which Rajan and Zingales referred, was at least as important. The Dutch secondary share market was able to free-ride the bond market infrastructure. The formation of joint-stock companies with numerous shareholders was a pre-condition. The search for liquidity in the secondary market by the original primary market investors was also important.
Fourth, Rajan and Zingales argue that interest and social groups that capture the State may block the development of a stock market. It is clear in our case that the Dutch Republic was dominated by merchants. This was the case not only because of their absolute political power compared to the landowning classes. It was also because of the political and constitutional structure of the Republic, a federation in which the aristocracy was divided throughout the various provinces, while merchants were concentrated in several key-positioned cities. In England, the Crown and Parliament were dominated by the landowning classes. What can be learned from this is that it is not sufficient to view the State as an independent player representing the preferences of the sovereign. While Rajan and Zingales are right in identifying the breaking up of opposition to the stock market in England, they miss a similar and earlier process in the Dutch Republic. By adding their State capture perspective to North and Weingast's credible commitment problem, one may explain the earlier timing of the rise of the stock market in the Dutch Republic. The institutional knowledge needed for conveying credible commitment was available in both the Dutch Republic and in England. But it could be applied in the Dutch Republic because of political support that would be lacking in England for another century.
Can we draw any policy recommendations from the encounter between the theories and the historical case study? Not directly implementable ones. The above conclusions are based on an early modern European case, not on case locted in a modern emerging market or LDC. The contexts are quite different. But we can gain some useful insights. The law matters for the development of business organizations and stock markets. But law reform is constrained by pre-existing institutions and by social and interest groups. Reform in legal rules, say investor protection laws, can not be fully effective without careful design of organizations that would inhance information flows and transparant governance structure. As the English example shows it is not essential for secondary share market to develop symultaneously with widely held business corporations. When designing policy recommendation there are often several possibilities that are not necessarily better or worse. They often present different tradeoffs, between the long term and the short term, between smaller scales voluntary cooperation and large scale coherced investment, between institutions that offer easy exit and institutions that allow more voice. Because political and social environments and institutional baselines are often different in different LDCs and emerging economies, the same size cannot fit all. It is wise to recognize that conditions are different and that preferences in tradeoffs are different in different localities and accordingly there should be plurality in policy recommendations.