This thread has inspired me to do a bit of research about this topic, and I am starting to understand why Paradox chose to link the degree of decentralization with technological advancement. It seems that there are quite a few historians and economists who believe that political decentralization during this period helped to foster economic development.
A lot of these arguments stem from the extraordinary economic success of the Dutch Republic, which was unusual in that it was highly decentralized politically. This has led to the theory that Holland’s decentralized structure aided its economic advancement:
http://www.encyclopedia.com/doc/1G1-18516981.html
http://bkmarcus.com/cache/Raico/ClassicalLiberalism/
http://www.lboro.ac.uk/gawc/rb/rb134.html
For example:
Attempting to understand how the Dutch system actually functioned, the author first analyzes the roots of governmental power in Holland's virtually sovereign towns, where much of the people's loyalty to their local area was focused, and where political activity was controlled by factions of a narrow, privileged elite. As he proceeds, Price takes pains to demonstrate that urban oligarchies were typically flexible and pragmatic in their responses to public issues. They were driven, the author asserts, more by their sense of what would best serve the economy.
Of course, the trouble with the Dutch example is that it focuses on just one country, and it is hard to single out the effects of decentralization from other “slider settings”. In game terms Holland during this period would not just be decentralized, but also extremely plutocratic and innovative. Maybe it was this plutocracy and innovativeness, and not political decentralization per se, which explains Holland’s commercial success?
The obvious counter-example would be aristocratic, narrow-minded, “feudal” societies, where decentralization (supposedly) went hand-in-hand with medieval backwardness. However, it turns out that a lot of authors now challenge this stereotype of feudalism. They argue that in Europe in general, feudal-style political decentralization was good for economic growth:
http://www.mises.org/story/2404
http://www.iisg.nl/research/jvz-economic_growth.pdf
http://www.compilerpress.atfreeweb.com/Anno Engerman The big picture Research Policy 1994.htm
In a particularly interesting and relevant paper, two Harvard economists study the effect on city growth (their proxy for economic growth during this period), of different types of political regimes during the early modern period.
http://econ161.berkeley.edu/pdf_files/Princes.pdf
They conclude:
This result has implications both for the historical analysis of Europe and for the analysis of modern economic growth. European historians have often written to celebrate the firm establishment of princely authority: princes like Louis XIV “the sun-king” of France, Frederick II “the great” of Prussia, and Ferdinand and Isabella of Spain are heroes to many because of their successful construction of the absolutist states that provided the cores around which the nation states of the nineteenth-century were to grow.
But from the perspective of the welfare of the people alive at the time, or of the long-term growth of the economy, princely success is economic failure. For the people of southern Italy, the creation of the d’Hauteville regno was no blessing; for the people of Belgium, their incorporation into the Habsburg Empire was no benefit; for the people of Iberia, the marriage of Ferdinand and Isabella was no cause for rejoicing. The rise of an absolutist government and the establishment of princely authority are, from a perspective that values the progress of opulence, processes to be mourned and not celebrated.
One drawback with this analysis is that the authors are more concerned with the division between “absolutist” and “non-absolutist” regimes than they are with the issue of centralization or decentralization per se. So, for example, England would score high marks for being a constitutional, plutocratic state (even though it was also centralized). Again we run into the problem that what qualifies as “absolutist” in game terms encompasses not just the centralization/decentralization slider, but also other sliders such as aristocracy/plutocracy.
However, it’s clear from their analysis that one reason why absolutist states performed poorly is that they were politically centralized, and cared less about local economic development than local elites did. They contrast the economic success of politically decentralized regions with the stagnation of regions that become part of a centralized monarchy (northern Italy v southern Italy, northern Netherlands v southern Netherlands).
This does not mean that centralization is necessarily a bad choice overall. The point is that centralized states were very successful at mobilizing resources and projecting their power, militarily and internationally, which is what mattered to most rulers of the time. However, these authors argue or imply, decentralized states were more successful at commerce and long-term economic growth.
This makes me more comfortable with Paradox’s interpretation, linking the centralization/decentralization slider with technological progress. Whether the balance of the effects is right is hard for me to judge, but the general principle seems to me to be quite defensible.
