Gary Cox: Should-Read: Political Institutions, Economic Liberty, and the Great Divergence: "Max Weber proposed that politically autonomous cities were 'critical to Europe's economic rise...
...because [they] allowed for the provision of secure property rights free from the ambitions of princely rulers (Stasavage 2014, p. 337).
Other institutionalists have argued that parliaments were key to Europe's rise, because they too protected property rights against grasping monarchs (North and Weingast 1989; De Long and Shleifer 1993; Acemoglu et al. 2005). Skeptics have countered that both town councils and national parliaments were prone to capture by rent-extracting special interests, thereby impeding development (Epstein 2000; Volckart 2002; Stasavage 2014; Ogilvie and Carus 2014).
Another explanation holds that Europe's persistent political fragmentation drove the continent's divergence, by increasing merchants' exit options and forcing rulers to compete (Baechler 1975; Landes 1999; Jones 2003; Vaubel 2008). Skeptics have countered that fragmentation also fostered over-taxation, free riding, and endemic warfare, all bad for development (Rosenthal 1992; Epstein 2000; Rosenthal and Wong 2011).
In this article, I argue that Europe's political fragmentation interacted with her institutional innovations to foster substantial areas of “economic liberty,” where European merchants could organize production freer of central regulation, faced fewer central restrictions on their shipping and pricing decisions, and paid lower tariffs and tolls than their counterparts elsewhere in Eurasia. When fragmentation afforded merchants multiple politically independent routes on which to ship their goods, European rulers refrained from imposing onerous regulations and levying arbitrary tolls, lest they lose mercantile traffic to competing realms. Fragmented control of trade routes magnified the spillover effects of political reforms. If parliament curbed arbitrary regulations and tolls in one realm, then neighboring rulers might have to respond in kind, even if they themselves remained without a parliament.
Greater economic liberty, fostered by the interaction of fragmentation and reform, unleashed faster and more inter-connected urban growth. To document this, I examine patterns of urban growth over the period 600–1800 ce in five major Eurasian regions: Western Europe, Eastern Europe, the Islamic World, East Asia, and South Asia...."