I have a new working paper out there co-authored with Louis Rouanet of George Mason University. Louis and myself argue that the formation of new cultural groups and new ethnic groups is a form of investment in governance in stateless environments. New ethnic groups can organize because they have low costs of providing governance within them and because they can serve as efficient intermediaries between other groups. Their ethnic identity is thus a collective action decision that reduces transaction costs between other groups and expands the size of the market.
We use two examples from Canadian economic history to make our case: the Acadians of Atlantic Canada and their relation with the Mi’kmaq and the Métis of the Canadian Prairies. Our paper is available here on SSRN and the abstract is below:
The process of ethnogenesis (i.e. the formation of new ethnic groups) can be considered equivalent to the production of “governance goods” in situation of statelessness. The process of ethnogenesis is a response to the problem of social distance between heterogeneous groups which is a barrier to trade. As an investment in governance, ethnogenesis reduces this trade barrier and expands the scope for specialization. To argue the case, this paper relies on two examples of peaceful and productive relations between Native Indians and European settlers in Canada before the mid-19th century. The emergence of “hybrid” cultural groups and identities fostered peaceful relations and permitted trade to occur in borderlands areas where state rule was virtually nonexistent. This in turn facilitated the transatlantic fur trade. Both these examples suggest that cultural processes can be endogenous responses to the production of governance.