Capitalism, not culture, drives economies

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.
The same is true for Japan and India. Had Romney spent more time reading Milton Friedman, he would have realized that historically the key driver for economic growth has been the adoption of capitalism and its related institutions and policies across diverse cultures.
The link between economic policies and performance can be seen even in the country on which Romney was lavishing praise. Israel had many admirable traits in its early decades, but no one would have called it an economic miracle. Its economy was highly statist. Things changed in the 1990s with market-oriented reforms — initiated by Benyamin Netanyahu — and sound monetary policies. As a result, Israel’s economy grew much faster than it had in the 1980s. The miracle Romney was praising had to do with new policies rather than deep culture.
Ironically, the argument that culture is central to a country’s success has been used most frequently by Asian strongmen to argue that their countries need not adopt Western-style democracy. Singapore’s Lee Kuan Yew has made this case passionately for decades. It is an odd claim, because Singapore’s own success would seem to contradict it. It is not so different from neighboring Malaysia. The crucial difference is that Singapore had extremely good leadership that pursued good economic policies with relentless discipline.
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.
When societies or people succeed, we search in their cultures for seeds of success. Culture being a large grab bag, you can usually find what you want. We observe the success of Jewish, Lebanese, Chinese and Indian people in various societies and attribute it to culture. But it may really stem from the traits of diaspora populations — small groups of entrepreneurial immigrants forced to live by their wits in alien cultures. Interestingly, Palestinians have a reputation around the Middle East for being savvy merchants and traders and have been successful in the United Arab Emirates, Jordan and Saudi Arabia.
Culture is important. It is the shared historical experience of people that is reflected in institutions and practices. But culture changes. German culture in 1935 was different from 1955. Europe was once a hotbed of violent nationalism; today it is postmodern and almost pacifist. The United States was once an isolationist, agrarian republic with a deep suspicion of a standing army. Today it has half of the world’s military power.
Daniel Patrick Moynihan once observed: “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.” That remains the wisest statement made about this complicated problem, probably too wise to ever be uttered in an American political campaign.
http://www.washingtonpost.com/opinions/fareed-zakaria-capitalism-not-culture-drives-economies/2012/08/01/gJQAKtH9PX_story.html

Romney Hasn’t Done His Homework

MITT ROMNEY’S latest controversial remark, about the role of culture in explaining why some countries are rich and powerful while others are poor and weak, has attracted much comment. I was especially interested in his remark because he misrepresented my views and, in contrasting them with another scholar’s arguments, oversimplified the issue.

It is not true that my book “Guns, Germs and Steel,” as Mr. Romney described it in a speech in Jerusalem, “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.”

That is so different from what my book actually says that I have to doubt whether Mr. Romney read it. My focus was mostly on biological features, like plant and animal species, and among physical characteristics, the ones I mentioned were continents’ sizes and shapes and relative isolation. I said nothing about iron ore, which is so widespread that its distribution has had little effect on the different successes of different peoples. (As I learned this week, Mr. Romney also mischaracterized my book in his memoir, “No Apology: Believe in America.”)

That’s not the worst part. Even scholars who emphasize social rather than geographic explanations — like the Harvard economist David S. Landes, whose book “The Wealth and Poverty of Nations” was mentioned favorably by Mr. Romney — would find Mr. Romney’s statement that “culture makes all the difference” dangerously out of date. In fact, Mr. Landes analyzed multiple factors (including climate) in explaining why the industrial revolution first occurred in Europe and not elsewhere.

Just as a happy marriage depends on many different factors, so do national wealth and power. That is not to deny culture’s significance. Some countries have political institutions and cultural practices — honest government, rule of law, opportunities to accumulate money — that reward hard work. Others don’t. Familiar examples are the contrasts between neighboring countries sharing similar environments but with very different institutions. (Think of South Korea versus North Korea, or Haiti versus the Dominican Republic.) Rich, powerful countries tend to have good institutions that reward hard work. But institutions and culture aren’t the whole answer, because some countries notorious for bad institutions (like Italy and Argentina) are rich, while some virtuous countries (like Tanzania and Bhutan) are poor.

A different set of factors involves geography, which embraces many more aspects than the physical characteristics Mr. Romney dismissed. One such geographic factor is latitude, which has big effects on wealth and power today: tropical countries tend to be poorer than temperate-zone countries. Reasons include the debilitating effects of tropical diseases on life span and work, and the average lower productivity of agriculture and soils in the tropics than in the temperate zones.

A second factor is access to the sea. Countries without a seacoast or big navigable rivers tend to be poor, because transport costs overland or by air are much higher than transport costs by sea.

A third geographic factor is the history of agriculture. If an extraterrestrial had toured earth in the year 2000 B.C., the visitor would have noticed that centralized government, writing and metal tools were already widespread in Eurasia but hadn’t yet appeared in the New World, sub-Saharan Africa or Australia. That long head start would have let the visitor predict correctly that today, most of the world’s richest and most powerful countries would be Eurasian countries (and their overseas settlements in North America, Australia and New Zealand).

The reason is the historical effect of geography: 13,000 years ago, all peoples everywhere were hunter-gatherers living in sparse populations without centralized government, armies, writing or metal tools. These four roots of power arose as consequences of the development of agriculture, which generated human population explosions and accumulations of food surpluses capable of feeding full-time leaders, soldiers, scribes and inventors. But agriculture could originate only in those few regions endowed with many wild plant and animal species suitable for domestication, like wild wheat, rice, pigs and cattle.

In short, geographic explanations and cultural-institutional explanations aren’t independent of each other. Of course, not all agricultural regions developed honest centralized government, but no nonagricultural region ever developed any centralized government, whether honest or dishonest. That’s why institutions promoting wealth today arose first in Eurasia, the area with the oldest and most productive agriculture.

What does this mean for Americans? Can we assume that the United States, blessed with temperate location and seacoasts and navigable rivers, will remain rich forever, while tropical or landlocked countries are doomed to eternal poverty?

Of course not. Some tropical and subtropical countries have become richer despite geographic limitations. They’ve invested in public health to overcome their disease burdens (Botswana and the Philippines). They’ve invested in crops adapted to the tropics (Brazil and Malaysia). They’ve focused their economies on sectors other than agriculture (Singapore and Taiwan).

Conversely, geographic advantages don’t guarantee permanent success, as the growing difficulties in Europe and America show. We Americans fail to provide superior education and economic incentives to much of our population. India, China and other countries that have not been world leaders are investing heavily in education, technology and infrastructure. They’re offering economic opportunities to more and more of their citizens. That’s part of the reason jobs are moving overseas. Our geography won’t keep us rich and powerful if we can’t get a good education, can’t afford health care and can’t count on our hard work’s being rewarded by good jobs and rising incomes.

Mitt Romney may become our next president. Will he continue to espouse one-factor explanations for multicausal problems, and fail to understand history and the modern world? If so, he will preside over a declining nation squandering its advantages of location and history.

Jared Diamond, a professor of geography at the University of California, Los Angeles, is the author of the forthcoming book “The World Until Yesterday: What Can We Learn From Traditional Societies?”

http://www.nytimes.com/2012/08/02/opinion/mitt-romneys-search-for-simple-answers.html?_r=1&hp