Tuesday, July 31, 2012

The Economic Impact of Culture Can Be Overrated

While Mitt Romney's remarks at a fundraiser in Jerusalem on July 30th were not his finest hour, they do raise an interesting question about the contributing factors in economic development:

I was thinking this morning as I prepared to come into this room of a discussion I had across the country in the United States about my perceptions about differences between countries. And as you come here and you see the GDP per capita for instance in Israel which is about 21,000 dollars and you compare that with the GDP per capita just across the areas managed by the Palestinian Authority which is more like 10,000 dollars per capita you notice a dramatic, stark difference in economic vitality. And that is also between other countries that are near or next to each other. Chile and Ecuador, Mexico and the United States. I noted that part of my interest when I used to be in the world of business is I would travel to different countries was to understand why there were such enormous disparities in the economic success of various countries.

I read a number of books on the topic. One, that is widely acclaimed, is by someone named Jared Diamond called ‘Guns, Germs and Steel,’ which basically says the physical characteristics of the land account for the differences in the success of the people that live there. There is iron ore on the land and so forth. And you look at Israel and you say you have a hard time suggesting that all of the natural resources on the land could account for all the accomplishment of the people here. And likewise other nations that are next door to each other have very similar, in some cases, geographic elements. But then there was a book written by a former Harvard professor named ‘The Wealth and Poverty of Nations.’ And in this book Dr. Landes describes differences that have existed—particularly among the great civilizations that grew and why they grew and why they became great and those that declined and why they declined. And after about 500 pages of this lifelong analysis—this had been his study for his entire life—and he’s in his early 70s at this point, he says this, he says, if you could learn anything from the economic history of the world it’s this: culture makes all the difference. Culture makes all the difference.

And as I come here and I look out over this city and consider the accomplishments of the people of this nation, I recognize the power of at least culture and a few other things. One, I recognize the hand of providence in selecting this place. I’m told in a Sunday school class I attended— I think my son Tagg was teaching the class. He’s not here. I look around to see. Of course he’s not here. He was in London. He taught a class in which he was describing the concern on the part of some of the Jews that left Egypt to come to the promised land, that in the promised land was down the River Nile, that would provide the essential water they had enjoyed in Egypt. They came here recognizing that they must be relied upon, themselves and the arm of God to provide rain from the sky. And this therefore represented a sign of faith and a show of faith to come here. That this is a people that has long recognized the purpose in this place and in their lives that is greater than themselves and their own particular interests, but a purpose of accomplishment and caring and building and serving. There’s also something very unusual about the people of this place. And Dan Senor— And Dan, I saw him this morning, I don’t know where he is, he’s probably out twisting someone’s arm—There’s Dan Senor, co-author of ‘Start-up Nation,’ described— If you haven’t read the book, you really should— Described why it is Israel is the leading nation for start-ups in the world. And why businesses one after the other tend to start up in this place. And he goes through some of the cultural elements that have led Israel to become a nation that has begun so many businesses and so many enterprises and that is becomes so successful.

Daniel Drezner disagrees:
The kind of gaps in economic output that Romney likes to stress are of so recent a vintage that institutions are the more likely driver of what's going on than culture. One can't assert, for example, that culture explains why South Korea is outperforming North Korea or why West Germany was more prosperous than East Germany.

Indeed. Or why the West Bank is so much poorer than Jordan, and even more so, than Lebanon. But read the whole piece.

Democracy in America is also unimpressed. Read that too.


sbloch said...

I've read the Jared Diamond book in question, and it does not say natural resources make all the difference. In fact, it says political institutions and their management of natural resources make the difference.

The classic example is Hispaniola, which is split between the basically-functioning Dominican Republic and the perennial-disaster-victim Haiti. Diamond traces the difference largely to a series of dictatorial Haitian governments that emphasized extracting natural resources as fast as possible, while the more-democratic Dominican governments also had a longer horizon for resource management.

Much the same can be said about the Koreas or the Germanies: where two neighboring countries share a culture, economic success correlates with both environmental sustainability and pluralistic government.

Which doesn't really address the Israel-Palestine difference, of course. Several other plausible explanations spring to mind: the preferential allocation of water and arable land to Israelis, the reluctance by Palestinians to invest in land or houses that are liable to be bulldozed at a moment's notice, and the difficulty for Palestinians of keeping a job when they may on any given day spend three hours in a security checkpoint.

Will McLean said...

To the explanations you offer I would add lack of control of their own borders and trade, a tendency of infrastructure to get destroyed by the Israelis, control of their economy until 1994 by a foreign power, and afterwards only partial Palestinian control, and that by a corrupt and autocratic government.