Shock therapy and the transfer of institutions: the new debate and some lessons from the post-1806 reforms in Prussia and in southwestern Germany

Abstract

There is a new debate on shock therapy versus gradualism in economics, this time referring to developing and emerging countries. The French Revolution and its impact on the other European nations has repeatedly been highlighted as a historical example for both the merits and pitfalls of the Big Bang strategy. The present paper argues that a comparison between the post-1806 reforms in Prussia and in the southwestern states of Germany offers a particularly interesting historical case study that in the economics literature has not yet received the attention it deserves. In particular, the case study shows how deeply intertwined the economic and political dimension of social transformations are, and that different economic reforms strategies cannot and should not be evaluated without taking political starting conditions into account. In view of recent reform experiences it is particularly interesting to see that Prussia offers maybe the first historical case of state capture by the East-Elbian Junkers.

Institutional Transplant and Cultural Proximity: Evidence from Nineteenth-Century Prussia

“…4 In contrast to the existing contributions, our analysis does not focus on the positive effects of adopting good institutions but on the heterogeneity of their reception due to underlying cultural traits and on the resulting differences in long-term economic outcomes. Our paper is broadly consistent with both Kopsidis and Bromley (2016) and Joachim Zweynert (2011). These works caution against the easy interpretation that "big-bang" radical institutional change might be the only way to development.…”

“…The new rulers and the imposed French institutions also generated a revolution from the outside in the German states that were not under the (direct or indirect) influence of French rule. Zweynert (2011) emphasizes how both southwestern Germany and Prussia implemented a "defensive modernization" triggered by external pressure exerted by Napoleon. Similarly, Fehrenbach (2008) remarks that the Prussian reformers favored a defensive modernization against Napoleon.…”

“…13 The effectiveness of the Prussian social and economic reforms has been questioned by historians. Zweynert (2011) describes Prussian defensive modernization as a "limited system change in order to prevent a greater upheaval of the political, social and economic power structure". In the same spirit, Karen Hagemann (2015) writes that the immediate effects of most Prussian reforms implemented in the aftermath of the Napoleonic wars were limited or imposed new burdens to the broader population.…”