Wednesday, November 09, 2005

Does culture matter for growth? (1)

"If we learn anything from the history of economic development, it is that culture makes all the difference. … Witness the enterprise of expatriate minorities – the Chinese in East and Southeast Asia, Indians in East Africa, Lebanese in West Africa, Jews and Calvinists throughout much of Europe, and on and on." David Landes (1999), The Wealth and Poverty of Nations.

When discussing about the impact of culture on economic performance, one can not avoid discussing Max Weber’s Protestant ethics theory. This is no doubt the most influential theory in the area. Among different values and attitude that shape a culture, Weber argued that Protestantism, more specifically the Calvinist branch, has promoted the rise of modern capitalism. As Landes wrote when explaining Weber’s view, “Calvinist Protestants believed in the doctrine of predestination: one could not gain salvation by faith or deeds, but by hard work, honesty, seriousness the thrifty use of money and time.”

Furthermore, Landes implied that the Protestant Ethics help explaining why the Catholic world (the Spanish, Italian and Portuguese), who were the pioneers in exploring the new world, facing their decline entering the 18th century. Conversely, the Protestant economies, namely Netherlands and England, were rising. The problem with Spain, Italy and Portugal, as Landes argued in the Weberian framework, was they got rich very easy. Meanwhile, the Protestantism doctrine produced a new kind of businessman who did not aimed at riches. Simply, the Protestant valued work highly, and becoming rich is the by-product of it, not the ultimate goal.

There have been many rebuttals to Weberian thesis regarding the influence of religious culture in economy. Historian Harry Tawney (1926) argued that the English economy took off in the sixteenth century only after the religious influence diminished, and the society moved into a more secular one. Later, Amartya Sen argued that Weber’s thesis only useful in explaining what happened in the past, but not really powerful in predicting the future. He pointed out the fact that, by the time Weber’s book was published in the early 20th century, Protestant economies was in a declining trend. On the other hand, the Catholic region Latin America was growing fast. Furthermore, Sen also mentioned that Weberian perspective can not explain well the Confusian growth miracles in the 20th century: Japan after the World War II, the East Asian tigers in the mid-1980s, and latter China. Later on in the end of the century, India also joined the fast growth club.

Weberian supporters can reply back by saying that one does not have to be a Protestant to share the Calvinist ethics. Japan, China and the East Asian tigers have something in common with 16th century Calvinist: hard working society and willingness to save for the future. But if culture – namely hardworking ethics – is the reason, then what took China and the East Asian tigers so long to take off, and remained poor for centuries? Interestingly, why Chinese had been very successful as immigrants but perform poorly as a country for a long time? Moreover, if culture is the reason behind the performance of these economies, how can it explain the collapse of East Asian miracles in the late 1990s, and Japanese slow-down since mid-1990s, which continues until today?

Same thing also applies for India. Cultural explanation somewhat failed to explain India’s recent turn around. The modest performance of Indian economy during 1950s-1990s was attributed by many to the Hindu culture (even the 2-3% consistent annual growth rate was branded the Hindu growth rate). Surely, cultural explanation can not be the reason for India’s near-to-miraculous performance since the late 1990s.

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