Lately I’m reading John Julius Norwich’s A History of Venice. He’s not particularly interested in economics (it’s not for everybody), though I was particularly struck by this section about the middle 13th century (pp. 155–156):
… She was no longer a city. She was a nation.
But a nation founded on trade; and that trade, as the Venetians must – at least subconsciously – have realized, owed its phenomenal success not to any territorial expansion but, paradoxically, to the very smallness of the Republic. Here was another benefit conferred by the surrounding lagoon. By virtually confining the Venetians to so restricted a space, it had created in them a unique spirit of cohesion and cooperation – a spirit which showed itself not only at times of national crisis but also, and still more impressively, in the day-to-day handling of their affairs. Among Venice’s rich merchant aristocracy everyone knew everyone else, and close acquaintance led to mutual trust of a kind that in other cities seldom extended far outside the family circle. In consequence, the Venetians stood alone in their capacity for quick, efficient business administration. A trading venture, even one that involved immense initial outlay, several years’ duration and considerable risk, could be arranged on the Rialto in a matter of hours. It might take the form of a simple partnership between two merchants, or that of a large corporation of the kind needed to finance a full-sized fleet or trans-Asiatic caravan; it might run for an agreed period or, more usually, it might be an ad hoc arrangement which would automatically be dissolved when the particular venture was completed. But it would be founded on trust, and it would be inviolable.
Trust is important for social activity in general and for commerce in particular. Venice was a setting in which the behavior of one’s possible trading partners could be easily known and conveyed—and subject to the discipline of continuous dealings. Norwich does not specify the official legal penalties for cheating but one imagines such bad behavior would be hard to sustain in this atmosphere even without them.
This system of easily formed short-term partnerships meant in practice that any Venetian with a little money to invest could have a share in trade. Artisans, widows, the aged, the sick – all could enter into what was known as a colleganza with some active but comparatively impecunious young merchant. … Some small dues [on the proceeds of the colleganza] might be levied by the state, but in these early days Venetian tax was low – infinitesimal in comparison with the punitive sums levied by the Byzantines on their own merchants, or by most of the princes of feudal Europe. So profits were high, incentives were great, and investment capital increased year by year.
We know from the study of economic development that societies in which investment opportunities (in the broadest sense) are within the reach of broad segments of those societies are the ones that get better growth results. This isn’t only a modern phenomenon.