Why Romney's right

If I promise not to make a habit of it, can I defend Mitt Romney? Although his remarks in "the capital of Israel" have caused derision, there's one point he makes that deserves respect. This is that "culture makes all the difference" to a nation's prosperity.

Leave aside the empirical evidence he provides; Israel and Palestine are only two data points with many confounding factors. This point is true (allowing for overstatement) and important. For example:

- A culture of trust and trustworthiness can promote growth by overcoming problems of asymmetric information and incomplete contracts.

- Deirdre McCloskey has argued that "bourgeois virtues" such as temperance, hope and prudence are good for an economy.

- Heng-fu Zou has shown how the "spirit of capitalism" - a desire for wealth in itself, independent of the consumption it gives - can help explain cross-country differences in growth rates. "It Is a mistake to totally ignore the cultural elements in economic growth and development" he says.

- Guido Tabellini has shown how nations and regions where people are more likely to respect each other tend (pdf) to grow faster.

- Gerard Roland and Yuriy Gorodnichenko have shown that "individualistic culture has a strong causal effect on economic development."

Culture, then, matters. But where does culture come from? Here, Romney scores another point - religion. Here's Luigi Zingales and colleagues (pdf): 

On average, religious beliefs are associated with ‘‘good’’ economic attitudes, where ‘‘good’’ is defined as conducive to higher per capita income and growth...Christian religions are more positively associated with attitudes conducive to economic growth.

And here's (pdf) Robert Barro and Rachel McCleary:

We find that economic growth responds positively to the extent of religious beliefs, notably those in hell and heaven, but negatively to church attendance.

But of course, religion is not the only source of culture. Another source is history. Nations or regions with a history of slavery or genocide have tended to grow more slowly even in decades afterwards, because such episodes destroy trust or bourgeois virtues.

Now, Mitt Romney no doubt regards the vicissitudes of distant history not as accidents but as the "hand of providence". Unless there's some evidence I've overlooked, I suspect this is another example of the just world illusion.

I say all this because there are two large groups of people are who are prone to error here. On the one hand there are the (dwindling) number of economists who think that long-run growth is a matter of technocratic fixes, of establishing the right policies and institutions. On the other hand, there are politicians who think that culture can be changed by talk and wishful thinking. The truth is more interesting than either group realizes.

In this context, underneath the imbecilities, Romney has, perhaps inadvertently, blurted out something important.

Comments

[droog]

In this particular case the influence of cultural and religious factors must dwindle when compared against more immediate conditions. Or at least the level of "background noise" is too high for Romney to try and make such a claim. Between Israel's blockade of Palestinian territories, the ginormous amount of aid the US gives to Israel and the trade and academic ties of Israelites to the communities in Europe and the USA where they came from there seems to be too many factors distorting the comparison.

To use another example, would Romney venture such a claim about Russians and Chechens? What's the value of comparing two groups engaged in conflict when one has been gaining for decades at the expense of the other? In Romney's view Palestinians who built houses decades ago and now see them torn down to make way for new Israeli settlements haven't lost accumulated wealth. The man's a hack.

[Tom Addison]

Hmm, John Cassidy appears to think Palestine has bigger problems than culture.

"Speaking at a breakfast fundraiser attended by the likes of the casino billionaire Sheldon Adelson, the hedge-fund tycoon Paul Singer, and New York Jets owner Woody Johnson, the G.O.P. candidate appeared to blame the failure of the occupied Palestinian territories to match Israel’s economic performance not on a lack of capital, the economic blockade of the Gaza Strip, or the presence in the West Bank of Israeli settlers and military forces but on the differing cultures of the two peoples"

http://www.newyorker.com/online/blogs/johncassidy/2012/07/memo-to-mitt-the-palestinians-problems-arent-all-cultural.html

[chris]

Chaps - I'm not saying that Romney's right to blame Palestinian poverty upon culture. I'm just saying that the view that culture matters for growth is a reasonable one for many other places.

[Sid]

I wonder if, in the 12th century, while the Arab World was enjoying its Golden Age and Europe was in the throws of its Dark Age, there was some Arab politician passing off similar arguments about European culture.

[Tom Addison]

Oh I totally agree, I've read all those 'Why Nations Fail' links you've posted before (although I've yet to read the book), very good stuff, it's just that in this case (although I'm no expert) there do seem to be some blatantly obvious issues other than culture that explain the prediacment of the Palestinians, hence why Romney is being painted as a prize prick (which I'm pretty sure he is).

[Tom Addison]

"I wonder if, in the 12th century, while the Arab World was enjoying its Golden Age and Europe was in the throws of its Dark Age, there was some Arab politician passing off similar arguments about European culture."

Reminds me of an episode of QI where Stephen Fry (okay, the shows researchers) mentions that China was held back because they didn't invent glass due to how successful paper was for their society, therefore they didn't invent telescopes, microscopes, perving windows etc.

[A Facebook User]

"I wonder if, in the 12th century, while the Arab World was enjoying its Golden Age"

That was a very long time ago Sid. To what do you attribute the complete lack of scientific, economic and technological progress in the Arab World for the last 800 years? Do you have any theory about why the inhabitants of the Ottoman empire were predominantly subsistence-farming peasants in 1923 much as they had been in 923?

[Blissex]

«Nations or regions with a history of slavery or genocide have tended to grow more slowl»

The single biggest factor (which has been studied extensively by an american historian in the Italian case) seems to be foreign conquest and rulership, sespecially culturally foreign, extractive conquerors.

The result is that the native population see the state organization as a tool of the oppression of the foreign elites and this creates a culture of distrust of the state and of community organisation, and of extensive corruption because personal and family relationships become more important than civil ones.

«even in decades afterwards, because such episodes destroy trust or bourgeois virtues.»

That's extremely optimistic, as the effects of foreign conquest and oppressions last for hundreds of years (well documented cases) and arguably in some cases for over a thousand years.

[Greg vP]

AFU: "Do you have any theory about why the inhabitants of the Ottoman empire were predominantly subsistence-farming peasants in 1923 much as they had been in 923?"

One reason: too much political stability.

Contrast Europe. The lack of a central authority in Europe after the Dark Ages gave rise to two specialized professions that in turn gave birth to the Enlightenment: lawyers and military engineers.

Lacking an ultimate authority, the law was forced to use reason. When that failed to get local potentates what they wanted, military engineers accelerated technological progress greatly. Princes were always desperately short of cash to pay soldiers, and lawyers and military engineers were useful in developing mines, plantations, and trade technology, too.

In Ottomania there was always a central ultimate power who would squash obviously uppity locals, so they developed intrigue to a high art instead. Incentives in action.

Another big factor was the cost and speed of trade. Europe is all coast, apart from the bits that are near navigable rivers. The Ottoman Empire had some coast and some rivers, but big bits of land in between. Trade was costly and slow.

Cultural factors might come in down the list. One such factor that has economic plausibility is whether households had multiple adult generations - those without, of course, required more capital investment and therefore more saving, and control of fertility.

This cultural factor (from some French dudes - can't find the paper) has at any rate the virtue of not being obvious nonsense such as McCloskey, Zou, or McCleary and Barro, which are pretty much the equivalent of the 'miasma' theory of infection.

[Keith]

Bad hook for this discussion as a more subtle set of cultural differences would be interesting to discuss not the political quagmire of Jew v Arab.

It has to be said that as history has not yet ended and is very long it is too early to decide this question. Every political and economic system falls or under goes radical change. Why did Rome fall or china fall behind after brilliance? And would it actually be useful for future policy to have a theory about it? Culture it has to be recalled changes so that pinning down given factors is very difficult if you wish to be serious in answering cultural questions the detailed required does not translate into easy answers.

[rogerh]

There is something interesting in this culture thing. I have found that in the early days of an innovation 'good' people are attracted by the novelty, challenge, status and money. Later on 'less good' people join the fray, the novelty etc goes down, the 'good' people move on. Management then tries to re-build the original culture - but that is impossible - only a kind of fake 'newness' can be achieved - a better move is to recognise a new culture of 'doing it right' is what will attract the new 'good' people, not the same as the originators but good followup people. Its a dynamic thing and not easy to fake.

[Lisa Ansell]

Chris dont publish this comment, its nothing to do with Mitt Romney. Its a post you might be interested in,. Have found out that under Universal Credit, if I am not turning a profit they can more or less demand I stop trading. Which is tricky. http://defytheeconomy.wordpress.com/2012/08/01/paul-mason-quote-review/

[Luis Enrique]

Acemoglu and Robinson weigh in

http://whynationsfail.com/blog/2012/8/1/mitt-jared-and-david.html

[Jonathan]

Despite its Nazi origins, I am tempted to come out with "whenever I hear talk of culture, that's when I reach for my revolver" at this point. So studies have managed to get some significant growth regressions with cultural variables, whilst others have of course found other variables to be more important.
To take a slightly different tack, one can easily come up with counter-examples and cultural explanations often become effectively unfalsifiable (they can always find an explanation for a success or a failure). Eastern cultures have variously been tagged as pro and anti-development. Ha-Joon Chang is good on this:
http://www.sed.manchester.ac.uk/research/events/conferences/povertyandcapital/chang.pdf
As for Acemoglu and Robinson, they are good enough to refer to Jared Diamond's New York Review of Book's piece on them. However, they are unable to deal effectively with the major problems he identifies with their work.

[greg byshenk]

I haven't read Acemoglu and Robinson's book, but I have read some of what they've written, and it seems to me that part of their point is that "culture" doesn't actually accomplish anything without _institutions_ that reinforce the supposedly desirable aspects of culture. It may well be that "bourgeois virtues" are good for an economy, but if the social and legal system doesn't reward them, then they are unlikely to survive. Thrift and delayed gratification are great if they allow you to save enough to build a successful business, but they are less so if the result is that your savings are hauled away for use by the local strongman (or destroyed by airstrikes from across the border).

[Blissex]

«"culture" doesn't actually accomplish anything without _institutions_ that reinforce the supposedly desirable aspects of culture.»

The two reinforce each other and of course environment is an enabling factor too, in the very long term.

But institutions and culture seem very related again to foreign rule (and secondarily to local tyrannical rule): they generate distrust in state organisations, making trade, contracts, planning for the future impossible.

There is a lot about this in the excellent "The poverty and wealth of nations" by Landes.

He quotes a (rethorical) question by an authors in the 18th century IIRC, which was why England could borrow the wealth of their countruy and of the world at 3% with consols (non redeemable bonds) while the nabobs of India could not borrow even at a very high price without giving outrageous collateral, and could not mobilize even the savings of their own subjects.

The obvious answer was that the nabobs were widely distrusted as predatory foreign rulers by their subjects, and as cheaters by others.

[Blissex]

«Acemoglu and Robinson weigh in»

"This is surely the case between North and South Korea, for example. After all, does Mitt and David think that there were huge cultural differences between the north and the south of the 38th parallel before the separation of Korea into two?"

That's Acemoglu and Robinson bullshit, by which they adopt a very long-term, fundamentals view of "culture". To me North and South Korea seem to have very different cultures...

But while the GNP per head is very different, they are still both highly developed nations: both have high literacy rates, both can develop missiles, nuclear power plants, and so on. That they are highly developed comes from their having the same cultural long-term "package" in the sense used by Jared Diamond. when he concludes that western and CJK culture (in the wide sense he uses, the "package" enabling complex organizations) is 5,000 years ahead of that of Papuans.

But here I must introduce a distinction of the utmost important that I have used with many for decades, and it is between being RICH and DEVELOPED.

Being developed surely helps becoming richer, but one can be rich without being developed (Saudi Arabia) or developed without being rich (North Korea).

"Developed" here means the possession of a "package" of culture, institutions and other long term capital, material or metaphysical, that enables high value added production, and there varying degrees and shapes of "developed".

For another example consider Germany or Japan in 1946: very poor countries flattened by war, beyond anything some poor countries look like. Immense damage to their shared and productive infrastructure (two major industrial centers in Japan made into radioactive wastelands).

But the critical mass of their development "package" was there, in the same environment it was developed. They still had books and people, and some minimal resources who could rebuild everything, given time.

[Blissex]

A fundamental, extensive work that is essential to know in the "development economics" debate is Gunnar Myrdal's report for ONU on the development prospects for poor nations written in 1960:

"Asian Drama: An Inquiry into the Poverty of Nations and The Challenge of World Poverty. A World Anti-Poverty Program in Outline."

It is a vital work because it was a landmark of extensive research, profound insight and it was completely wrong in its conclusions, which were that desperately poor, forgotten places like Korea, Singapore, Taiwan, largely devastated by oppressive Japanese rule were destined to never ending grinding struggle (The "Asian Drama" of the title) while rich countries like Kenya, Cameroon, Nigeria with all the great advantages, and with the legacy of good, lightweight colonial institutions they had would rapidly become world class developed countries.

As the next fifty years proved his conclusions were entirely wrong, because he did not take into account the "developed" status of the populations of those ground down Asian countries, which made them exceptionally resilient once freed from negative factors.

Anyhow any single-factor (environment, short-term culture, long-term culture, market, planning, ...) attempt to create a law without exceptions explaining a single-metric observable (like GDP per capita) seems comical to me in the social sciences.

I prefer to think in terms of enabling vs. active factor, positive vs. negative factors, and factors that operate in the short term, or the long term, because there is both long and short term capital; even if as Keynes said almost all capital is long term, something that even Keynesians forget, and which portends in its simplicity the entirety or "supply side" political economics.

[paulc]

"individualistic culture has a strong causal effect on economic development."

So the US is obviously the prime example of such a culture. China is the prime example of a more collectivist culture. No nation has achieved a faster rate of growth than China.

"We find that economic growth responds positively to the extent of religious beliefs, notably those in hell and heaven, but negatively to church attendance."

Hardly convincing is it? Go to church and reduce economic growth, believe in heaven and hell and increase it! In fact the Barro study finds that belief in heaven is insignificant and only the belief in hell appears to matter at all. This hardly makes a strong case for the belief in religion being a causal factor in increasing economic growth [ala Weber].
It could be argued that the causal nature is the other way round [ala Marx]. That's precisely what De Jong suggests in his 2008 paper;'Religious Values and Economic Growth:
A review and assessment of recent studies'

"The studies discussed in the previous sections found mixed results with respect to the relation between religious values (or religions) and economic growth (or development).
Barro and McClearly report that belief in hell is important for economic growth. A
sensitivity and robustness analysis by Durlauf et al. (2005) doesn’t find a significant relationship between economic growth and belief in hell and only a very marginally significant effect of belief in heaven on economic growth. Moreover, Barro and McClearly do not argue why among all possible views related to supernatural forces, the thoughts about afterlife are the most plausible candidates for a relation with economic growth. Sakwa (2006) and Sakwa et al. (2005) derive biblical concepts of poverty from texts from the Old Testament. These concepts are not related to the issues of afterlife distinguished by Barro and McClearly. Hence, no common view exists on the religious concepts that are most likely for influencing economic development."

The case for religious belief as a prime causal factor in economic growth is ambiguous at best.