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Evidence from the Code Napoleon in Germany∗

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Evidence from the Code Napoleon in Germany∗ Law and Social Capital: Evidence from the Code Napoleon in Germany∗ Johannes C. Buggley Abstract I test whether legal institutions crowd-in social cooperation in the long-run, using the introduction of the Code Napoleon in parts of 19th century Germany as a historical experiment. I find that the application of the Code Napoleon is associated with higher levels of trust and cooperation today. This finding is robust to an identification strategy that uses only individuals located around a discontinuity in the number of years the Code Civil was used. Results from a falsification test that moves this discontinuity artificially, as well as the comparison of pre-treatment characteristics support the interpretation of a causal effect. In addition, regions around the discontinuity are similar in post-treatment economic development and inequality. On the contrary, the positive social consequences of the Code Civil manifest themselves in less political fraud in elections from 1871 to 1900, and in more “bridging” social capital in the 1920’s. Keywords: Institutions, Long-Term Persistence, Trust, Social Capital. JEL-Classification: N43, O10, P48, Z10 ∗I am grateful to Yann Algan for his support and to Francesco Amodio, Sascha Becker, Davide Cantoni, Francesco D’Acunto, Barry Eichengreen, Pauline Grosjean, Emeric Henry, Marc Sangnier, Andrei Shleifer, Guido Tabellini, and Joachim Voth for helpful comments. Seminar participants at the FRESH Meeting London, the UPF Reading Group on Persistence, the Spring Meeting for Young Economists 2013, Sciences Po, and the Warsaw-Penn Workshop on “Institutions, Culture and Long- Terms Effects” provided useful suggestions. I thank Davide Cantoni and Joachim Voth for kindly sharing data, and the DIW Berlin for help with the SOEP data access. Valuable research assistance was provided by Ferdinand Lutz and Malte Syman. All errors remain my own. yDepartment of Economics, University of Lausanne, [email protected]. 1 Introduction “If the laws are good, morality is good. If the laws are bad, morality‘s bad”- Diderot1 At least since the work by Banfield (1967), Coleman (1988) and Putnam (2001), social capital has been associated with many beneficial economic and social outcomes. Trust, as one dimension of social capital, for example eases cooperation between individuals and collective action.2 Why people trust each other and cooperate in some societies, but not in others, is therefore a pertinent question. In this paper, I research whether legal institutions that govern social interactions promote a culture of cooperation and trust. While there exists a strong correlation between the quality of legal institutions and trust across countries that seems to support Diderot’s notion (see above 1), this association does not necessarily reflect a causal impact of the law.3 [Figure 1 about here] The identification of a causal link is made difficult by the endogeneity of legal institutions, which are themselves a function of cultural attitudes and preferences. To overcome this common identification problem, I make use of a historical experiment that is characterized by the imposition of a legal system on a society from outside. This historical experiment is the introduction of the Code Napoleon in parts of 19th century Germany, a dramatic positive shock to the quality of existing law. The Code Napoleon was the most modern legal code at that time, created to spread the ideas of the French Revolution and to modernize the pre-existing social order of European societies. Its most revolutionary concept was to treat all individuals as equals. This unprecedented degree of legal equality removed existing barriers to inter- and intra-class cooperation, and “encouraged the liberation of the individual from corporative bonds and the establishment of a civil society" (Fehrenbach, 2008). By showing that the application of the Napoleonic Civil Code throughout the 19th century goes along with higher levels of social trust today, I provide novel evidence on the relationship between the law and social cooperation from estimating on the micro-level within a country.4 Formal theories have modeled a positive relationship between legal enforcement and norms of trust (e.g. 1From the “Continuation of the Dialogue between A and B” (Diderot, 1992). The extended quote is: “A: What do you mean by morality? - B: I mean a general obedience to laws, either good or bad, and such conduct as follows from that obedience. If the laws are good, morality is good. If the laws are bad, morality’s bad.” 2See Algan and Cahuc (2013) for a review of the literature on the impact of trust on economic outcomes. 3An association between historical political institutions and cooperation has recently been shown by Putnam, 1994; Tabellini, 2008 and Tabellini, 2010; as well as Guiso, Sapienza, and Zingales, 2008a. 4The long-run consequences of the law for economic outcomes has been intensively described by scholars researching different legal origins. See for example López-de-Silanes et al. (1998) and La Porta, López-de-Silanes, and Shleifer (2008). 2 Tabellini, 2008; Guiso, Sapienza, and Zingales, 2008b). Theoretically, a shift from a state of the world with weak (or partial) law enforcement and high incentives for exploitative behavior, to an environment where legal enforcement is strong (or impartial) and individuals are incentivized to cooperate, can lead to a permanent increase in social trust in the society. Rather than limiting their actions to a small circle of persons, individuals will apply good conduct towards everyone in a society if law enforcement is strong and impartial (“limited" versus “generalized" morality in Tabellini, 2008). A large, positive shocks to the quality of institutions can manifest themselves in higher trust even several generations later, as be- liefs transmitted inter-generationally from parents to children incorporate past experiences from different institutional environments. To test whether the rule of law crowds-in norms of cooperation over time, one would ideally randomly select and expose parts of a society for several generations to different legal systems, and compare levels of social cooperation afterwards. The spread of the Code Napoleon to some areas of 19th century Germany approximates such an experiment. The Code was an institution that had not been created by the individuals to which it applied, but it had been imposed from outside on some regions of historical Germany during the Napoleonic Wars. It was the centerpiece of a modern legal sys- tem that established universal access and equality, that enlarged commercial freedom and that restricted elite’s privileges. Importantly, the Code lasted in several regions for a sufficiently long time period in order to affect beliefs long-lastingly, i.e. for more than three generations (Guiso, Sapienza, and Zingales, 2008b). My empirical analysis of the long-term effects of the Code Civil starts by comparing social trust and cooperation of regions that have used the Code Civil in the 19th century to regions that did not apply it, defining treatment as the number of years the Code Civil was applied before 1900.5 I estimate a robust positive association between the duration of application of the Code Civil and contemporaneous levels of trust. However, the Napoleonic occupation did not only alter the law. In addition, serfdom and guilds were abolished, and land was freed. The treatment variable might proxy for the legacy of those reforms. Testing alternative institutional reform definitions against the Code Civil, I find that the Code Civil has clearly the strongest influence on social capital levels today. However, the regional analysis is is susceptible to unobserved heterogeneity across regions. For example, differences in initial conditions across regions that applied the Code Civil could drive the observed results.6 In this case, rather than identifying a treatment effect, the estimation would just pick up path dependency of pre-existing differ- 5A unified civil code was installed in all German provinces in 1900, the Bürgerliches Gesetzbuch. 6Indeed, my identification strategy requires the adoption of the Code Civil to be uncorrelated with initial social capital levels. 3 ences. To address concerns about the endogeneity of the Code Civil, I use a second empirical strategy that compares individuals living in neighboring districts separated only by the duration of application of the French legal system. While in some districts the Code Civil was used for more than 90 years, their neighbors either never used it or only for a short duration. I argue that close-by districts are very similar along many dimensions, and that treatment status along this artificial “border" discontinuity results from a number of historical accidents and district idiosyncrasies, but does not reflect any underlying systematic difference. I show that border districts are indeed very similar across a number of geographic and socio- economic pre-treatment characteristics. Empirical estimates are consistent with those obtained from the cross-regional comparison: treated localities have significantly higher levels of trust. This result appears robustly in local linear regressions, a spatial regression discontinuity design, and even when fixed effects for neighbor-pairs are controlled for. However, in the absence of any treatment one would not expect to find sizable differences in norms across nearby individuals. Indeed, a falsification test confirms this presumption. Coefficients from placebo treatments that move the discontinuity artificially outwards to the North-East or inwards to the South-West are small and insignificant. I then investigate the mechanisms that explain the uncovered relationship. A first likely candidate is economic development, as Acemoglu et al. (2011) document a positive effect of the Napoleonic institu- tions on urbanization. Contemporaneous trust might be a result of differences in economic development, and only indirectly be ascribed to the legal code. I investigate extensively whether there is evidence for different paths of post-treatment economic development. My results suggest that observable economic differences are not very likely to be the main driver of the observed relationship.
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