Milan As a Limited Partnership

In the twentieth century, economic development as an independent discipline of political economics arose from the ashes of economic positivism. Having lost faith in economic progress which should have naturally spread from Western countries to the rest of the world, new paths were sought, thus acknowledging liberalism's failure to create development.

So something more is needed besides economics to pull third world countries up and out of the spiral of poverty. This is why economic development is defined as growth accompanied by institutional changes. The State becomes a main actor in the economic sphere with its task of steering investments and distributing income. Without great results. Already in the 70's economic development was spoken about less frequently. Actually, one of the main protagonists to these theories was missing: businesses. There is no point in talking about economic development if, along with institutions and the market, one does not include the social structure. This is what determines the mechanisms involved in distributing income, allocation of funds, the relationship between savings and investment, consumption, and the spread of entrepreneurship.In the nineteenth century, Milan was the protagonist of a kind of economic development which was not defined by the presence of a cumbersome State nor by banks' skewed interventions; it is a precious field of research for understanding how important social variables actually are, as described in my paper, Merchant Culture and Economic Development: Milan in the Nineteenth Century. Up to the '80's in the nineteenth century, Milan's economy had been characterized by the influence of the merchant class, a real "tribe" which was able to manage both the system's liquidity as well as steer investments towards innovative uses. At the foundation of this merchant system were venture capitals, fiduciary credit and limited partnerships. The family was still directly linked to a business. The fact that this was a characteristic peculiar to Milan in terms of the rest of Italy can be confirmed by the clear preference for the company structure of partnerships limited by shares. Between 1845 and 1864 the ratio between partnerships limited by shares and public limited companies founded in Milan was at least triple compared to cities like Turin, Naples and Genoa. The difference increases even more if one takes into account only industrial-related companies. Thanks to limited partnerships, in fact, the Milanese merchant class intended to not only guarantee that investors have the responsibilities of an entrepreneur, but also enable those entrepreneurs to maintain absolute control over their businesses and distribute earnings which, in successful ventures, enabled them to climb quickly up the social ladder. Unlike what is implied by Chandler's historiography, in which public limited companies, the market and investment banks are the points of arrival of an evolutionary process that guarantees ever-greater economic efficiency, the Milanese merchant system was perfectly able to generate economic development. It rewarded entrepreneurial abilities with the foundation of one's own business and a family dynasty, while at the same time limiting failures and frauds generated by irresponsible business management. Even more, the economic development which was created was solid and balanced, unlike what could be found in other parts of Italy due to the skewered interventions of the State and banks and the excessive spread of public limited companies. The myth of moral capital was born from these merchant values: responsibility for management and for the entrepreneurial guidance of businesses, meritocracy in allocating funds, and a loathing for speculation as the principle cause of market instability.

The Lombard region, which spurred on national economic development after the unification of Italy with a network of family businesses, owes its economic structure to the prevalence of the merchant class in nineteenth century Milan, to the widespread diffusion of its values from small shops to large insurance businesses, from bank and silk shops to large mechanized corporations. In the absence of the cultural foundation of this merchant society, this model of economic development is difficult to repeat without incurring structural instabilities.