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When It Comes to National Prosperity, Don’t Forget the Culture

The late Douglas North was correct to assert that institutions are a determinant of long-term economic growth. However, despite his genius in perceiving connections between economics and other fields, North wrote little on culture. Although leading economists are now beginning to take culture seriously, there is still a strong perception that all people are basically the same.

Unlike the legendary David Landes, who fearlessly classified some cultures as detrimental to progress, most economists jettison value judgments by arguing that culture is either functional or maladaptive. For instance, in a preindustrial setting where people are primarily concentrated in rural communities, sharing resources helps to insure against risks. However, in a post-industrial context where individualistic and commercial values are paramount, sharing could be perceived as a burden or an impediment to entrepreneurship. Hence, cultures that were once useful can inhibit progress and essentially become negative.

Therefore, countries and individuals would be better off if they shelved some practices. Without cultural change, modernization is impossible, but out of fear of arousing the anger of politically correct mobs, most economists are unwilling to recommend cultural change. Telling people that their culture is an obstacle to progress could invite charges of racism, and being a racist is the worst sin one can commit in our present climate.

But cultural evolution is just a path on the road to modernity, as the sociologist Georg Oesterdiekhoff reminds us in several articles and books. Premodern Europeans believed in magic and animism, but the advent of the Enlightenment and better schooling made such beliefs obsolete. Rejecting long-held cultural beliefs is hard but necessary in order for lagging countries to attain higher levels of development.

Japan became the first non-Western country to modernize because its intellectual elites had the intelligence to recognize that local institutions were defective relative to their Western counterparts. Fukuzawa Yukichi, who was a leading intellectual and institution builder in nineteenth century Japan, never hesitated to inform his countrymen that unless Japan transitioned to an innovative and industrious country with modern laws like its Western competitors, it would remain an economic backwater.

Today, similar musings would earn intellectuals the ire of the academy. However, economists are doing poor countries a disservice when they discount the relevance of culture. Rich and poor countries attract multinational corporations, but poor countries rarely have the culture and human capital to sustain foreign direct investment. David Morawetz, in his controversial book Why the Emperor’s Clothes Are Not Made in Colombia: A Case Study in Latin America and East Asian Manufactured Garments, contends that punctuality, productivity, and management quality best explain the superiority of manufacturing in East Asian countries.

Even though poor countries still attract foreign capital without a culture of performance and the human capital to fuel productivity, they will not ascend to first world levels. A classic example of the paradox of high foreign direct investment and low growth is Jamaica. Getting investments is quite easy for Jamaica, but like many poor countries, it is plagued by low levels of human capital, weak governance, and people who are unable to produce at the highest level.

Although Jamaica is a relatively poor country, Chinese and other ethnic minorities there have done spectacularly well. Most Jamaican-Chinese are the descendants of the Hakka Chinese, who migrated to the country in the nineteenth century to work as indentured laborers. The Hakka Chinese are revered for their work ethic and entrepreneurial insights, so despite relocating to Jamaica as laborers, they have succeeded in building intergenerational wealth.

People with the right cultural traits will create economic opportunities in harsh environments. East Asians score quite high on tests of long-term orientation, and there can be no capital formation without long-term planning. Entrepreneurship itself is a risky process requiring patient work and years of planning, so automatically, groups that are long-term oriented will excel at entrepreneurship regardless of their circumstances.

Unlike the Chinese, native Jamaican culture embraces wanton materialism and conspicuous consumption. Columnist Ian Boyne laments the materialism of Jamaicans in a Gleaner column:

As a people we are not culturally attuned to sacrifice and the postponement of gratification the way people in the Far East are. That is why they are capital surplus peoples and we are among the most indebted in the world. . . . That is why our education minister, whose philosophical sophistication is eclipsed by no Jamaican politician, can so easily talk to inner-city people about spending on their children’s education rather than . . . dancehall fashion and rum. Go into some ramshackle dwelling in the ghetto and observe appliances and gadgets. In some of these homes you see flat-screen TVs, and they are not bought by drug money.

Essentially, Jamaican culture fosters intergenerational poverty, and instead of reforming local culture, politicians cultivate a welfare- rather than wealth-oriented culture by professing their love for the poor. Idealizing poverty, however, will only encourage the immiseration of the poor because entrepreneurs, progressive intellectuals, and innovators, not poor people, move countries forward. Poverty is the natural condition of mankind and is more akin to indignity than achievement.

Societies that struggle to evolve culturally will fail to modernize and sustain economic growth. Africa is experiencing some growth, but academics worry that its success will be hampered by conspicuous consumption. Even recent studies measuring patience show that Africans are the least patient people in the world.

It is therefore conclusive that poor countries need cultural reform and not just more money and empty platitudes about decolonization. By discounting the significance of culture, politically correct economists have only been preventing poor countries from becoming developed. The truth is that a country reflects its people, so if you put Jamaicans in Singapore, you would get an economic backwater, but if Singaporeans relocated to Jamaica, you would get Switzerland.

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