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When the Soviet Union collapsed, many expected a fairly quick transition to a market economy and an improvement in living standards. The transition was difficult and incomplete, and many people suffered a sharp decline in standard of living. At roughly the same time, development experts were telling poor nations that the route to growth was to reduce government intervention in the economy, privatize publicly-owned enterprises, and let the market work its magic. The results from the nations that followed this advice were disappointing.

These experiences have made people wonder what the preconditions of a market economy are. Market economies cannot be imposed from outside; they must developed. Perhaps some of the preconditions are cultural, and that some cultures are more conducive to markets than are others. The questions about culture and economic development had been raised earlier when various people noted that not all ethnic groups were equally successful. For example, the Chinese have been economically successful in many different places despite facing legal and social obstacles in many of those places (including the U.S.) that were designed to limit their success.

Even earlier, Max Weber wrote about the question of culture and economic development in his The Protestant Ethic and the Spirit of Capitalism. Weber noted that those who belonged to religions inspired by John Calvin tended as groups to be leaders in the development of capitalism and to have prospered more than those from Catholic backgrounds, and he sought to find what it was about the Calvinist outlook that caused this result.

Economists tend to downplay cultural explanations of development. Culture is hard to measure and economists like to deal with measurable variables. Economists rarely study culture in other contexts, so they lack familiarity with it. Other social scientists, especially anthropologists, have already claimed culture as their area. The widespread faith in cultural relativism among academics, the belief that all cultures are equally good and valid, is shared by some economists. Hernando De Soto, for example, argues that cultural explanations of development are condescending, suggesting that those in the developed world are better than those in the poor nations.1

Some researchers in economic development not only think that culture is important, but that they know which cultural traits are compatible with economic growth and which are not. It makes sense, for example, that a belief that we are in charge of our destiny favors growth, while a sense of fatalism discourages it. Cultures that value education, achievement, work ethic, frugality, and merit rather than family connections as the basis for advancement are more compatible with economic growth than cultures that do not have these values. David Landes, author of The Wealth and Poverty of Nations, said at a World Bank conference in 2006 that "…there are cultures that I would call 'toxic'…[that] handicap the people who cling to them."2

Cultures can and do change. If culture matters, then enlightened political leadership can move culture away from traits that discourage growth toward those that encourage growth.

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1 Hernando De Soto, The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else Basic Books 2003, page 224.

2The quotation is from Lawrence E Harrison, "Culture and Economic Development, at (retrieved June 2008).

Copyright Robert Schenk