Capitalism, not culture, drives economies

[shira]

Mitt Romney has explained that his comments abroad were simply truth-telling. “I tend to tell people what I actually believe,” he said. With regard to one much-debated comment — on the cultural differences between Israelis and Palestinians — many agree with him. The Wall Street Journal editorial page and columnists including Marc A. Thiessen and John Podhoretz all applauded. Podhoretz wrote: “Anyone who publicizes his remark is helping Romney win the election.”

“Culture makes all the difference,” Romney said at a fundraiser in Israel, comparing the country’s economic vitality to Palestinian poverty. Certainly there is a pedigree for this idea. Romney cited David Landes, an economics historian. He could have cited Max Weber, the great German scholar who first made this claim 100 years ago in his book “The Protestant Ethic and the Spirit of Capitalism,” which argued that Protestant values were the most important fuel for economic progress.

The problem is that Weber singled out two cultures as being particularly prone to poverty and stagnation, those of China and Japan. But these have been the world’s fastest-growing large economies over the past five decades. Over the past two decades, the other powerhouse has been India, which was also described for years as having a culture incompatible with economic success — hence the phrase “the Hindu rate of growth,” to describe the country’s once-moribund state.

China was stagnant for centuries and then suddenly and seemingly miraculously, in the 1980s, began to industrialize three times faster than the West. What changed was not China’s culture, which presumably was the same in the 1970s as it was in the 1980s. What changed, starting in 1979, were China’s economic policies.

more...
http://www.washingtonpost.com/opinions/fareed-zakaria-capitalism-not-culture-drives-economies/2012/08/01/gJQAKtH9PX_story.html

[bemildred]

1. Capitalism is culture.

Just saying.

[Bradlad]

2. I agree

But it's also more complicated than that. Capitalism is a part of culture. Even better, I'd say it's one possible outcome of culture.

[bemildred]

3. Well, I don't want to get into arguing about economics now.

I just wanted to point out that the OP is based on a supposed opposition between culture and a fragment of culture, which for that reason seems unlikley to make much sense. Economics lies at the base of culture, it's one of the fundamental things in culture, but both economic activities and culture have been around from the beginning of the human enterprise, while Capitalism is a recent invention, a purely economic form of feudalism which rose and replaced the old land-based feudalism.

[Bradlad]

4. No problem

My aim was not to argue. I just thought you'd have some interesting ideas on this. And I see you do. That last phrase is a zinger.

[bemildred]

5. Didn't think so.

It's usually pretty clear when you want to argue.

[shira]

7. I really like Zakaria's quote of Moynihan at the end of the article...

“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 culture and save it from itself.”

I wasn't convinced by Zakaria until he brought up Israel, which was pretty socialist going into the 90's. It wasn't until then that it became more capitalist, and as a result the economy has really taken off. At the very least, that tells me culture doesn't always drive economies. It appears to me Moynihan is right.

I was of the opinion that culture drove economies, especially WRT totalitarian societies like the PA, China, etc. But when there's an example like Israel, that theory is kinda blown out of the water.

[Bradlad]

9. I'm still trying to digest these ideas. n/t

[Igel]

6. So many fallacies. So little time.

Bemildred's right: Capitalism is rooted in culture.

The view that culture matters has gone far beyond Weber's simplistic hard-work + savings. Arguing against a theory a hundred years old as though it's current is self-insulting.

Cultures can change. But there's no claim that a specific, unalterable, mix of cultural traits is necessary. That's one problem making the "culture is important": Different mixes yield superficially similar results.

There's no argument that culture is everything. It's important, I think, but a dysfunctional culture with suitable trade and natural resources can be as or more prosperous as a truly harmonious, prosperity-centered culture whose natural resource is a patch of jungle surrounded by sterile water.


Take China. Fukuyama used this example. I'll try to remember what he wrote and paraphrase. He argued that sufficient numbers of Chinese are hardworking, hard saving, risk taking, future-oriented, etc., etc., to be really successful. There are things like obedience to authority, the desire for truly talented people to become functionaries, large families being an economic drain in certain environments, that sort of thing. They drain economic growth, if overdone, but there are two really large caveats.

First, Chinese culture pushed for little social trust. You don't trust others when you don't have to. You rally around to oppose outsiders--which is just nationalism writ small, and while it builds community-internal businesses ultimately it limits trade in mixed cultural environments. There's no real loyalty to the community as such. As soon as the outside threat is gone, as soon as you're no longer under seige, it's really family you trust and are loyal to. So if you have a business and it grows, you're limited by family size and by family resources. Most Chinese businesses in and out of China were small. They'd come along and grow and then hit a ceiling.

Second, Chinese culture distributes wealth to heirs reasonably evenly instead of disinheriting most of them or having sharply unequal distributions. You build a company, then you distribute it among your kids, who probably already work there. If they get along and agree for 30-40 years, the organization can grow. But if they disagree or one dies, then the organization's torn apart. The larger the business, the more quickly it would die after one or two generations when the center failed to hold.

The solution to a lack of social trust is government. You wind up with all the large businesses being government backed. Mid-sized are either probably going to explode or they're smaller companies that the government is growing. The large businesses tend to be fairly corrupt monopolies--even if the monopoly is behind the scenes, with the same government controlling all the banks.

That's where Fukuyama stopped. Now, it's been a decade or more since he said this, and in that decade China's continued to develop. One wrinkle is the 1-child policy. You can't grow your business using just family and family resources. Stock companies have become more common. It also means you often can't leave your company to your heir: Some just don't want it, and if you only have one. Single-children can't rely on siblings. More mobility means that you may not be around your cousins. You rely on strangers and make them friends. This builds social trust, and it's reinforced in large government enterprises and in schools. But individualism is a bit more prominent, which makes the dependence of a company founder on his heir continuing the business even more risky.

At the same time the government's realized that it's oligopolies have flopped and they cut some loose. Yes, the government is in charge. No, the government doesn't set most policies. There's a fairly tight system for social control, but companies can innovate and compete. In cutting lose oligopolies, they created a bunch of mid- and large-sized companies. The distribution is different, but not so different, from the US. It's radically different from China 20 or 100 years ago. The culture had to change for this--the oligarchs trust more people, business owners trust non-family strangers, investors trust relative strangers, single children trust other single children.

There's no denying that development of natural resources, government capitalized companies, or global offshoring to China and Chinese trade around the world helped. A lot. But the economic vibrancy is in the rise of small to mid-sized companies, and competition among mid-sized companies. This requires social trust that China's built, even if it still is ethnically bounded. One evidence of this is that more community and interest-groups are forming, and that there's a push against government for "commons" policies that suit people. They work together more for these things. If it grows, great. If the government clamps down ... it might be messy.

[LeftishBrit]

8. A strange mixture of good and bad here

Good that he is opposing cultural bigotry . Good that he is pointing out that what matters in a country is its policies and actions, not its predetermined 'culture'. Good to point out that India and China have changed rapidly in economic status despite all the cultural stereotypes about them (though let's not forget that there are still serious levels of poverty in both countries).

But he seems to be using it as an excuse to endorse right-wing economic policy. Israel was wrong when it was 'statist' and is better because Netanyahyu implemented 'market reforms' and 'sound monetary policies', i.e. an admittedly attenuated version of Thatcherism. I don't care for economic right-wing views, even from people with whom I might agree on some foreign policy issues!