Policy not Culture Determines Economic Growth

Mitt Romney made a lot of conservatives enthuse with his remarks about the difference between the Israeli and Palestinian economies. He said the very different outcomes spring from the different cultures of the two societies. This is the view espoused by a certain sort of cultural conservative, who wants to think that Europe and the U.S. are richer than Asia and Africa because of our superior cultures.

To understand what is wrong with this notion, you have only to consider the photograph above. The two Koreas have, or had in 1960, very similar cultures, yet their economic performance could not  be more different.

Fareed Zakaria reminds us that the author of this view of economic growth, Max Weber, is somewhat out of date:

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. . . .

Despite all this evidence, most people still believe that two cultures in particular, African and Islamic, inhibit economic development. But the two countries that will next achieve a gross domestic product of $1 trillion are both Muslim democracies — Turkey and Indonesia. Of the 10 fastest-growing economies in the world today, seven are African. The world is changing, and holding on to fixed views of culture means you will miss its changing dynamics.

As a cultural historian, I would never want to say that culture has no economic importance. A country as corrupt as Russia, where trust has been degraded by decades of dictatorship, will have real trouble creating a free market. Culture may account for much of the difference between the economies of countries with similar policies, viz., Greece and Denmark, and it also influences what sorts of policies countries choose. But all the evidence is that any reasonably peaceful country that adopts free market economic policies will experience rapid economic growth. Insofar as culture does influence how readily people take to capitalism, it seems that Palestinians have a perfectly fine culture, since when they immigrate to countries with business opportunities they do very well.