UCLA

This study provides a new explanation of Europe's transition from feudal anarchy a thousand years ago to peace, prosperity and democracy in the 20th century. I argue that Europe's long transition out of feudal anarchy was the consequence of a series of conflicts and settlements caused by a single problem. Actors repeatedly reached the point where they recognized that competitions in raising relative power were making everyone worse off. To stop the competitions, they agreed to divide the assets over which they were competing according to terms that were independent of relative power. They formed contracts whose terms were tied to anchors in the world that did not move. This device reduced each actor's incentive to invest resources in increasing his relative power, for such investments would not shift the contract terms in his favor. The anchor contracts stopped the competitions in raising relative power. Actors also needed a way to enforce the anchor contracts that did not rely primarily on power based enforcement tools. For such tools could reignite the competitions in raising relative power. Hence actors developed anchor based enforcement tools. Reliance on anchor contracts created a vulnerability to disputes, even when there were no power shifts or uncertainties about relative power. The single most important cause of disputes was legal incompatibility problems. At the times and places where actors had a high capacity for legal incompatibility management (LIM), the disputes were resolved smoothly and development proceeded. At the times and places where actors had low LIM capacity, by contrast, the disputes became intractable and development was hindered. In the long run, Europe oscillated between these two worlds. Where actors had high LIM capacity, they lived in a world of law that enjoyed political stability, good economic governance, social capital formation and long-run development. Where actors had low LIM capacity, they lived in a world of power that suffered political instability, misgovernance, social capital depletion and underdevelopment. These oscillations occurred at both the domestic and international levels. A single causal model explains the evidence on both levels. The model thus provides a unified explanation of Europe's development. The theory developed in this study, which I call Contractual Realism, differs from the three main paradigms in the literature on conflict, cooperation and long-run transformation. Contractual Realism identifies a single factor that drives the three variables that are thought to be independent drivers in the main paradigms: power politics, institutional design, and social identity roles. In this sense Contractual Realism resolves the debates between the three conventional paradigms.