Why Nations Fail: The Origins of Power, Prosperity, and Poverty

placed right in the middle of the Mediterranean. From the East came spices, Byzantine-manufactured goods, and slaves. Venice became rich. By 1050, when Venice had already been expanding economically for at least a century, it had a population of 45,000 people. This increased by more than 50 percent, to 70,000, by 1200. By 1330 the population had again increased by another 50 percent, to 110,000; Venice was then as big as Paris, and probably three times the size of London.
    One of the key bases for the economic expansion of Venice was a series of contractual innovations making economic institutions much more inclusive. The most famous was the
commenda
, a rudimentary type of joint stock company, which formed only for the duration of a single trading mission. A
commenda
involved two partners, a “sedentary” one who stayed in Venice and one who traveled. The sedentary partner put capital into the venture, while the traveling partner accompaniedthe cargo. Typically, the sedentary partner put in the lion’s share of the capital. Young entrepreneurs who did not have wealth themselves could then get into the trading business by traveling with the merchandise. It was a key channel of upward social mobility. Any losses in the voyage were shared according to the amount of capital the partners had put in. If the voyage made money, profits were based on two types of
commenda
contracts. If the
commenda
was unilateral, then the sedentary merchant provided 100 percent of the capital and received 75 percent of the profits. If it was bilateral, the sedentary merchant provided 67 percent of the capital and received 50 percent of the profits. Studying official documents, one sees how powerful a force the
commenda
was in fostering upward social mobility: these documents are full of new names, people who had previously not been among the Venetian elite. In government documents of AD 960, 971, and 982, the number of new names comprise 69 percent, 81 percent, and 65 percent, respectively, of those recorded.
    This economic inclusiveness and the rise of new families through trade forced the political system to become even more open. The doge, who governed Venice, was selected for life by the General Assembly. Though a general gathering of all citizens, in practice the General Assembly was dominated by a core group of powerful families. Though the doge was very powerful, his power was gradually reduced over time by changes in political institutions. After 1032 the doge was elected along with a newly created Ducal Council, whose job was also to ensure that the doge did not acquire absolute power. The first doge hemmed in by this council, Domenico Flabianico, was a wealthy silk merchant from a family that had not previously held high office. This institutional change was followed by a huge expansion of Venetian mercantile and naval power. In 1082 Venice was granted extensive trade privileges in Constantinople, and a Venetian Quarter was created in that city. It soon housed ten thousand Venetians. Here we see inclusive economic and political institutions beginning to work in tandem.
    The economic expansion of Venice, which created more pressure for political change, exploded after the changes in political and economic institutions that followed the murder of the doge in 1171. Thefirst important innovation was the creation of a Great Council, which was to be the ultimate source of political power in Venice from this point on. The council was made up of officeholders of the Venetian state, such as judges, and was dominated by aristocrats. In addition to these officeholders, each year a hundred new members were nominated to the council by a nominating committee whose four members were chosen by lot from the existing council. The council also subsequently chose the members for two subcouncils, the Senate and the Council of Forty, which had various legislative and executive tasks. The Great Council also chose the Ducal Council, which was expanded from two to six members. The second innovation was the creation of yet another council, chosen by the Great Council by lot, to nominate the doge. Though the choice had to be ratified by the General Assembly, since they nominated only one person, this effectively gave the choice of doge to the council. The third innovation was that a new doge had to swear an oath of office that circumscribed ducal power. Over time these constraints were continually expanded so that subsequent doges had to obey