not integrated and not efficient in the sense of one price prevailing across the market and information being easily accessed – but nevertheless significant in raising capital and in drawing in a wide cross-section of the wealthier part of the population, including middling sorts such as shopkeepers and skilled workers who invested their savings locally (Elbaum and Lazonick, 1984: 570) and not just the large landowning gentry. Railway construction in the 1830s and 40s was accompanied by the growth of provincial stock exchanges and the development of a more efficient secondary market in shares.

When it comes to aggregate comparisons of stock exchanges, in 1914 the London Stock Exchange (LSE) was ahead of other metropolitan exchanges in the value of its listings. The corporate bond market was also important in the UK (and US) especially for financing the railways. In terms of whether this implied loss of control by the entrepreneurs/proprietors, preference shares and debentures (which earned fixed interest returns but without voting rights) formed a significant proportion of securities in the UK, (around 36 per cent in 1913), (and US) markets and suggests that there was not ‘separation of ownership from control’ before the First World War.

Hannah (2015) gives us the number of corporations per million people in 1910, with the UK at 1,241 and US at 2,913, both way ahead of France at 306 and Germany at 403. The UK had higher capital values as a proportion of GDP, reflecting the extent of global investment especially in the pre-1914 period, whereas the US had greater numbers. The UK had more public and more private companies than Germany in 1914 (Hannah, 2015). The colossal trading companies represented very high percentages of UK-owned investment, (probably amounting to a bigger share of the world economy measured by investment than either Google or Microsoft have ever been at their respective heights) (6 2016).

Using Hannah’s careful calculations, in 1913 UK corporate equities as a proportion of GDP were 110 per cent at par and 151 per cent at market values. Hannah points out this proportion was not matched by the US until the end of the twentieth century. If one counts in equities plus bonds as a proportion of GDP, the UK was 153 per cent at par and 189 per cent at market values. This was three times the pre-war ratio for the other three industrial countries.

One of the points that Hannah emphasises is that many smaller quoted companies were not listed. ‘Nearly 90 per cent of the several hundred large, independent British-owned companies with more than £1m share capital had LSE-listed securities, while less than ten per cent of smaller quoted companies were officially listed’ (Hannah, 2015: 25 Footnote 60). There were more companies and more were quoted on stock exchanges: the UK data for 1913 show that corporate capital amounted to 150 per cent of GDP; 51 per cent were listed on the LSE, 23 per cent were listed elsewhere and 26 per cent were unquoted. This shows far greater similarity to the US, with a corporate capital ratio of 174/100 than to Germany with one of 43/100 (see Chapter 5 for a discussion of this). But it also shows a higher proportion of quoted companies than in the US.

In 1914 the number of quoted companies in securities directories far exceeded numbers on the Continent: at over 200 companies per million people in the UK compared with 25 companies per million in Germany and 28 companies per million in France in 1907 (Hannah, 2015: 33). Many thousands of these medium-sized quoted companies relied on personal reputation, trust and local networking amongst a fairly settled group of investors, often raising relatively modest sums of money. Hannah quotes Lavington’s (1921: 202-4) estimates of nearly 3,000 new companies going public in 1911-13 raising on average around £28k per company. The overall conclusion is that the UK (and US) used public markets much more extensively than did Continental companies, which stuck to unincorporated forms of sole proprietorships and partnerships to a greater extent. This has continued to be the case. Figures of the number of stock-exchange-listed companies per million people in 1990 show 443 in France (excluding the Marché Libre), 548 in Germany compared with 1,946 in the UK and 3,876 in the United States (Coffee, 2004).

There was also a London junior market onto which higher risk new IPOs (Initial Public Offering) could be launched. Hannah (2015) reports two success stories of the junior market that had been refused listing on the more tightly regulated LSE: Shell in 1900 issuing £2m of shares, with the Samuel family retaining a controlling majority, officially listing in 1911 and going on to become the world’s largest corporation; and Marconi raising £137k capital on the junior market with no prospectus and with insiders retaining voting control, achieving huge share price increases by 1912. They are illustrative of the greater risk and diversity of opportunity that raising finance in this way offered over the more tightly regulated Continental markets; there was a higher failure rate on the junior market than on the LSE or on Continental markets. However it also encouraged a wider diversity of backers than on the Continent, often local investors, trusts, agencies, or financial groups on the back of personal reputations, local networks and trust rather than statutory regulation. Hannah also argues, however, that although ownership became dispersed in the UK faster than on the Continent, family ownership and management was retained for longer in the UK than the US (Chandler, 1990; Hannah, 2015; Elbaum and Lazonick, 1984).

Regulation of securities and stock exchanges

John Coffee’s (2000) work on the role of law in the rise of dispersed ownership argues that dispersed ownership in the US and UK did not depend on there being adequate protection for minority shareholders. What it did depend on was that the stock market in both those countries was self-regulating and that control was held by the public market itself rather than being in the hands of controlling shareholders. These were private or semi-private orderings rather than law-making being managed by the state with the government administering the market as in France and Germany. His argument is that in the US and UK there was a separation of the market from politics, with the stock market functioning without close state control.[15] Common law was more hospitable to this type of private self-regulation than was civil law on the Continent. The self-regulation consisted in ensuring that there was adequate protection from raiders into the market. Once there was a constituency of small shareholders who had entered the market, then this protection became formalized into legislation. On the Continent, by contrast, no such small shareholder constituency developed. The main advantage that the UK and US offered in the development of equity markets was a decentralized state that kept out of the market. This runs counter to the La Porta, Lopez-de-Silanes, Shleifer and Vishny (1997) argument that it was the civil law system per se that failed to provide adequate protection to minority shareholders, whereas the common law system did.

This argument also runs counter to Roe’s (2003) political argument that concentrated shareholding was strong in social democratic countries with left-leaning governments as a countervailing power to the power of employees backed by the government. Bebchuk (1999), in line with the Roe argument, says that concentrated shareholders will not take a company public and will not sell to dispersed shareholders in order to protect their own rents.

What Coffee (2004) does is to go through the historical sequences of events to see what did lead to the dispersal of shareholding. Securities exchanges had existed since the seventeenth century, but principally to trade debt securities until the early to mid-nineteenth century. The canal and rail company stocks exploded in number and value and traded volumes by the 1830s, and the same for telegraph company stocks in the 1850s. Then, even in the presence of high private benefits of control, shareholdings were sold to small investors in the late nineteenth century in the US and mid-twentieth century in the UK.

The expansion of the London Stock Exchange was based on different organizational principles from that of the New York Stock Exchange: more open and laissez-faire, listing any security that would generate business (Michie, 1987 in Coffee, 2004: 43). Dispersed shareholding arrived in the UK, later than in the US. In 1936 the median proportion of voting share of the 20 largest shareholders in the 82 largest non-financials in the UK was 40 per cent, compared with 28 per cent in the US. In 40 per cent of UK companies, the 20 largest shareholders held an absolute majority collectively (Sargent Florence, 1961: 189). This was not separation of ownership from control. A study for 1977 found that the largest 20 shareholders held 20-29 per cent of voting stock (Scott, 1986: 95). The conclusion Coffee (2004) comes to is that ownership in the UK became dispersed sometime between the 1930s and 1970s.

Capital-labour relations

Why were capital-labour relations antagonistic rather than consensual and why did a labour voice not get incorporated into the firm’s governance? The history of capital-labour relations in Britain is much more complex than the conclusion that I have arrived at of a more liberal regime of low employment protection, low union density and low employee voice in the governance of companies would suggest. I cannot do justice to this but merely touch on the history here to suggest the ways in which the liberalism, outlined above, fed into this area of governance.

Mann (2012), in talking about the emergence of a British working class and capital-labour relations emphasises that the early nature in the emergence of class relations affected its character: that there was little ‘class’ identity from 1760-1832 in the build-up to the Chartist movement, that such identity as there was, was based around family and community rather than around the male-dominated factory, which did not exist much at that time except slightly in cotton. There was little distinction between manufacturing and service industries, nor between factory and workshop; factories or workplaces were relatively small. In 1851 on average textile firms had 100 hands, spinning plus weaving firms had 300 hands; these numbers had doubled by 1890. There were some large mines, ironworks and shipbuilding yards, but most outfits were small. The 1851 census shows that the largest employment was in agriculture and domestic service. (Mann, 2012: 517). The liberalizing of the 1820s and 30s discussed above applied to working conditions as well: minimum wages were abolished, legal protection was diminished. There was much protest in various regions and sectors: in Bradford by wool combers in 1824; of Kidderminster carpet weavers in 1828; and of London tailors in 1834 for example (Mann, 2012: 519). Mann argues that the 1820s was a period of curbing workers’ rights, when much collective action was seen as criminal. The Chartists were defeated, he argues, due to class unity within the capitalist class and conscious rulings in their favour but also by their own disunity.

With the Second Industrial Revolution and the emergence of more general unions, there was broader but more moderate class organization than with Chartism. The political concessions of the Great Reform Acts, particularly in the 1860s, muted the militancy of Chartism. The rise of and recognition of general trade unions for unskilled workers had to be fought for; they became sectoral interest groups who could use their market power, when they had it, in times of rising activity and labour shortage but such power waxed and waned with the business cycle.

One source of difference in the British labour movement from its Continental counterpart was that workplace organizations had substantial local autonomy in bargaining backed by national union strength from the late nineteenth century during disputes. Parliament and the judiciary trying to undermine trade union strength, for instance through the Taff Vale decision, led to the creation of the Labour Party specifically to represent labour’s interests and protect its rights (Elbaum and Lazonick, 1984: 570). Labour interests economically had political representation. In the first half of the twentieth century, British unionism consolidated its positions of control in the workplace and at the national level, but with weak managerial structures, relations between management and labour were antagonistic and strike-prone rather than corporatist and consensual, as on the Continent. (Elbaum and Lazonick, 1984; Chandler, 1990; Hannah, 1976;  Streeck, 1997; Schmitter, 1974).  Elbaum and Lazonick and others argue that this antagonism was, in part, due to institutional rigidity in Britain: its structures had been laid down at a relatively early stage, of class antagonisms in the eighteenth century, although the coherence of these classes was not fixed.

Is there any resemblance between the supposedly liberal British state of the post-1980s and the liberal state as characterised for the mid-19th century? The Varieties of Capitalism literature certainly labels the post-1980s UK a Liberal Market Economy, and characterises its state as being ‘arms’ length’. A proper discussion of this is beyond the scope of this book. But as part of its purpose is to trace historical links and test the veracity of the Varieties of Capitalism claims, the beginnings of an answer is necessary.

Tanner and Green (2007) make the argument that Liberalism never died in England, pace Dangerfield’s 1935 The Strange Death of Liberal England. Instead it was taken up in the ‘moderate’ lib-lab politics of the early and mid-twentieth century, as stressed by Peter Clarke (1996) in referring to Hobson and Hobhouse’s works of the early twentieth century on liberalism.

The nature of the British state and state-business relations have undoubtedly changed fundamentally – since the mid-19th century, through to the pre-1906 state and then with Liberal reformism post-1906, through to the post-1945 welfare state. The post-1980s era has  also considerable continuity in forms of governance in terms of public administration, going back well into the 19th century and sometimes earlier. Independent arms’ length regulatory bodies going back to the 19th century were established for health and safety and then for railways and have continued. (6 2015). 6 (2015) gives examples of tax reliefs to stimulate life insurance being introduced by Gladstone and of the Liberal and coalition governments of 1909-1945 using private and voluntary sectors to develop social care, through partly-subsidized insurance and municipal arrangements allied with charities. There is much continuity here between this and post-1980s arrangements over treatment of the welfare state; ‘it would be more candid to acknowledge that the period between 1945 and 1980 was the aberration from a longer-run trend that drove developments, in Britain’s case, from the 1906 election. The important discontinuity would therefore be the 1945 election, not that of 1979’. (6 2015:64)

The other main argument that 6 makes is that the post-1980s period has been one of re-regulation, of tightening up of regulation after a much more lax and relatively hands-off period of greater autonomy for professionals in healthcare, education, policing, social care and local government in the postwar period through to 1980, tightening regulation using a range of controls such as details in contracts, performance and quality targets, auditing to get value for money (Bevan and Hood 2006; 6 2015).

I want to highlight a couple of areas of further continuity which makes the link between ‘liberal’ state-business relations in the 19th century and post-1980s, which suggests why Varieties of Capitalism theorists use the term Liberal to characterise the post-1980s British economy. The first highlights the nature of individualism in Britain, which as I show, goes back very far into the roots of English enterprise. As I suggested in chapter 2, Douglas (1982) couples individualism in terms of social integration with increased levels of social regulation. Focusing on the nature of individualism in the Liberal Market Economies compared with more emphasis on collectivities – greater group – in terms of Trade Unions, Business Associations, strength of apprenticeships and hierarchies within businesses in the more Coordinated Market Economies of Continental Europe, would bring out a key difference between the configuration of these economies, in the nature and mode of regulation and coordination with business rather than focusing on whether regulation per se exists or has increased.

The other continuity concerns the emphasis that I have placed on the creation and protection of tradable property rights – that goes back centuries into the construction of English and then British commercial capitalism, with its emphasis on markets and tradability both of goods and services of all sorts and then of the securitization of those markets into capital markets that traded shares in companies and government debt more successfully and from an earlier time than the Continental economies did.

One could take this further and argue that in Britain (and the US) the key mechanisms of social mobility have been through property ownership, especially land and house ownership and to some extent share ownership, more than through participating through labour in the firm. There is a continuity between the liberalism of the early to mid-nineteenth century, mass shareholding and participation in property ownership and the reinvigoration of these trends since the 1980s. There is a consistency between participation through ownership of assets tradable in markets, rather than through voice and control within the firm or at the workplace.


The argument being made in all the case studies is that the property rights and the shaping of the state go together. The formation of the state – who were the dominant elites in power within government and outside government, who made the rules of the game – were bound up with property rights – over land in the first instance but also over maritime assets of various sorts which became corporate assets and financial assets. This is so in all our case studies.

However, there are some key features of the British story that are not shared with other countries (except the United States to some extent) and which, I would argue, go on to create the key distinctions in the different types or Varieties of Capitalism that have evolved.

Britain is the story of the pre-eminence of a particular type of property rights: individual private property rights based on a common law legal system. It is the story of property rights that were tradable on markets of various sorts: markets in land, financial assets of government bonds, company stocks and shares (and post-1980, the housing market). Parliament and statute law were also central in this – what Mokyr (2012) called ‘a meta-institution’, in conducting enclosures and regulating chartered companies and being involved in maritime-naval industries, especially in times of war.

The process of separation of the state from the market: of making the markets in private property rights independent from the state executive (although monitored by the courts) formed one of the key constraints on the state executive and became bound up with the particular division between private and public spheres, non-state and state spheres. This needs to be distinguished from separation between the state and corporation, especially in strategically key sectors, which has been and has remained strong for several centuries.

This separation of market from state has formed a distinct and different private-public boundary from those drawn elsewhere, particularly in France and Germany and especially in more recent times in China and Tanzania. The private, non-state sphere was and is differently regulated in the UK and US than in France and Germany, China and Tanzania.

A further difference in Britain was the establishment of individual private property rights well before the extension of the franchise. There are arguments made that Parliament was representative of wider sections of the population than those who could vote, via petitioning, pamphlets and protests, giving some sort of ‘voice’ mechanism for non-voters (Mokyr 2012; Mann 1993). This is important in enabling voices to be heard other than through formal voting rights, despite major reversals during emergency periods such as the Napoleonic wars or during the Chartist agitation, and with voices heard more vigorously in England and not much at all in Ireland. But a significant aspect about the sequencing of institutional growth was that private property rights, independent of the state executive, were established prior to mass democracy. Property rights were not often subject to change with a change in government, which is an issue in Tanzania for example.[16] North et al. (2009) gauge that by the turn of the eighteenth century, the principle of private property rights independent of the state executive had become established. I would argue that the independence and tradability of those rights were and remain more strongly entrenched and protected from state executive interference than in Continental Europe and in my developing country case studies, although infrastructure and defence sectors had always been subject to state intervention. Property rights had been secured by and through the landowning propertied class in Parliament, although were not confined to landed property but applied importantly to all types of property in commerce and manufacture. There was freedom of person and property, enforceable against even the more powerful in the state and backed by law; this led to a spread of commercialization that made those values of economic liberty more important in Britain than those of civic or political equality. I trace this thread through to the liberal state that became established by the 1820s and, with a post-war battle over the state from 1945 through to the late 1970s, from the1980s saw its reconfiguration in the UK’s Liberal Market Economy.

Private ownership of tradable assets, including ownership of shares and government securities, was a significant mode of relatively broad participation in the economy. This affected relations between capital and labour, between employers and employees, which occurred through economic industrial confrontation in the workplace rather than with the state mandating coordination of voices in the workplace (see Chapter 5). The rule of primacy of shareholding for companies was in part protection for the small shareholder and, I would argue, in liberal fashion, took the steam out of a push for consensual workplace participation and control.

Property rights evolved gradually and incrementally over the centuries in line with the development of markets, in land, in securities, in government debt. The demise of absolutism in Britain in the seventeenth century and the demotion of the Crown’s courts based on privileges – Star Chamber, other prerogative courts – in favour of common law courts based on property rights, gave rise to a balance of power between state and non-state tilted towards the non-state, whether the state was centred on the monarchy or whether it was centred on Parliament.

In terms of the evolution of other commercial institutions such as stock exchanges, merchant banking, bills of exchange and other financial instruments that formed the backdrop to the growth of commerce and financing of industrial infrastructure, the role of the state was indirect: to provide a legal framework through Parliament by which local companies and stock exchanges could be set up, rather than do public provision directly. This turns out to be unusual and significant in comparison with Continental Europe and other developing countries. In terms of administration of justice – local courts – and municipalities, schools, hospitals – this also was a more private (often voluntary), localized affair than in other countries until the twentieth century. The private-public boundary crystallized around the creation of a liberal state  (as argued by Mandler (1989), Mann (2012), Cain and Hopkins (1987)) from the 1780s to the 1820s which, despite the Age of Reform, retained its cross-class alliances between landed and commercial (but not particularly industrial) interests in favour of a smaller state keeping out of business and intellectual interests. The balance of interest was tipped at the end of the eighteenth century in favour of economic ‘freedoms’ based on private property rather than political civic equalities based on representational rights (as in France). This was partly in reaction to what was going on in France. Both the composition of the state and the constraints on that state in Britain have consistently been economic power based outside the state vested in landed private property rights and then commercial/financial property rights, diffused over landed and middle classes of the population. This recognizable entity was renewed in the 1980s – after a post-war challenge.

In Britain, much significant institutional development took place in the private non-state sphere – from local financing, from governance of municipalities, schools, courts, charitable foundations – through having voluntary self-appointed or community-appointed notables, as opposed to organizations with connections to the state and state-appointed officials. Countervailing powers to the state of these institutions – the CCIs – were (and remain) critical in creating a liberal, smaller state, where citizens were more concerned to preserve their individual freedoms from the interference of the state than to be more formally represented through the state. This contrasts with the French and German boundary between state and non-state institutions (Chapter 5).






6 P. (2015) Governance: if governance is everything, maybe it’s nothing, in The international handbook of public administration and governance, eds Massey A. and Johnston K., Edward Elgar

6 P. (2016) Private correspondence

Acemoglu D. and Robinson J. (2012) Why Nations Fail, Profile Books

Adamson J. (2007) Noble Revolt: the Overthrow of Charles I, Weidenfeld & Nicholson

Austen  Jane (1811) Sense and Sensibility, Oxford World’s Classics

Bartle I. and Vass P. (2005) Self-regulation and the regulatory state – a survey of policy and practice, Research Report 17 CRI Centre for The Study of Regulated Industries, University of Bath

Bebchuk L. (1999) A Rent-Protection Theory of Corporate Ownership and Control, NBER Working Paper No. 7203, National Bureau of Economic Research Inc

Besley T. and Persson T. (2009), The origins of state capacity: property rights, taxation and politics, American Economic Review 99:4, 1218-1244

Blyth M. (2013), Austerity: The History of a Dangerous Idea, Oxford University Press

Bogart D. and Richardson G. (2011), Property Rights and Parliament in Industrializing Britain, Journal of Law and Economics, University of Chicago Press, vol 54(2) 241-274

Bracton vol 2:33 On the Laws and Customs of England, attributed to Henry of Bratton c. 1210-1268 available at

Braudel F. (1983) Civilization and Capitalism 15th – 18th Century The Wheels of Commerce, Book Club Associates and William Collins Sons & Co

Brewer J. (1989), The Sinews of Power: War, Money and the English State, 1688-1783, New York: Alfred A. Knopf

Cain P.J. and Hopkins A.G. (1986), Gentlemanly Capitalism and British Expansion Overseas I. The Old Colonial System 1688-1850, Economic History Review vol 39 (4) 501-525

Cain P.J. and Hopkins A.G. (1987), Gentlemanly Capitalism and British Expansion Overseas II: new imperialism 1850-1945, Economic History Review Vol 40 (1) 1-26

Chandler A. (1990), Scale and Scope: The Dynamics of Industrial Capitalism, The Belknap Press of Harvard University Press

Churchill W. [1956],(1998) History of the English-Speaking Peoples, New York: Skyhorse Publishing

Clarke, P.F. (1996), Hope and Glory: Britain, 1900-1990, Penguin Books

Coffee J. (2004), Law and the Market: The Impact of Enforcement, Columbia Law School working paper 182,

Cross F.B. (2003), Review:America the Adversarial, Virginia Law Review, vol 89 (1):189-237

de Toqueville A. (1966) [1856] The Ancien Regime and the French Revolution, Collins/Fontana

Dickson P.G.M. (1967) The Financial Revolution in England: a study in the development of public credit 1688-1756, Macmillan

Dillon P. (2006) The Last Revolution: 1688 and the Creation of the Modern World, Jonathan Cape

Dincecco M. (2009), Fiscal Centralization, Limited Government, and Public Revenues in Europe 1650-1913, Journal of Economic History vol 69 48-103

Douglas M. (1982) In the Active Voice, Routledge, Kegan & Paul

Elbaum B. and Lazonick W. (1984), The Decline of the British Economy: An Institutional Perspective, Journal of Economic History vol 44(02): 567-583

Glaeser E. and Shleifer A. (2002) Legal Origins, Quarterly Journal of Economics, vol 117 (4) 1193-1229

Goodlad G. (2010) Review of 1688: The First Modern Revolution by Steve Pincus, History Review History Today Issue 66, March 2010

Greif A. (2006), Institutions and the Path to the Modern Economy, Lessons from Medieval Trade, Cambridge University Press

Hannah L. (2015a) Rethinking Corporate Finance Fables: Did the US lag Europe before 1914? CIRJE-F-994

Hannah Leslie (2015b) A Global Census of Corporations in 1910, Economic History Review 68,2 548-73

Hannah L. (1976), The Rise of the Corporate Economy: The British Experience, Baltimore and London: The Johns Hopkins University Press

Harling P. (2004), The Centrality of Locality: The Local State, Local Democracy, and Local Consciousness in Late-Victorian and Edwardian Britain, Journal of Victorian Culture 9,2:216-234

Harling P. and Mandler P. (1993), From “Fiscal-Military” state to Laissez-Faire state, 1760-1850, Journal of British Studies, 32, 44-70

Harris R. (2000), Industrializing English Law: Entrepreneurship and Business Organization 1720-1844, Cambridge University Press

Harris T. (2006) Revolution The Great Crisis of the British Monarchy 1685-1720, Penguin Books

Hayek F. (1960) The Constitution of Liberty Chicago:University of Chicago Press

Hill C. (1961), The Century of Revolution, 1603-1714, Routledge Classics

HMC Fifth Report Appendix I 375 in Hill C. The Century of Revolution, 1961:236

Hoffman P.T. (2015), What do States Do? Politics and Economic History, The Journal of Economic History, vol 75(02) 303-332

Kagan R. (2001), Adversarial Legalism: The American Way of Law, Harvard University Press

Keay J. (1991) The Honourable Company: A History of the English East India Company, Harper Collins

Knight R. (2013) Britain Against Napoleon: The Organization of Victory 1793-1815, Penguin Books

La Porta R., Lopez de Silanes F., Shleifer A. Vishny R. (1997), Legal Determinants of External Finance, NBER Working Paper No w5879, National Bureau of Economic Research Inc

La Porta R, Lopez de Silanes F. Shleifer A. (2008) The Economic Consequences of Legal Origins, Journal of Economic Literature 46:2, 285-332

Landes D. (1998), The Wealth and Poverty of Nations, Why some are so rich and some so poor, Abacus

Laslett P. (1960) John Locke Two Treatises of Government, A Critical Edition with an Introduction and Apparatus Criticus, New York: Mentor Book from New American Library

Lavington F. (1921), The English Capital Market, London: Methuen

Linklater A. (2014), Owning the Earth, The Transforming History of Land Ownership, Bloomsbury

Lizzeri A. and Persico N. (2004), Why did the elites extend the suffrage? Democracy and the Scope of Government, with an application to Britain’s ‘Age of Reform’, Quarterly Journal of Economics, vol 119,2, 707-765

Macaulay T. [1848] (1968), The History of England from the Accession of James the Second, Penguin Books

Mandler P. (1989), The Strange Birth of Liberal England: Conservative origins of the laissez-faire state, 1780-1860, Minda de Gunzburg Center for European Studies, Harvard University

Macfarlane A. (1978) The Origins of English Individualism, Oxford: Basil Blackwell

Mann M. (1993), The Sources of Social Power, Volume 2: The Rise of Classes and Nation-States, 1760-1914, Cambridge University Press

Mann M. (2012), The Sources of Social Power, Volume 3: Global Empires and Revolution, 1890-1945, Cambridge University Press

Marsh P. (1999) Bargaining on Europe: Britain and the First Common Market, 1860-1892, New Haven:Yale University Press

Mathias P. and O’Brien P. (1976), Taxation in England and France, 1715-1810. A comparison of the social and economic incidence of taxes collected for the central governments, Journal of European Economic History, 5, 601-50

Michie R.C. (1987), The London and New York Stock Exchanges 1850-1914, London: Allen and Unwin

Milhaupt C.J. and Pistor K. (2008), Law & Capitalism, What Corporate Crises Reveal about Legal Systems and Economic Development Around the World, University of Chicago Press

Mokyr J. (2012), The Enlightened Economy: An Economic History of Britain 1700-1850, Yale University Press

Moran M. (2003) The British Regulatory State: High Modernism and Hyper-innovation, Oxford University Press

More T. [1516](2012), Utopia, Penguin Classics

North D. and Weingast B. (1989), Constitutions and Commitment: the Evolution of Institutions governing Public Choice in Seventeenth Century England, Journal of Economic History, vol 49 (4): 803-832

North D. Wallis J.J. and Weingast B. (2009) Violence and Social Orders: A Conceptual Framework for Interpreting Recorded Human History, Cambridge University Press

O’Brien P. (1988), The political economy of British taxation, 1660-1815, Economic History Review 1-32

O’Brien P. (2006), Contentions of the Purse between England and its European Rivals from Henry V to George IV: a Conversation with Michael Mann, Journal of Historical Sociology Vol 19 (4): 341-363

O’Brien P. (2011), The nature and historical evolution of an exceptional fiscal state and its possible significance for the precocious commercialization and industrialization of the British economy from Cromwell to Nelson, Economic History Review, 64(2) 408-446

Otte T. (2011) The Foreign Office Mind: The Making of British Foreign Policy 1865-1914, Cambridge University Press

Paine L. (2012) The Sea & Civilization: A Maritime History of the World, New York: Alfred Knopf

Piketty T. (2014), Capital in the Twenty-First Century, Editions du Seuil, Harvard University Press

Penn T. (2011) Winter King: The Dawn of Tudor England, Penguin Books

Pincus S. (2009) 1688: The First Modern Revolution, Yale University Press

Pomeranz K. (2000) The Great Divergence: China, Europe and the Making of the Modern World Economy, Princeton University Press

Porter R. (1982) English Society in the Eighteenth Century, Pelican Social History of Britain, Pelican Books

Robins N. (2012) The Corporation that changed the world: How the East India Company shaped the modern multinational, Pluto Press

Rodrik D. (2000), Institutions for High-Quality Growth: What They are and How to Acquire Them, NBER Working Paper No. 7540, National Bureau of Economic Research Inc

Roe M. (2003), Political Determinants of Corporate Governance, Oxford University Press

Rosenthal J.L. (1998) The Political Economy of Absolutism Reconsidered, in Analytic Narratives eds Bates R, Greif A, Levi M, Rosenthal J.L, Princeton University Press

Rubinstein W.D. (1983), The End of “Old Corruption” in Britain 1780-1860, Past and Present 101(1): 55-86

Sargent F. (1961), Ownership, Control and Success of Large Companies, London: Sweet and Maxwell

Schmitter P. (1974), Still the Century of Corporatism? Review of Politics vol 36(01) 85-131

Scott, J. (1986), Capitalist Property and Financial Power, Brighton: Wheatsheaf

Adam Smith, [1776] (1970), The Wealth of Nations, Penguin Pelican Books

Streeck W. (1997) German capitalism: Does it exist? Can it survive? In Political Economy of Modern Capitalism, Mapping Convergence and Diversity (Eds Colin Crouch and Wolfgang Streeck), London:Sage Publications

Szreter S. (1997), Economic growth, disruption, deprivation, disease and death: on the importance of the politics of public health for development. Population and Development Review 23, 693-728

Tamanaha B.Z. (2004), On the Rule of Law. History, Politics, Theory, Cambridge University Press

Tamanaha B.Z. (2007) Understanding Legal Pluralism: Past to Present, Local to Global, Sydney Law Review, vol 29, 2007 St John’s Legal Studies Research Paper No. 07-0080

Tanner D. and Green E.H. (2007), The Strange Survival of Liberal England: Political Leaders, Moral Values and the Reception of Economic Debate, Cambridge University Press

Tawney R.H. (1941), The Rise of the Gentry 1558-1640, Economic History Review vol 11(1) 1-38

Thane P. (1990), Government and Society in England and Wales 1750-1914 in Thompson F.M.L. (ed) The Cambridge Social History of Britain since 1750 volume 3, Cambridge University Press

Tilly C. (1992) Coercion, Capital and European States, Cambridge Mass.: Blackwell

Tilly C. (1997) Parliamentarization of Popular Contention in Great Britain, 1758-1834, Theory and Society vol 26, No 2/3, 245-273

Villaverde J.F.(2015), Magna Carta, the Rule of Law, and the Limits on Government, PIER Working Paper No. 15-035, SSRN



[1] This is despite the fact that many of these institutions were acquired in Britain relatively late. The international slave trade was abolished long before (1807) actual slavery was (1833 Slavery Abolition Act). Catholic emancipation was begun in 1829 but not completed then. British rule in Ireland violated most elements in the list throughout the nineteenth century.

[2] Scotland was much more centralized in its legal machinery, based in Edinburgh, than England was.

[3] It can be argued that war itself was a public good, bringing benefits to the British trading and landed classes, as Chatham argued, in favour of Britain’s participation in the Seven Years War.

[4] Post 1689 in Scotland and Ireland, it is not a story of an independent judiciary.

[5] This is truer for England, and only so for Scotland by then as the Highland Clearances were mostly over, as the  violations of small crofters’ property rights had been completed by then.

[6] The judiciary became more independent of the state executive after the Civil War and particularly after the Glorious Revolution, see below.

[7] It is hard to make this claim for Ireland where the executive arm of the state stood behind the Ascendancy throughout (6 2016).

[8] It was not the first state to do so. The Venetian Republic’s huge wealth in late medieval and early modern times was built on private entrepreneurship, an executive that did not interfere too much with business but with strong courts that enforced contracts and treated foreign and indigenous merchants in an equal fashion.

[9] These look like big contrasts. But in absolute terms, in comparison with the size of farms in the Americas or east of the Elbe in Europe, these are still small farms and differences between them in size look more modest.

[10] Peasant proprietors still existed in Wales and in Ireland until the end of the clearances in the 1820s.

[11] This leaves out crucial aspects of the Weberian state such as his account of bureaucracy. In this aspect, the British state in the 18th century was much less bureaucratically developed than ancient regime France or absolutist-military Prussia (see chapter 5).

[12] This was referring perhaps to the repeal of the Navigation Acts in 1849.

[13] This is not to say that jobbery or corruption was eliminated; despite the Northcote-Trevelyan reforms, much of the executive was still riddled with nepotism and patronage in the 1890s, especially in the Foreign Office (Otte 2011).

[14] The Anglican Church was established and there was royal prerogative over war-making. So there were areas of legal privilege, but fewer than in France.

[15] This is true in the sense of there being a separation between the market in their stocks and the executive arm of the state. There was not a separation between the state and corporations in all cases. The great global submarine cable companies were closely involved with the state, as was the defence sector as a whole. There was oversight of the stock market from the courts, as witnessed by the increase in commercial litigation alongside the growth of the market.

[16] Governments did sometimes change property rights, such as in the nationalizations of areas of the economy, from the 1868 nationalization of the domestic telegraph companies.

× Need help? Chat with Mary now!