November 10 was a big day at the Cato Institute, with two distinguished international scholars delivering addresses. First up was Deepak Lal, the James S. Coleman Professor of International Development Studies at UCLA, discussing his most recent book, Unintended Consequences: The Impact of Factor Endowments, Culture, and Politics on Long-Run Economic Performance (MIT Press, 1998). In the evening Cato's Distinguished Lecturer Series presented Mario Vargas Llosa, the acclaimed novelist and former Peruvian presidential candidate.
Deepak Lal on Culture and Development
My UCLA colleague Jared Diamond wrote a marvelous book called Guns, Germs, and Steel. He asked, Why is it that Africa, the birthplace of man, tends to be one of the planet's poorest places? And why is it that Eurasia, a latecomer in evolutionary terms, is wealthier and more powerful? His argument is that Eurasia's ecological circumstances gave it a head start because they made settled agriculture possible.
My starting point is, Why is it that of those Eurasian civilizations stretching from Mesopotamia to the Yellow River in China only one, what we now call the West, experienced Promethean growth? A millennium ago, the greatest empire was the Islamic Abbaside empire. The great efflorescence in China under the Sung was still to come. The Sung had the technological ingredients for the industrial revolution, but it did not occur in China.
So technological explanations are inadequate. Many economic historians have tried to explain the economic growth of the West in terms of political factors. One theory is that decentralization resulted in competition among states, making them less predatory and allowing property rights to develop. But the trouble with that theory is India. It had contestable states, cultural unity just like Western Christendom, and early technology. Most of the cross-cultural historical explanations just don't wash. As Joseph Needham has said, it's a package; no single element will explain it.
My thesis is that cultural factors are missing from the explanations.
Human beings are unique because of their intelligence. Most species have to mutate into a new species to survive in a changed environment. Man, on the other hand, learns through a process of trial and error to adapt to a new environment, adopting new social customs. Those social customs are then transferred from one generation to the next, essentially through childhood socialization, and form part of a culture.
I'd like to distinguish between two types of beliefs. One, material beliefs, is what economists are largely concerned about. In order to make a living, people change their material beliefs in response to technological changes. The second set of beliefs I call cosmological. They concern, in Plato's words, how one should live—mankind's place in the world, ideas about God, the purpose of life.
There's a lot of anthropological and cross-cultural evidence that material beliefs are malleable. If the environment changes, people will change their beliefs. You have only to look at how quickly peasants in many developing countries become industrial workers once the environment changes. In contrast, cosmological beliefs are extremely difficult to change.
If you understand the importance of these two types of beliefs, you can look at transactions costs to understand why we have certain social institutions to curb self-seeking behavior. The formal constraint is the law. The informal constraint is morality. Those institutional constraints on self-seeking behavior are required to reduce transactions costs. There are two types of transactions costs. One is the transactions costs of exchange, that is, the costs of finding a trading partner.
The other type of transactions costs is the costs of policing opportunistic behavior. We basically are self-seeking egotists who will lie, cheat, steal, and free ride if we can. Clearly, in your social and business interactions, you can't monitor an agent's actions. The agent has many incentives to lie, cheat, and steal. So such opportunistic behavior has to be controlled.
Cosmological beliefs are very important for policing transactions costs. To see that, we need to go back and see what cosmological beliefs were in ancient civilizations and why they were altered.
Evolutionary anthropology argues that if you want to see what basic human nature is, you should look at the human animal in the Stone Age. In the hunter-gatherer phase you have a lot of face-to-face contact with other members of the tribe, and clearly cooperation does yield mutual gains. Evolutionary anthropologists call this reciprocal altruism. For economists, it is a Prisoner's Dilemma game in which the goal is to get people to cooperate rather than defect.
The trouble starts once you have settled agriculture. Economic space expands, a lot of anonymous strangers appear, and our nasty opportunistic instincts come to the fore and we lie, cheat, steal, hit the strangers on the head. Most agrarian civilizations have tried to internalize moral codes to prevent that type of opportunistic behavior. That is really the purpose of morality. Moral codes were not always based on religions. They allow societies to police opportunistic behavior. And they form the essential core of the cosmological beliefs of civilizations.
Those beliefs are usually transmitted by playing on the moral emotion of shame. Shame is used to this day to turn hunter-gatherer monsters into moral, civilized beings.
If you want to know the content of cosmological and material beliefs, you have to go back to the origins of agrarian civilizations. One of the most important aspects of cosmological beliefs is political legitimacy. What do people consider politically legitimate? You have to look at the cosmological beliefs of early civilizations.
For example, when Chinese civilizations were created, in the confined Yellow River area, they were constantly threatened by northern barbarians who kept trying to exploit them like cattle. The Chinese created a tightly controlled bureaucratic state to prevent barbarian intrusions from the north, putting up the Great Wall of China. In that respect, Chinese history is repeating itself today. You've got this bureaucratic authoritarian state being formed, you get little rebellions, the mandate of heaven is taken away, you have a period of chaos, and then another bureaucratic authoritarian state is established. That ancient political habit is very strong in China. To expect China to suddenly become an imitation of America is absurd. People don't change their habits quickly after 2,000 years.
The cosmological beliefs of agrarian civilizations are not very conducive to modern economic growth, for two reasons. First, the need to prevent opportunistic self-serving behavior meant that those moral codes were not very individualistic. Second, agrarian civilizations take a very dim view of markets and merchants. So the puzzle is, Why, out of the blue, do you have one little corner of the huge Eurasian landmass taking off?
I argue that the major change arose because of the unintended consequences of two papal revolutions. One was Gregory the Great's changes in Church law pertaining to families in the sixth century, and the second, which created the whole legal and commercial infrastructure for the market economy, was Gregory VII's assertion in 1075 that the pope was the ruler of all Christendom and the direct representative of God on earth and, as such, had authority over all things temporal.
From the beginning the Christian church had been in the business of acquiring property, largely from rich widows. Pope Gregory I's rules concerning sex and marriage overturned traditional domestic patterns all over Eurasia, where inheritance of land was extremely important. Gregory made it more difficult for people to have heirs. All sorts of ways of ensuring an heir were banned. Demographers estimate that, as a result of these injunctions, 40 percent of families lacked male heirs. That meant you had a huge inflow of property to the church. By the end of the seventh century, the church held about one-third of the land in France. What happens when you have such a huge honeypot? It attracts predators, from both inside and outside.
Gregory VII essentially created the church state. To protect the church's property, the whole administrative and legal and commercial apparatus of a modern state had to be created. And that great revolution, mostly a legal one, created infrastructure that led to the rise of the West.
The two papal revolutions are not at all conjoined. Some people maintain that the Western family was essential for the industrial revolution; there's no evidence of that. There are others who claim that industrialization will actually lead to Western-style family domain; there's no evidence of that, either. You can choose whatever you like in the cosmological sphere, which affects the domestic domain, and still adopt Gregory VII's market-based revolution.
So I conclude, looking across civilizations, that to the extent societies can adapt, they're perfectly willing to accept changes in material beliefs, but they're not nearly as willing to accept changes in cosmological beliefs. You can modernize without Westernizing.
Vargas Llosa on the Future of Liberty in Latin America
My first priority in life since I was very young has been literature. But, during most of Latin American history, writers have been pushed to participate in the civic debate and to take positions on the issues of the day. This doesn't happen frequently in the United States or in other advanced democracies where writers and intellectuals are not necessarily interested in politics or in civic debates and in many cases concentrate on their chosen work. That is practically impossible in Latin America; certainly, it has been in my own life.
In 1953 when I entered the University of San Marcos my country was a military dictatorship, as were many Latin American countries. I entered a university where many teachers had been in exile or prison. There was no political activity—all political parties had been banned. Censorship, supposedly for the security of the state, muted criticism. So it was very difficult if you were young and living in those circumstances not to become aware of the importance of politics in life. Even if you wanted to be a writer and only a writer, politics was there presenting you with all kinds of difficulties and obstacles and challenges to the exercise of your vocation.
So I was pushed to participate first of all in the political debate and then in political action. I have never considered myself a politician. Even during the three years when I was involved in practical politics and running for office in Peru I thought of myself first of all as a writer, who for special reasons was morally obliged to participate in a political campaign in defense of values and ideas that are indispensable to the progress and development of our society.
About 10 years ago, I was more optimistic about the future of liberty in Latin America. It seemed to have embraced at last the two essential tools of civilization: political democracy and free markets. Military dictatorships were disappearing and being replaced by civilian governments born of quasi-free elections. For the first time there was practically a continental consensus in favor of democracy as the framework within which to fight against poverty and underdevelopment and for progress. The idea of Marxist revolution was fading away; it remained popular only among very small circles of academics and intellectuals.
For the first time also it seemed that in Latin America the idea of free markets, of entrepreneurial spirit, and of open borders to integrate international markets was taking root. The old, damaging ideas—economic nationalism, import substitution—were viewed as anachronisms that were a major reason for our failure. So it seemed that, at last, Latin America would become the continent of the future as Stephan Zweig once predicted. But if we look at what has happened in the last decade, we must accept that those expectations have not been totally fulfilled. Democracy hasn't taken root.
Unfortunately, it was in my own country, Peru, that democracy first collapsed. As in the past, it collapsed because of the military. The difference is that in 1992 it collapsed with the elected president an accomplice in its destruction. But what was even more worrisome was that this coup was popular. That was really unusual in Peruvian history. We have had many military coups, but none in the past had garnered the strong support that the coup of 1992 did. Perhaps the circumstances—terrorism, the insecurity that terrorism created, the economic crisis that the populist policies of the previous government had produced, hyperinflation—had something to do with it. Only an active minority of Peruvians protested the collapse of the most precious good for our society—a democratic system, a system of freedom and legality.
That bad example, as you know, has had imitators elsewhere in Latin America. To my great surprise, people are once again thinking that they need a caudillo—a strong man—to rule their country. Since 1992, in many Latin American countries I have visited, I have heard people say, "What we need is a Fujimori. What we need is a man with pantalones. A man to fight corruption. A man to send home the totally inept politicians." The Peruvian coup was imitated in Guatemala, and the coup there failed because democracy was stronger than in my country, but it was still an attempt. And since then other developments that have impoverished (if not contributed to the destruction of) democracy have occurred in Latin America and in some cases, such as Venezuela, with great popular support. A regime doesn't have to be democratic to be popular.
There are many reasons for the enthusiasm for a "strong man." Corruption has been terrible. It is very demoralizing for a society to see that politics can be a shortcut to enriching yourself. And the way in which the democratic government wasted the national wealth and created expectations that were unrealistic makes the disillusionment with democracy somewhat understandable.
If there is a word that leaps from Mexico to Argentina today, it is not freedom—it is corruption. Corruption has become a key feature of the Latin American political scene. It is true that in some countries corruption has been reduced to "normal" proportions, but in many Latin American countries corrup-tion has grown so much that it has distorted important social and economic reforms.
I suppose that the example that is in the mind of everyone is Argentina—a very interesting case of a president whom no one would have ever imagined capable of reforms. But many of his economic reforms have been handicapped and sabotaged by corruption, which has been a major issue in elections. Corruption not only undermines reform; in the medium and long term it erodes the very idea of democracy, the vision of what a democracy is. That can have very negative consequences in the future.
Actually, we have had political democracy in Latin America, but democratic institutions in many countries are still very weak or nonexistent. For example, the legal system is still very undemocratic everywhere in Latin America. Justice is a privilege for only powerful Latin Americans. The great majority of the people do not have access to real justice because they have neither political nor economic power. And without justice—tribunals and judges who are really independent—it is very difficult for markets to function and for political democracy to enrich the lives of all citizens. You can have free elections, but if you feel that you can't go to a judge if your rights have been transgressed—because you know that justice can be manipulated by political power—then your faith in the democratic system will weaken or disappear.
Sadly, many economic reforms have been deeply undemocratic. Privatization, for example, was an extraordinary tool for increasing the number of holders of private property. If you don't have widespread ownership of private property—if private property is concentrated in the hands of a very small minority, and the great majority of society has no real access to private property—how can democracy be meaningful for the majority of the people? So, privatization of the enormous public sector that we had in Latin America was an extraordinary opportunity to spread private property among Latin Americans who had had no access to property. But that has been done in very few cases in very few countries.
Chile was one of the exceptions; on most of the continent, privatization meant the transformation of public monopolies into private monopolies. It was a way to enrich the state, to give it tools for populist programs and investments, and also in many cases to enrich friends and partners. So the idea of privatization in many Latin American countries has been associated in public opinion with corruption, with dirty tactics.
Why are people in Latin America so pessimistic when you talk to them about the advantages of democracy? I had this experience when I was a candidate and I went to poor villages and to poor neighborhoods in the cities. I talked to the people about democracy. I tried to explain what democracy meant for the advanced and prosperous societies of the world. But I could see skepticism in my listeners' eyes. They were looking at me as if I was from another planet. "What are you talking about?" is what they seemed to be thinking. "What do you mean democracy? If someone steals my cows and I go to the judge and I cannot bribe the judge, I know that I will be defeated in the tribunals. This has been happening since I was born and it is still happening. So what kind of democracy is this?" I think that if anything can really change the pessimistic attitude of many Latin Americans, especially poor Latin Americans, toward democracy, it is an improvement in justice. When people understand that there is an institution to which they can go to request compensation for damages and abuses committed against them, that improvement is possible, that they can have a better life, then they will support democracy in principle as well as in practice.
This article originally appeared in the January/February 2000 edition of Cato Policy Report.