The Empire Is Dead Long Live the Empire Long Run Persistence of Trust and Corruption in the Bureaucracy*
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The Empire Is Dead, Long Live the Empire! Long-Run Persistence of Trust and Corruption in the Bureaucracy* Sascha O. Becker (U Warwick, Ifo, CEPR, CESifo, and IZA)† Katrin Boeckh (OEI Regensburg and U Munich) Christa Hainz (Ifo, CESifo, and WDI) Ludger Woessmann (U Munich, Ifo, CESifo, and IZA) Do empires affect attitudes towards the state long after their demise? We hypothesize that the Habsburg Empire with its localized and well-respected administration increased citizens' trust in local public services. In several Eastern European countries, communities on both sides of the long-gone Habsburg border have been sharing common formal institutions for a century now. Identifying from individuals living within a restricted band around the former border, we find that historical Habsburg affiliation increases current trust and reduces corruption in courts and police. Falsification tests of spuriously moved borders, geographic and pre-existing differences, and interpersonal trust corroborate a genuine Habsburg effect. Keywords: Habsburg Empire, trust, corruption, institutions, borders JEL classification: N33, N34, D73, Z10 February 25, 2011 * We are grateful for substantive comments in seminars at the universities of Aberdeen, Cambridge, Copenhagen, UC Davis, Essex, Harvard, Lancaster, Linz, Mainz, Munich, EIEF Rome, Regensburg, Stanford, and Stirling, the Sciences Po/IZA Workshop in Paris, and the annual conferences of the European Economic Association in Glasgow, the German Economic Association in Kiel, the Scottish Economic Society in Perth, and
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- european countries
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- habsburg empire
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The Empire Is Dead, Long Live the Empire! Long-Run Persistence of Trust and Corruption in the Bureaucracy*
Sascha O. Becker(U Warwick, Ifo, CEPR, CESifo, and IZA)Katrin Boeckh(OEI Regensburg and U Munich) Christa Hainz(Ifo, CESifo, and WDI) Ludger Woessmann(U Munich, Ifo, CESifo, and IZA)
Do empires affect attitudes towards the state long after their demise? We hypothesize that the Habsburg Empire with its localized and well-respected administration increased citizens trust in local public services. In several Eastern European countries, communities on both sides of the long-gone Habsburg border have been sharing common formal institutions for a century now. Identifying from individuals living within a restricted band around the former border, we find that historical Habsburg affiliation increases current trust and reduces corruption in courts and police. Falsification tests of spuriously moved borders, geographic and pre-existing differences, and interpersonal trust corroborate a genuine Habsburg effect.
Keywords: Habsburg Empire, trust, corruption, institutions, borders
JEL classification: N33, N34, D73, Z10
February 25, 2011
* We are grateful for substantive comments in seminars at the universities of Aberdeen, Cambridge, Copenhagen, UC Davis, Essex, Harvard, Lancaster, Linz, Mainz, Munich, EIEF Rome, Regensburg, Stanford, and Stirling, the Sciences Po/IZA Workshop in Paris, and the annual conferences of the European Economic Association in Glasgow, the German Economic Association in Kiel, the Scottish Economic Society in Perth, and the Christmas Meeting of the German-speaking Economists Abroad in Heidelberg. Discussions with and comments from Sam Bowles, Davide Cantoni, Ed Glaeser, Avner Greif, Peter Lindert, Rachel McCleary, Nathan Nunn, Alan Olmstead, Michael Pammer, John Karl Scholz, Ian Walker, and Rudolf Winter-Ebmer were particularly fruitful. Elisabeth Beckmann, Laurenz Detsch, Erik Hornung, Dominikus Huber, Sebastian Kohls, and Elena Petrova provided excellent research assistance. Woessmann gratefully acknowledges the support and hospitality provided by the W. Glenn Campbell and Rita Ricardo-Campbell National Fellowship of the Hoover Institution, Stanford University. Department of Economics, University of Warwick, Coventry, CV4 7AL, United Kingdom; Becker: s.o.becker@warwick.ac.uk. Boeckh: Institute for East European Studies, History Department, Landshuter Str. 4, 93047 Regensburg, Germany;kceobstina-opurteosh@d.etitu. Hainz: Ifo Institute for Economic Research, Poschingerstr. 5, 81679 Munich, Germany;inz@ifo.daeh. Woessmann: Ludwig-Maximilians-University Munich and Ifo Institute for Economic Research, Poschingerstr. 5, 81679 Munich, Germany;ifo.deessmann@ow.
I. Introduction
No other family has endured so long or left so deep a mark upon Europe: the Habsburgs were the greatest dynasty of modern history, and the history of central Europe revolves around them, not they round it.
AJP Taylor (1948), The Habsburg Monarchy 1809-1918
The famous phrase The emperor is dead, long live the emperor! indicates that, even though individual emperors may die, their empire lives on with their immediate successors. But what if
not one emperor, but the whole empire itself perishes? In this paper, we show that empires can
leave a lasting legacy in cultural norms and the ensuing functioning of state institutions even
several generations after their formal institutions have ceased to exist. Specifically, we find that
the Habsburg Empire, which went down in 1918, still affects trust and corruption in local public
services in Central and Eastern Europe today. Our findings add to a growing literature indicating
that history can have long-lasting effects (cf. Nunn 2009) through its impact on current formal institutions1or on values, beliefs, and cultural norms.2Our results indicate that long-gone formal institutions can have a persistent impact on cultural norms of social behavior, thereby affecting
the functioning of interactions between citizens and the state.
Trust in the key institutions of the state and their proper functioning is crucial in facilitating
collective action (Ostrom 1998). Trust among participants (Arrow 1972) and the enforcement of
rules and property rights (North 1990) are two leading mechanisms that help to organize human
cooperation, interaction, and exchange, thereby providing the cultural and legal underpinning for
groups to achieve mutually productive outcomes. As views on the optimal scope of the state
differ, we focus our analysis on two public services that enact basic functions of the state which
even critical skeptics of government intervention support: the courts and the police as the enforcers of rules in collective action (e.g., Hayek 1960). Rather than analyzing interpersonal
trust, we focus on citizens trust in these state institutions and on corruption, a leading example
of malfunctioning of the interaction of citizens with the state.
1E.g., North (1990); Engerman and Sokoloff (1997); La Porta et al. (1998); Acemoglu, Johnson, and Robinson (2001). 2 E.g., Putnam (1993); Greif (1994); Alesina and Fuchs-Schündeln (2007); Guiso, Sapienza, and Zingales (2008a); Tabellini (2010).
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The Habsburg Empire is historically known as a multi-ethnic state with a relatively well-functioning, respected bureaucracy.3Historians characterize the Habsburg bureaucracy as fairly honest, quite hard-working, and generally high-minded (Taylor 1948, p. 44) in contrast to
other Empires in Central and Eastern Europe, like the Ottoman and Russian Empires (cf. Ingrao
1996, 2000; Subtelny 2007). We argue that this attitude created trust of its inhabitants in the
respectability of government institutions, with ensuing effects on the functioning of citizen-state interactions, particularly at the local level. However, the formal institutions of the empire ceased
to exist with the collapse of the Habsburg Empire after World War I, breaking up into separate
nation states that have seen several waves of drastic institutional changes since.
To test whether the cultural norms originating in the Habsburg Empire still endure today, we
use the micro dataset of the 2006 Life in Transition Survey (LiTS) that provides measures of
trust and corruption in Central and Eastern European countries. We focus on the 17 countries that
comprise the successor states of the Habsburg Empire and their neighboring countries. Drawing
on a variety of historical sources, we coded the location of each observation in the LiTS dataset in terms of its affiliation with the Habsburg Empire. Yet, a simple comparison of cultural
measures across countries with diverse populations, geographies, and intervening experiences
may easily be biased by unobserved heterogeneity.
To identify the enduring effect of the Habsburg Empire, we therefore devise a border
specification that compares individuals living in communities located within 200 kilometers of
each other on either side of the long-gone Habsburg border, exploiting the geographical
discontinuity created by the Habsburg Empire in Eastern Europe. In order not to capture
unobserved country heterogeneity, we use country fixed effects to restrict the analysis strictly to
variation within individual modern-day countries. This identification exploits the fact that the
former Habsburg border cuts straight through five countries today Montenegro, Poland, Romania, Serbia, and Ukraine. Communities on the two sides of the former border have been sharing a common statehood for generations now. Additionally, we control for a large set of individual-level factors such as education, religion, language, wealth indicators, and urbanity.
Our results suggest that the Habsburg Empire still exerts effects on cultural norms and
interactions of humans with their state institutions today. Comparing individuals left and right of
3When referring to the Habsburg Empire in this paper, we focus on its impact in Central and Eastern Europe and do not refer to Habsburg influence in Western Europe such as in Spain and the Netherlands.
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the long-gone Habsburg border, people living in locations that used to be territory of the
Habsburg Empire have higher trust in courts and police. These trust differentials also transform
into real differences in the extent to which bribes have to be paid for these local public services.
A set of falsification tests validates a causal interpretation of the results. First, when using
placebo borders 100 kilometers inwards or outwards of the actual Habsburg border, we do not find any effects. This indicates that our results capture a specific Habsburg effect, rather than a
general West-East pattern. Second, we verify that altitude does not vary significantly between the two sides of the former Habsburg border, thereby excluding obvious geographical differences
between the Habsburg and non-Habsburg sample. Third, we do not find significant differences
between the two sides in terms of medieval city size, access to medieval trade routes, and
presence of a medieval diocesan town, suggesting that the Habsburg effect is not simply a
perpetuation of differences that existed before Habsburg influence. Fourth, we show that there is
no Habsburg effect on trust in other people and on membership in civic organizations,
corroborating that the identified Habsburg effect is genuine to citizen-state interactions.
Additional aspects of our results include that they are robust when restricting the comparison groups to formerly Ottoman regions and cannot be distinguished between alternative neighboring
empires. The Habsburg effect does not vary significantly with the duration of Habsburg
affiliation, consistent with models that predict persistent effects of limited exposure. There is no
strong evidence of Habsburg effects on trust in central public services. Finally, evidence from a
firm dataset, the Business Environment and Enterprise Performance Survey (BEEPS),
corroborates the general pattern of results derived from the LiTS household dataset.
Our results show that political and judicial institutions that were in effect a long time ago
have formed cultural norms that prevail today. These cultural traits are a link through which
distant history affects the present.
The remainder of the paper is organized as follows. Section II provides theoretical and
historical background and derives the main hypotheses to be tested. Section III describes our data. Section IV develops the empirical identification strategy. Section V presents our basic
results of Habsburg effects on trust and corruption in local public services. Section VI reports a
series of falsification tests to support the validity of the identification strategy. Section VII
analyzes additional aspects of the Habsburg effect, and Section VIII presents supporting
evidence from a business survey. Section IX concludes.
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II. Theoretical and Historical Background
This section starts out by discussing different channels through which history may leave a
legacy for current outcomes and relates these to the existing literature. Next is a brief overview
of the history of the Habsburg Empire as it relates to the subject of our analysis. From this
theoretical and historical background, we derive the main hypotheses to be tested in the paper.
A. Why History Matters: Some Theory, with Reference to Related Literature
A growing literature investigates the different mechanisms leading to the fact that history
often has long-term repercussions for economic development (see Nunn 2009 for a review).
First, historical circumstances and events can shape the state and evolution offormal institutions
that survive and affect economic interactions and outcomes today (e.g., North 1990). For
example, recent research on the importance of colonial rule for long-term economic development emphasizes its impact on current formal institutions.4 second reason why past developments A
may be related to current developments ishyapgreog. Geographical and ecological factors that
do not vary over time, such as climate zone, disease environment, natural endowments, coastal
location, and continental orientation may have direct effects on economic development past and present, as well as on the path of history (Diamond 1997; Sachs 2003).5Third, historical events
may have caused differential development of peoples knowledge,human capital, which caused
subsequent differences in economic development. For example, Glaeser et al. (2004) argue that
European colonization may have left a long-term legacy not because of institutional 6 development, but because colonial settlers brought their human capital with them.
4the bearing of large-scale plantation production on inequality and thus effect may work through This institutional development (Engerman and Sokoloff 1997), through the introduction of civil vs. common law legal systems (La Porta et al. 1998), or through persistence of property-rights institutions determined by initial disease environments (Acemoglu, Johnson, and Robinson 2001). Similarly, Acemoglu, Johnson, and Robinson (2005) argue that access to Atlantic trade affected the evolution of formal institutions in Western Europe. Nunn (2008) shows that external trade in slaves had long-run repercussions in Africa. Jha (2008) argues that medieval trade access led to institutions promoting religious tolerance in India. Acemoglu et al. (2011) show that French invasion of Central Europe after the French Revolution brought radical institutional changes that left a long-lasting mark. 5 The effect of geography may interact with the evolution of formal institutions, for example, when the geographical endowment spurs cash cropping (Engerman and Sokoloff 1997) or when disease environments affect institutional choices because they impact settler mortality (Acemoglu, Johnson, and Robinson 2001). 6show that the Protestant Reformation affected later As another example, Becker and Woessmann (2009) economic development, within Prussia and across countries, by raising literacy levels, required to read the bible. In a similar vein, Woodberry (2004) depicts a positive association between historic Protestant missionaries and modern-day school enrollment across colonized countries.
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