Excerpt from Chapter 9, "Culture and Institutions" of the book, Autocratic, Democratic, and Optimal Government: Fiscal Choices and Economic Outcomes, by William A. Niskanen.
For most economists, culture is a black box containing those causes of some social condition that we do not understand. And I also plead guilty in that regard. My reading, however, leads me to conclude that the economic historians who have emphasized the role of culture in economic development have neither defined the characteristics of culture that are most important nor have they subjected their hypotheses to the most simple tests. The Peruvian writer Hernando de Soto makes a similar point:
...a great part of the research agenda needed to explain why capitalism fails outside the West remains mired in a mass of unexamined and largely untestable assumptions labeled “culture,” whose main effect to allow too many of those who live in the privileged enclaves of this world to enjoy feeling superior.3
David Landes’ book on The Wealth and Poverty of Nations (1998) is a case in point. The focus of this massive book is the growing economic and technological dominance of the West beginning in the sixteenth century. And his hypothesis is that the rise of the West was due to the geographic, political, and cultural conditions that were common to Europe during that period.
Europe has long benefited from a temperate climate and from many ports and navigable waterways. But these geographic conditions long preceded the rise of the West, and none seem essential to economic prosperity. Singapore, for example, is nearly on the equator, and Switzerland has no ports or major internal rivers, but both are now among the richest nations in the world.
For Landes, the most important, political condition in Europe was a decentralized state system operating under the umbrella of a common church. Maybe so, but Landes does not explain why India did not develop under a similar political structure or why China was the world’s dominant economic and technological power for over a thousand years under a more centralized state.
"If we learn anything from the history of economic development," according to Landes, "it is that culture makes all the difference."4 But we are left with a variety of cultural explanations that seem even less consistent with the evidence. Following Max Weber, Landes emphasizes the importance of the Protestant Reformation to the rise of capitalism, without acknowledging the long prior development of banking, accounting, and commercial law in Catholic cities from Antwerp to Venice. Some common language, culture, and religion may contribute to economic development but are clearly not sufficient to override the effects of a major difference in political conditions. In the period since World War II, for example, there were numerous examples of strongly divergent economic development among peoples with a common language and national culture but a different typed of political regime. West Germany, for example, developed rapidly relative to East Germany, although East Germany was the dominantly Protestant religion. South Korea developed rapidly relative to North Korea, South Vietnam relative to North Vietnam, the overseas Chinese relative to the mainland Chinese, and the overseas Indians relative to those who remained in India. In recent years, of course, economic growth has increased sharply in both China and India but only in response to a substantial reduction in state control of the economic. The end of the Cold War should have erased any illusion, except in the more sheltered groves of academe, that the combination of autocratic government and state ownership of property serves the interests of anyone other than those in the control group.
Moreover the culture of a nation may be endogenous to the nature of the political regime in the long run, the response of both individual adaptation by those who stay and self-selection by those who enter or exit the area ruled by a specific regime. Fareed Zakaria, a senior Foreign Affairs editor, has made a similar observation:
Culture is hot. By culture I don’t mean Wagner and Abstract Expressionism – they’ve always been hot – but rather culture as an explanation for social phenomena… Cultural explanations persist because intellectuals like them. They make valuable the detailed knowledge of countries’ histories, which intellectuals have in great supply. They add an air of mystery and complexity to the study of societies… But culture itself can be shaped and changed. Behind so many cultural attitudes, tastes, and preferences lie the political and economic forces that shaped them.5
Autocratic governments generally suppress civil liberties as well as political rights, rewarding subservient behavior and suppressing free speech, artistic expression, and other forms of creativity that do not serve the regime. Leon Trotsky may have been the first to observe that “In a country where the sole employer is the state, opposition means death by slow starvation.”6 The characteristics of a creative culture that increase the economic potential of a nation cannot long survive an autocratic monopoly. Competition among autocratic governments in a decentralized state system, however, can maintain some channels for creativity; Christopher Columbus’ petition for support of his proposed voyage to the Indus,” for example, was rejected by several European governments before being approved by the newly unified monarchy in Spain. In contrast, a decision by one Ming emperor was sufficient to stop the much larger Chinese maritime expeditions earlier in the fifteenth century.
A century and a half ago, the French journalist Frederick Bastiat was concerned that a democratic welfare state would have similar negative effects on creativity, writing that:
If...you make of the law an instrument of plunder for the benefit of particular individuals or classes, first everyone will try to make the law; then everyone will try to make it for his own profit. There will be tumult at the door of the legislative chamber; there will be an implacable struggle within it, intellectual confusion, the end of all morality, violence among the proponents of special interests, fierce electoral struggles, accusations, recriminations, jealousies, and inextinguishable hatreds;…government will be held responsible for everyone’s existence and will bend under the weight of such responsibility.7
Democratic governments that operate without an effective constitution are not immune to suppressing the freedom of expression in the name of political correctness. As a rule, however, individual rights are better protected by a democratic government because most of those now in authority realize that they may someday be in opposition. Bastiat’s vision of optimal government was much like that of James Madison, a government limited to those activities that promote the general welfare, most importantly by "organization of the pre-existing individual right to legitimate self-defense."8
Surprisingly little has been written about the cultural conditions that promote education, especially given the strong relations between individual earnings and education in most contemporary economies. The demand for education, however, is a function of both the micro-culture of the group and the macro-culture of the society. The micro-culture affects the willingness of a family or individual to defer consumption or leisure to invest in education. IN contemporary high-income countries, given that most education is now financed thorough the state, the low education level of some groups must be due to an unwillingness to defer gratification or to social opprobrium of those who take advantage of this opportunity. The macro-culture affects the rewards to education that cannot be achieved by work or wealth. The most important reason for the difference in the long-term economic record of China and India, for example, may be that the Chinese earned their status by education and, until recently, the Indians inherited the status of their caste. But the cultural conditions that promote or discourage education deserve more careful attention that my casual perceptions.9
So what is left of a cultural explanation of economic growth? Surely more than I understand. In his subtle book on the Unintended Consequences (1998) of the world’s major cosmologies, Deepak Lal concurs with the view that "The midwife in delivering the package that led to Promethean growth in the West was the Christian church. The individualism that it inadvertently promoted is the unique cosmological belief of the West."10 For Lal, however, the primary contribution of Christianity to economic growth was not the Protestant Reformation, but the "in-worldly" individualism of Augustine’s City of God, the sixth century ban on the then traditional marriage patterns by Pope Gregory I, and the eleventh-century assertion of the independence of the church from secular authorities by Pope Gregory VII. In the end, however, Lal is pessimistic about the future of the West, because:
The triumph of science that individualism has wrought has led to the death of God in the West, and thus of the guilt that underwrote its personal morality, whereas the democratization promoted by individualism has undermined the traditional hierarchical bases of these societies and eroded the set of "manners" based on deference, which evinced shame in these societies in their process of socialization...individualism has thus paradoxically loosened the glue of the very societies it has made unimaginably prosperous.11
The test of Lal’s thesis will be whether societies based on individualism will restore some sense of guilt to constrain behavior that harms others, or if not, whether they will prevail over those organized communally and cemented by shame. On these important questions, I suggest, the jury is still out.