Culture and Economic Development

Since I was first involved in international development assistance, almost a half century ago, dominant development paradigms have come and gone, among them Rostow’s stages of economic growth, national planning, focus on the poorest of the poor, appropriate technology, dependency, focus on the private sector, the Washington Consensus, and institutional development. During those fifty years we have witnessed a few success stories, largely in East and South Asia. But what most captures those years is a sense of disappointment, of frustration—of “development fatigue”—driven by the failure of the large majority of countries in Africa, Latin America, and the Islamic world to achieve transforming rates of economic growth.

At no point in this paradigm odyssey have cultural values and attitudes been confronted. It is true that, since the 1970s, cultural anthropologists have participated in the design of projects. But that participation has usually been limited to assuring that cultural realities were adequately reflected in design, rarely to encourage cultural change. Many anthropologists, indeed many social scientists, subscribe to cultural relativism, the theory that each society or culture must define its own values and that cultures are neither better nor worse, only different. One can imagine the horrified reaction to a comment made by David Landes, author of The Wealth and Poverty of Nations, at a World Bank conference in 2000: “…there are cultures that I would call ‘toxic’…[that] handicap the people who cling to them.”[1]

Cultural relativism fits very nicely with, and reinforces, the predilection of many economists to assume that people are the same the world over. As the former World Bank economist William Easterly, author of The White Man’s Burden, wrote in reviewing my book Who Prospers?, “Maybe there is a lot to be said for the old-fashioned economist’s view that people are the same everywhere and will respond to the right economic opportunities and incentives.”[2] How then would Easterly explain why, in multicultural countries where the economic opportunities and incentives are available to all, some ethnic or religious minorities do much better than majority populations, as in the case of the Chinese minorities in Indonesia, the Philippines, and Thailand—and any other place to which the Chinese have migrated, including the United States? Why has the Washington Consensus worked well in India and poorly in Latin America (with the exception of Chile), where socialism, and even authoritarian socialism in the cases of Cuba and Venezuela, appear to be alive and well? Cultural factors may not supply the whole explanation, but surely they are relevant.

Alan Greenspan got it right when he said, in the wake of the collapse of the Russian economy in the late 1990s. “I used to think that capitalism was human nature. But it isn’t at all. It’s culture.”

Some Culture-Sensitive Economists

Some economists have confronted culture and found it helpful in understanding economic development. Perhaps the broadest statement comes from the pen of David Landes: “Max Weber was right. If we learn anything from the history of economic development, it is that culture makes almost all the difference.”[3] Elaborating on Landes’s theme, Japanese economist Yoshihara Kunio writes, “One reason Japan developed is that it had a culture suitable for it. The Japanese attached importance to (1) material pursuits; (2) hard work; (3) saving for the future; (4) investment in education; and (5) community values.”[4]

Even the culture-skeptic Jeffrey Sachs recognizes the influence of culture. His chapter in Culture Matters says, in essence, that culture doesn’t matter. And while that theme echoes in his recent book The End of Poverty, at one point he also has this to say: “Even when governments are trying to advance their countries, the cultural environment may be an obstacle to development. Cultural or religious norms may block the role of women, for example, leaving half the population without economic or political rights…”[5]

Italian economist Guido Tabellini recently undertook a study of comparative economic performance in European regions employing data from the World Values Survey concerning trust, control of one’s destiny, and respect for others (all three of which turn out to be positively correlated with economic development), and obedience, which correlates negatively. His conclusions:

These cultural traits are strongly correlated not only with the economic development of European regions, but also with the economic development and institutional outcomes in a broad sample of countries…An implication of this analysis, therefore, is that there is no primacy of formal institutions over culture. On the contrary, both are likely to interact and to shape the actual functioning of real world institutions, and to influence the incentives and the behavior of economic and political agents. [6]

Moynihan and the Culture Matters Research Project

From 2002 to 2005, I led the Culture Matters Research Project (CMRP) at the Fletcher School at Tufts, a follow-up to the book Culture Matters (Basic Books, 2000), co-edited by Samuel Huntington and me. Some 65 experts from 25 countries participated, and major conferences were held at Fletcher in 2003 and 2004. Three CMRP books were published in 2006: the overview book The Central Liberal Truth (Oxford 2006), written by me; Developing Cultures: Essays on Cultural Change (Routledge 2006) co-edited by Jerome Kagan and me; and Developing Cultures: Case Studies Routledge 2006) co-edited by Peter Berger and me.

The goal of the CMRP was the guidelines for progressive cultural change that appear as the last chapter of The Central Liberal Truth. To reach the goal, we focused on three questions:

  1. What is it in culture that influences the behaviors that in turn influence political, social, and economic performance?
  2. What are the institutions and instruments of cultural transmission and change?
  3. What can we learn about culture and cultural change from case studies of success and failure?

The CMRP findings bear out the wisdom of Daniel Patrick Moynihan’s oft-cited aphorism, “The central conservative truth is that it is culture, not politics, that determines the success of a society. The central liberal truth is that politics can change a culture and save it from itself.” The latter is, of course, the source of the title of my latest book. Culture Matters might well have been titled The Central Conservative Truth.

Disaggregating “Culture”

The answer to Question 1 is a typology of 25 factors that are viewed very differently in progress-prone cultures and progress-resistant cultures. Its principal architect is the Argentine scholar and journalist Mariano Grondona, who had the United States in mind as his progress-prone model, and Argentina, and by extension Latin America, as his progress-resistant model. The 25 factors are broken down into four groups: Worldview, Values and Virtues, Economic Behavior, and Social Behavior. These compartments are not water-tight—factors that influence economic performance are found in all. For example, the Worldview factor of “Destiny” contrasts “I can influence my destiny” (progress-prone) and “fatalism” (progress-resistant)—with weighty implications for entrepreneurship, one of the key factors in the Economic Behavior cluster. Others in that cluster include:

  • Work/Achievement, which contrasts the progress-prone “Live to work” with the resistant “Work to live.”
  • Frugality: “the mother of investment” vs. “a threat to equality.”
  • Risk propensity: moderate in the progress-prone culture; low, with occasional adventures, in the progress-resistant culture.
  • Competition: leads to excellence vs a threat to equality—and privilege.
  • Innovation: the progress-prone culture is open to and quick to adapt innovation, while the resistant culture is suspicious of and slow to adapt it.
  • Advancement: merit vs. family/patron connections.

Cultural Transmission

The Question 2 institutions and instruments of cultural transmission include child rearing practices, several aspects of education, religion, the media, political leadership, and development projects. Of these, religion may be most relevant to economic development. We grouped 117 countries by predominant religion and recorded their performance on ten indicators or indices of progress, two of which directly reflect prosperity (the UN Human Development Index, which includes per capita GDP as well as three social factors; and World Bank per capita GDP calculated on the basis of purchasing power parity). Several other of the ten indices are also relevant, e.g., trust, corruption, income distribution.

The data roundly validate Max Weber’s thesis in The Protestant Ethic and the Spirit of Capitalism: Protestant countries do better than Catholic countries in creating prosperity. To be sure, the averages for the Catholic countries are depressed by Latin America’s slow development, but even when one looks only at First World democratic-capitalist societies, Protestant countries do substantially better than Catholic countries with respect to prosperity, trust, and corruption.

More broadly, the analysis of religions suggests that Protestant, Jewish, and Confucian societies do better than Catholic, Islamic, and Orthodox Christian societies because they substantially share the progress-prone Economic Behavior values of the typology whereas the lagging religions tend toward the progress-resistant values. Symbolic of this divide is the persistent ambivalence of the Catholic Church toward market economics, an issue underscored by Michael Novak in his book The Catholic Ethic and the Spirit of Capitalism. But religion is not the only source of progress-prone economic behavior: the Basques are highly entrepreneurial and highly Catholic; and Chile, boasting the most successful sustained economic performance in Latin America, is also the most Catholic—and the Latin American country with proportionally the largest Basque-descended population.

In any event, the foregoing suggests the existence of a Universal Culture of Progress: the same Economic Behavior values, whatever their root, create prosperity in widely different geographic/climate, political, institutional, and indeed cultural settings. As far as we know, culture has nothing to do with genes. While cultural change is neither a simple nor easy proposition, it is constantly occurring around the world, and there is no compelling reason why the “universal progress values” should be beyond the reach of any human society.

Case Study Lessons and Moynihan

Of the 27 case studies, ten are economic success stories: the four Confucian countries of China, Japan, Singapore, and South Korea; India; Chile; and four Western societies: Ireland, the Province of Quebec, Spain, and Sweden. While all ten combine elements of Moynihan’s Central Conservative Truth (culture dominant) and Central Liberal Truth (politics/policies dominant), progress in the four Confucian countries, Chile, and Sweden is, in my view, chiefly attributable to pre-existing culture, while progress in Ireland, Spain, and the Province of Quebec, is chiefly attributable to politics and policies that promoted cultural change. India is an intermediate case that requires more study.

East Asia

The “Confucian” countries (more accurately the countries strongly influenced by Chinese culture, which also embraces, in addition to Confucianism, Taoism, Buddhism, and ancestor worship) all share substantially in the universal culture of progress: education, achievement, work ethic, merit, and frugality are all highly valued in the East Asian societies. Their economic success contradicts Weber’s analysis in The Religion of China in which he asserts that rapid capitalist development is unlikely in China in large measure because of the absence of anything like the Calvinist “tension” caused by uncertainty about being of the “elect.”

Many observers attributed the stagnation of the East Asian economies (Japan excepted) at mid-twentieth century to Confucianism, particularly to the influential role played by the Mandarin literati (Mao a prototype) and the low prestige that attached to economic activity in the Confucian scheme of things. But all that was necessary to release the powerful education/achievement/merit/frugality undercurrent to perform its economic magic was encouragement from the political leadership, in the cases of South Korea and Taiwan stimulated by security concerns. The trigger for the magic in China was Deng Xiaoping’s 1978 pronouncement, “To get rich is glorious,” effectively marking the end of Mao’s Marxist revolution.

Once the encouragement and incentives were in place, the Universal Progress Values drove the economic miracles, much as they had when the Meiji leaders in Japan decided in 1868 to catch up with the West.

Chile

That Chile is different from other Latin America countries is apparent from its highly effective implementation of the Washington Consensus policiest—the only country in Latin America to do so. Its unique status in Latin America is also apparent from its 2005 Transparency International Corruption Perceptions Index rating: tied with Japan at number 21, with the next Latin American countries being Uruguay at number 32 and Costa Rica and El Salvador at number 51. And contrary to the often criminal comportment of police in other Latin American countries, Chile’s national police force, the Carabineros, has a solid reputation for professionalism and honesty.

Chile also enjoys an atypical entrepreneurial tradition. In the latter decades of the nineteenth century, Chileans were noted in the Southern Cone for their entrepreneurial skills, and they provided a considerable impetus to the growth of the Argentine economy as well as their own. While other factors, including Chile’s geography and climate, so similar to California’s, doubtlessly also contributed to Chile’s entrepreneurial endowment, the disproportionate Basque influence had to have been an important source.

Foreign investment has played a key role in Chile’s economic development, above all in copper mining. But the entrepreneurial response to the open economic policies installed during the Pinochet dictatorship and sustained since 1990 by elected left-of-center governments has come principally from Chileans.

Sweden

By the measure of the ten indices or indicators of political, economic, and social development, ranging from the UN Human Development Index to World Values Survey data on trust, the Nordic countries are the champions of progress.[7]

All five Nordic countries—Finland, Sweden, Norway, Denmark, and Iceland—have a Lutheran background, even though few today are churchgoers. Lutheranism is the source of much of the Nordic value system that has produced high educational levels, extensive welfare programs, and high quality entrepreneurship symbolized by Finland’s Nokia and Sweden’s Volvo, Saab, and Ikea. The compatibility of economic efficiency and social spending in the Nordic context is apparent form the 2006 World Economic Forum ratings. The Economist recently observed, “High taxes and generous welfare safety nets need not undermine competitiveness…Scandinavian economies are ranked high in the league…”[8] (Sweden was number two in the world.)

The economic success of the Nordic societies, and Protestant societies in general, strongly suggests that Weber’s focus on Calvinist “tension” was too narrow and that it is the Protestant virtues of education, achievement, work ethic, merit, frugality, honesty—Universal Progress Culture—that is the real force behind the spirit of capitalism.

Ireland and Spain

The Irish and Spanish economic “miracles” have much in common. They were both largely triggered by the opening up of theretofore inward-looking economic policies. Foreign investment and, particularly in the case of Spain, tourism played major roles, compensating at the outset for domestic shortfalls in both capital and entrepreneurship. Both benefited handsomely from the assistance programs of the EU. Both emphasized education, in Ireland’s case converting itself in the span of 40 years from one of the least educated European countries to one of the most educated. And in both, the influence of the Catholic Church declined sharply, to the point where one hears the term “post-Catholic” applied to both. In the process, both cultures were transformed.

Quebec

Prior to the “Quiet Revolution” (1960-75), Quebec was underdeveloped by contrast with the other Canadian provinces: poorer, less industrialized, less educated, less healthy, less democratic. Today, the indicators of progress in Quebec are comparable to the rest of Canada and in some respects, e.g., high school dropout rate, are the best in Canada. What happened to bring about this transformation?

  • The use of an inclusive nationalism to promote unity, effort, and sacrifice.
  • A process of “declericalization” in which the church’s influence was drastically reduced, above all in education, over a five-year period (1961-66). Like Ireland and Spain, Quebec is sometimes referred to today as “post-Catholic.”
  • Massive resource allocation to education.
  • Promotion of gender equality, particularly in the workplace.
  • The creation of a modern, creative state that has spearheaded development ranging from Cirque de Soleil to advanced biotech industries. A “corporatist” approach bringing business, labor, the professions, etc. together with government for policy discussions has been generally successful.
  • State-led efforts to reduce inequality.

Ironically, Quebec’s value profile has converged with that of Anglophone Canada simultaneously with the growth of pro-sovereignty sentiment in the province.

India

It will come as a surprise to many—it did to me—that, at least according to Angus Maddison’s data, India under the Mughals accounted for more than twenty percent of the world’s GDP in the early 18th century, principally because of textile and agricultural production.[9] That fact, coupled with the economic success of many Diaspora Indians, including those who have migrated to the United States, suggests the presence of Universal Progress Values in Indian culture. Moreover, the parallels between the unfolding Indian economic miracle and the East Asian miracles are striking: the opening up of the Indian economy in the early 1990s produced a response similar to that produced by “To get rich is glorious” in China.

To be sure, India’s economic surge has been fueled in part by its large pool of English language speakers, a valuable asset also enjoyed by Ireland, and by foreign investment focused on this linguistic asset. But Indian entrepreneurs have also played a prominent role in the surge.

We need to develop a better understanding of the cultural context of the Indian miracle. India is a country of numerous ethnic and religious groups—it is, for example, the second most populous Muslim country (after Indonesia). Which groups are major participants in and beneficiaries of the economic surge? What is the effect on the majority elements of the society that do not participate directly in the modernizing sectors? What is the effect on women, whose subordinate role in India is underscored by the fact that more than fifty percent of Indian women are illiterate? These are among the many questions raised by the incipient Indian “miracle.”

Conclusion

Culture does matter in economic development, and governments, development assistance institutions, think tanks, and universities must confront culture and cultural change. Incorporation of cultural analysis and cultural change into the mix of policy and project design factors may significantly accelerate the pace of economic development.

Notes

[1] The World Bank, Culture Counts: Financing, Resources, and the Economics of Culture In Sustainable Development (Washington DC, 2000), p. 30.

[2] The World Bank and the IMF, Finance and Development, March 1994, 51.

[3] “Culture Makes Almost All the Difference” in Lawrence Harrison and Samuel Huntington, eds., Culture Matters (New York: Basic Books, 2000), 2.

[4] Quoted in Lawrence Harrison, The Central Liberal Truth (New York and Oxford: Oxford University Press, 2006), 128.

[5] Jeffrey D. Sachs, The End of Poverty (New York: Penguin, 2005), 60.

[6] http://ideas.repec.org/p/ces/ceswps/_1492.html

[7] Harrison, The Central Liberal Truth, Chapter 4.

[8] The Economist, September 30, 2006.

[9] Angus Maddison , Monitoring the World Economy, 1820-1992 (Paris: OECD, 1995), p.30.

Also from This Issue

Response Essays

  • The Universal Culture of Progress by Gregory Clark

    In his reply to Harrison’s lead essay, University of California, Davis economist Gregory Clark writes, “I simultaneously want to endorse [Harrison’s] promotion of culture, and to run screaming from his lethal embrace.” While agreeing that the failure of purely institutional explanations of historical economic growth “opens the door … for culture,” Clark argues that “attempts to introduce culture into economic discussions so far have been generally either ad hoc, vacuous, blatantly false, or void of testability.” Clark points to great variation in economic performance within cultures and religions, and worries that Harrison’s “measures are not a pure probe into the essence of local cultures, but reflect institutions and economic environments that change the real possibilities for people.”

  • The How, The What, and The Why of the “Culture Matters” Thesis by Peter J. Boettke

    In his reply to Lawrence Harrison’s lead essay, George Mason University economist Peter J. Boettke argues that it is not culture but institutions–“the rules of the game that govern the way that people interact with one another”–that are the primary determinant of economic growth. However, culture may be crucial, Boettke argues, since it is “a tool for the self-regulation of behavior” that may raise or lower the cost of monitoring and enforcing compliance with “the rules of the game.” And that can make the difference between the success or failure of growth-conducive institutions and policies such as “private property, freedom on contract, limited scope of regulation, monetary restraint, fiscal responsibility, and open trade.”

  • It’s Not Culture by James A. Robinson

    James A. Robinson of the Harvard University Department of Government argues that Harrison’s measures are insufficient to establish that culture is the x-factor in economic development. For example, Robinson argues that the relative success of certain ethnic and religious minorities may be due to concessions from the majority group, and not the features of the minority culture. Also, Robinson asks, if the economic success of Chinese minorities in other countries is “because they have such a good culture, then why is China one of the world’s poorest countries?” And if Chile’s success lies in its distinctive culture, “then why did it manifest itself so recently?” Robinson concludes that “culture might matter, but doubters like me will not be convinced by the evidence here.”

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