An unlikely rivalry
We've spoken before about how bottom-up systems usually produce better results than top-down ones. A case in point for this argument would be something of a historic rivalry that most think to be militaristic, but is fundamentally about principles of organizing governance. The case we'll be examining in 5 steps is that of the Holy Roman Empire and how it compared to the numerous city-states of Italy in the late Middle Ages.
1. Holy Roman Empire
In the year 800, hundreds of years after the Western Roman Empire had fallen; King Charlemagne was crowned by Pope Leo III as the holy Roman emperor. This event, however, does not mark the beginning of the Holy Roman Empire. After Charlemagne's death, his realms were split in three and the westernmost of them later brought forth king Otto I - who became the first true holy Roman emperor after conquering most of Italy and uniting Europe from Rotterdam in the north to Rome in the south, though the Italian holdings didn't remain in the empire for long.
This set the foundation for over 8 centuries of uninterrupted government of the Central European territories by the Holy Roman Empire. The end of this colossal country was brought about by none other than Napoleon Bonaparte, who conquered its territories and abolished the status quo. And what was that status quo, specifically? Get prepared to learn about one of the least transparent governments in world history.
In a similar fashion to the City Of London, the Holy Roman Empire lends great value to titles, positions and bureaucracy. The emperor in this system was first Otto I. The title was criticized by Enlightenment thinkers, as the Holy Roman Empire was not Roman (the capitals included Aachen, Munich, Prague and Vienna - never Rome), not holy because the Reformation caused a massive fracturing of religious unity in the country, nor was it an empire - as the local dukes, barons and viscounts had a certain degree of autonomy and the emperor's word was not automatically law. The title was a strange one indeed: after several generations of dynastic inheritance starting with Otto I, the title became an elected position, with the rulers of the local Imperial States acting as a voting body - the Imperial Diet.
It took a very short time for the bylaws of emperor-elections to be circumvented and corruption soon set in. A certain family from the Kingdom of Austria kept continuously winning in the elections, and anybody who voted against this family had unfavorable tax and trade agreements with the ones who did. This family's name was Habsburg. Austria gained territory and armies to the east (what is now Czechia, Slovakia, Hungary and Voivodina) and became an empire in its own right.
The 30 years' war placed a nail in the coffin of the Holy Roman Empire - the many nations previously covered with an overbearing imperial system now had full independence where they previously had territorial (but largely not legal) autonomy. It would take until the year 1804 that Napoleon's conquests would formally bring an end to the lumbering beast, just around the time the separation of church and state began to take firm hold throughout Europe, and nationalism was visible on the horizon.
2. The city-states of Italy
In the generally same time period (from the 9th to the 16th century), Italy was in a different place altogether. The many hundreds of city-states throughout Italy were disorganized, squabbling and chaotic. Alliances shifted with the seasons, wars (fought with sword and quill alike) were commonplace, and Condottieri (freelance mercenaries) commanded great power.
Strangely, however, it was these exact city-states primarily in the north of Italy that experienced a meteoric rise in population, the resurgence of the metropolis: Cities such as Milan, Venice and most notably Florence had populations of over 100,000 each. This period saw the construction of some of the greatest European works of architecture, many of which stand to this day - despite the diplomatic hardship of the times. Some estimates place urbanization at 20% in northern Italy, making it the most urbanized place in the world at the time (overtaking Imperial China).
Though seemingly counter-intuitive, the age-old adage of free markets generating more prosperity has been proven true. Because the citizens were often free to move to whichever city would have them, specialization developed along with commerce, which paved the way for the earliest agrarian revolution in Europe, preceding even England. The greatest trade powers of the age were Venice and Naples, with fleets that outnumbered anything the Mediterranean had thus far seen.
Even without mentioning that the greatest artistic, engineering and business minds of the late medieval period were Italian, the economic metrics (as we will see) tell a story in favor of the southern neighbors of the Holy Roman Empire. The central Europeans on the north side of the Alps did have excellent trade relations of their own in the form of the Hanseatic League which, however commendable, pales in comparison to middling Italian trade hubs such as Bari and Genoa, to say nothing of the commercial powerhouses.
3. How we'll compare these
There is a great number of ways we could approach the examination and comparison of these two societal systems. We will compare these in 4 fields: Cultural, economic, demographic and political.
Numerous wars and insurrections were fought within the Holy Roman Empire, and peacetime was no less tense. This reflected poorly on the populace of present-day Germany: populations grew at a solid pace, but had nowhere near the population explosion in Italy brought on by the agricultural revolution and free trade. Both regions were decimated by the Black Death in the 14th century, allowing for serfs to rise up and demand a living wage of their lords, which kicked off the property revolution.
Both regions were off to a good start after the Plague, but war kept moving the great wealth produced by the German people into the hands of well-connected and highborn statesmen.
This was not to say that Italy did not have a coffer-robbing system of its own. Mercantilism ran rampart in Italy, with guilds restricting competition where kings would not. Tariffs and taxes were a part of the entrepreneur's life as much as good harvests and fortuitous winds. Manufacture was brought forth in the Renaissance, and great production capacities were unleashed throughout Europe. The regions that practiced wise policy foreign and domestic (these would primarily be Italy, Portugal and England) reaped great technological and economic marvels in uncertain times.
There's almost no contest to be had between renaissance Italy and Germany of the same time period. While Germany certainly produced great minds such as Johannes Gutenberg (without whom the Italian explosion of culture likely would not have happened), Albrecht Dürer and Martin Luther, the Greco-Roman revival of the Italians by far overshadows the works of not insignificant German people. It could be argued that commerce bred the abundance necessary for the production of great art, whereas years of religious warfare in German lands were hardly conducive to creative expression.
Speaking of religious warfare, it is important to mention the overzealous combat that dotted most of the 16th and 17th centuries in Europe. It was this exact infighting with no clear victor, infinite inquisitions and counter-inquisitions that spurred one of the greatest developments of the age: The separation of church and state. Were it not for the great minds of Martin Luther and other brave souls, it could be said that theocracy would have taken over Europe and, through inevitable corruption, bring forth a new Dark Age.
4. Modern parallels
It is perhaps worth noting that history is the teacher of life, and we would do good not to repeat the mistakes of our ancestors. The fundamental problem that made the Holy Roman Empire a functional but in no way exceptional society is the fact that the same laws applied everywhere, with nary a thought given to reform. Imperial decrees were voted on by a chamber of local lords who often suffered from the paradox of interests: raising a voice to refuse higher taxes was more dangerous than actually paying the taxes demanded by the Kaiser.
The Holy Roman Empire suffered also from the lack of separation of church and state, which required many decades of bloody combat to remedy. We now possess the philosophical and practical insight of not letting matters of personal faith into the legislative and executive processes. A modern parallel to this would be the European Union or similar agencies, which commend themselves on unifying disparate regions only to corrupt them in so doing.
The separation of infallibility and state is the next step in creating a more equitable and rational system of organizing human life. Massive economic blocs unresponsive to citizen incentives must give way to large free markets of governance so that the most expedient and efficient solutions may reveal themselves through consumer preference.
In conclusion, it may have been through accident that the Italians enjoyed a finer 16th century than the Germans. The fact remains, however, that diplomatic, economic and legislative competitive pressures very nearly cemented the trajectory of the startup society-laden Apennine Peninsula while their northern neighbors were stuck in wars they wanted no part in.