Insuring Against Democracy: The Political Economy of Premodern Elites’ Asset Portfolio Diversification


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Does land inequality undermine democratization and development? The dominant consensus is that land inequality provides incentives for landed elites to block democratization and undermines the provision of public goods. Two key assumptions underlie these theoretical accounts: that landowners identify uniquely with land-related activities and that asset mobility is exogenous. In this paper, I propose an alternative explanation on how land inequality affects landed elites’ calculations on both democracy and the provision of public goods that breaks with these assumptions. I argue that the creation of domestic financial markets unevenly transformed the asset portfolios of landed elites exposed to different levels of land inequality, reshaping their political and economic incentives. Using previously untapped archival data that allows me to identify landholdings and participation in joint-stock companies of 55,504 elite members, I exploit the approval of the first corporate law that regulated joint-stock companies in Chile in 1854 to show that, given the emergence of new investment opportunities, landed elites that perceived a higher economic risk under democracy strategically hedged such risk diversifying their holding portfolio into other economic activities. As a consequence, on the one hand, landed elites that insured their capital through portfolio diversification became more supportive of suffrage expansion. On the other, diversification of economic interests also produced incentives for diversified elites to seek positions in government at the national level from which they could steer state intervention towards policies with a multiplier effect across the different sectors of the economy where they had investments. Ultimately, the interest of diversified elites in this type of policies resulted in higher investments in public goods in their districts. This set of findings challenges the idea that land inequality has detrimental consequences for democratization and development, and provides novel evidence supporting the argument that initial high levels of land inequality can lead to prosperity.