The Land of the Long White Shroud

A Cautionary Tale

Economic development in medieval Europe provides us with many lessons. One is that, like time and tide, economic growth waits for no man. Because capital and labour are fungible—that is, mobile and transferrable—an economy which attempt to protect from free competition for both soon fades. This is precisely the threat which faces us in New Zealand.

Late medieval Venice provides a cautionary tale in this regard.

Venice was the only one of the four major Italian city-states that did not succumb to Spain. But, surrounded on three sides by Spanish possession, Venice also slipped into oligarchy and then, over-taxed and overregulated, losts its ability to compete with the English, and to a lesser degree with the Dutch, even in its home Mediterranean market. It is a cautionary tale worth telling.

In the early 1500s Venetians still dominated the fine glass industry. Their textiles were still luxurious, Spanish fleeces having proved an adequate subtitute for the now unavailable English wool. Their mirrors were in a class by themselves. So was their soap, th eir lace, and their porcelain. And Venetian printers, using secret techniques for casting lead type, were the best and most affluent in the world. Things had never been better. Fifty years later the Veneitan economy was in a shambles and still rapidly declining.

The first phase in the decline of Venice cam when some of its most valuable master craftsmen deserted, most of them to England, taking their trade secrets with them. (Labour is fungible!, Ed.) For example, some Venetian master glass makers earned more per day in England than they could earn in a week at home. They allowed the English to become competitive in the fine glass market, augmenting their rapidly expanding dominance of the manufacture of cheap glass.

The question arises as to how the English could be price competitive with Venice when they bribed their master craftsmen to immigrate (that is, enticed them away with higher wages, Ed)and also had to ship their goods much farther to compete in the Mediterranean market. This question become even more compelling when it is recognized that the English overwhelmed Venice and other competitors by selling goods of equal or superior quality and other competitors by selling goods of equal or superior quality for far lower prices! For centuries all European capitalists had embraces the principle of “selling dear”--charged the highest possible prices. But English capitalists, in “a fundamental departure in economic thought . . . [adopted] a new way of thinking about competition and prices . . . [to sell] as cheaply as possible.” That is, they took volume into account when computing potential returns. And when they did so they realized that they had unbeatable cost advantages, especially vis-a-vis Venice and other Italian industries.

One of these advantages was lower production costs. This was partly a result of lower labor costs, greater mechanization, and better organized and managed industries that were very receptive to technical innovations. In contrast, the Venetian state gave unwavering support to the various trade and craft guilds, and these, in turn, kept labor costs very high and blocked all efforts to innovate. . . .

In addition, the English had discovered mass markets for goods of lower quality, such as cheap woolens. These returns soon far exceeded those earned by luxury items. But the Venetians were forbidden to enter these markets; the government felt it far more important to maintain the city's reputation for excellence. (Compare with “maintaining New Zealand's clean, green image”, Ed.)

Even so, taxation played by far the major role in pricing Venetian goods out of the market—the government imposed excessive, and ever-increasing, taxes and duties. . . . The import duty alone allowed the English to price their woolens 15 percent below Venice. And since English taxes on industries were very low and export duties minimal, in combination with lower production costs English merchants often could make excellent profits while charging half the Venetian prices. (In today's scene, think England as Asia; New Zealand as Venice, Ed.) Of course, Venetian merchants made many attempts to convince the government to reduce taxes and to permit adoption of cost-cutting technologies. Unfortunately, when despots begin dipping into golden eggs, the goose is soon cooked. (Socialised health, education, and welfare make it impossible to reduce taxes and costs to a competitive level in New Zealand. Once our “soft-despotic” rulers begin to bribe the electorate to secure and maintain political power, and once the people are prepared to accept the bribes, it's all over rover. Ed.)

In 1635 the Venetian bailiff at Constantinople wrote: “The English devote their attention to depriving our people of the little trade that remains to them in the mart of Constantinople.” But it was not the English who overwhelmed Venetian capitalism, it was the Venetian state.

So much for the glories of medieval Italy.

Rodney Stark, The Victory of Reason: How Christianity Led to Freedom, Capitalism, and Western Success, pp. 173—175.

And so much for New Zealand—the land of the long, white shroud--of cotton wool.