Wednesday, October 31, 2007

Cultures Allow For Success--Or Not

From today's Washington Post (all boldface is mine--Darren):

Is it possible to eliminate global poverty? The World Bank estimates that 2.5 billion people still live on $2 a day or less. On one side are economists who argue that societies can nurture economic growth by adopting sound policies. Not so, say other scholars such as Lawrence Harrison of Tufts University. Culture (a.k.a. "nature") predisposes some societies to rapid growth and others to poverty or meager growth.

Comes now Gregory Clark, an economist who interestingly takes the side of culture. In an important new book, " A Farewell to Alms: A Brief Economic History of the World," Clark suggests that much of the world's remaining poverty is semi-permanent. Modern technology and management are widely available, but many societies can't take advantage because their values and social organization are antagonistic. Prescribing economically sensible policies (open markets, secure property rights, sound money) can't overcome this bedrock resistance...

All this disputes the notion that relentless globalization will inevitably defeat global poverty...

Clark believes that the Industrial Revolution started the ball rolling.

Almost everything that differentiates the modern era from the preceding millennia dates from this point: the virtual end of hunger in advanced societies; the expectation that living standards will constantly rise; the creation of the welfare state to redistribute income; the destructiveness of contemporary warfare; industry's environmental spoilage. But why did the Industrial Revolution start in England?

It's Clark's answer that convinces him of the supremacy of culture in explaining economic growth. Traditional theories have emphasized the importance of the Scientific Revolution and England's favorable climate: political stability, low taxes, open markets. Clark retorts that both China and Japan around 1800 were about as technically advanced as Europe, had stable societies, open markets and low taxes. But their industrial revolutions came later...

Clark's theory is controversial and, at best, needs to be qualified. Scholars do not universally accept his explanation of the Industrial Revolution. More important, China's recent, astonishing expansion (a fact that he barely mentions) demonstrates that economic policies and institutions matter. Bad policies and institutions can suppress growth in a willing population; better policies can release it. All poverty is not preordained. Still, Clark's broader point seems incontestable: Culture counts.

Capitalism in its many variants has been shown, he notes, to be a prodigious generator of wealth. But it will not spring forth magically from a few big industrial projects or cookie-cutter policies imposed by outside experts. It's culture that nourishes productive policies and behavior.

Clark's theory seems intuitively obvious to me. In a more micro version it's remarkably similar to the view that explains why certain groups of people in the US "underperform" when compared to other groups.


Ellen K said...

Part of the reason that we should be fearful of theocratic regimes is due to the intolerance they create for change and adaptation. There's a reason that despite massive amounts of money, the population of the Middle East is largely poor and uneducated. And that has to do with a culture that is clutching onto twelfth century social systems. When you have such things as forced or arranged marriages, sexual segregation and discrimination along with a social structure that supports a system similar to slavery, can there be any doubt that this culture is and will continue to be a failure? Many social agencies like to think that throwing money at a problem will make it go away. But how, then, do you explain the continued spread of heterosexual relationship AIDS in Africa? The people know the cause, but they refuse to change. Even in the Bible the admonition is to be like the willow not like the oak. You have to adapt, you have to continue to learn and you have to be willing to apply what you learn.

allenm said...

Clark's wrong. The Industrial Revolution was kicked into gear by the Protestant Reformation which wrested religion from the hands of the Catholic church hierarchy. But things were already rolling as competition at the national level put a premium on good luck, good science and good bookkeeping.

There's no capitalism but between equals and the best "equals" are individuals. But sometimes competition at the national level'll do as a substitute and that's what got the "Age of Discovery" going. All those ships filled with profit-maddened explorers looking for, well, whatever they could turn into gold. Once the gold starts rolling in the gold-finders have some serious leverage and are in a position to both bargain for some independence on their own behalf and to set the precedent of independence being a good way to start the gold flowing.

The Age of Discovery and the Industrial Revolution are identical in that they both depend upon and reward individual skill, intelligence and energy, whether it's the world that's being explored or technology that's being explored. In both cases society's unlikely to gain the benefit of that skill, intelligence and energy if the individual expressing those qualities doesn't benefit by them first.

That's why democracy and capitalism go hand in hand and you can see an example of how the lack of the one, democracy, can undercut the other capitalism by examining Saudi Arabia.

If some smart young sheik builds a particularly attractive palace or a particularly profitable business an older, more powerful sheik will decide to relieve him of them. Why not? There's no reason within the law for the bigger guy, the more powerful sheik, to prevent the seizure. That sort of rule of the strongest is what typifies all government that aren't truly representative. Without the equality before the law and its necessary protection of private property capitalism - wealth-formation - only occurs at the periphery, in the shadows, of society.

David Foster said...

Cultures can be influenced by economic development, as well as vice versa. In the Britain of 1790, being a businessman was not considered a very socially-acceptable form of employment...being a banker might be barely tolerable in a pinch, but certainly not being a manufacturer or a merchant. But the financial success of British manufacturers modified this attitude to a substantial extent, although certainly not completely.

Also, the Industrial Revolution wasn't as sharp a break as it is sometimes portrayed. The Middle Ages and early Renaissance had more technological development than they are usually credited with: the extensive application of waterpower being one example.

Henry Cate said...

I found Lawrence Harrison's "Underdevelopment is a State of Mind" fascinating. He explores why Latin America is so poor compared to the United States. He comes to a similar conclusion, that culture matters.

One of his points is that Latin America has very similar natural resources as the United States, but much of it was settled by the Spainish. The result was that much of Latin America culture is focused on taking wealth rather than creating wealth.