Economic Development and Culture

Team 7Chapter 8

Ben Kerstens, Kyle Hassan, Wade English, Devon Purcell, Greg Lappo, James Mounts, Kelsie Lynn, Michael Barker, Chris Gist, Jacque Daly

Economic Development and Globalization◦ What happens in one nation affects another

nation.

Paradoxes of economic development◦ Trade, Democracy, and Open and Free markets◦ Culture and change

Background

Background, Cont. Emerging theories on international trade

and development◦ Mercantilism:

strict regulation, favorable balance of trade◦ David Ricardo:

Economic development comes from three things: land, labor and capital.

Each nation must examine and use its competitive advantage.

◦ Post – Ricardo: Identifying specific factors leading to economic

growth

Post-Ricardo, Cont.◦ Free-market capitalism assumes a level playing

field China and India require a disproportionate amount of

natural resources. The huge boom in China and India’s economy affects

other, more developed nations, like the U.S.◦ Immiseration:

An economy can suffer even while growing rapidly Over producing and exporting will lower global

demand, effecting price.

Background, Cont.

Problems with global economic development◦ Previous government policies gave some

countries late starts in economic development. Chinese policy of targeting development areas Indian policy of waiting for paperwork before starting

a company.◦ Funding

UN and World Bank have provided over 1 trillion dollars, with little success.

Squandered by the nations who receive it

Background, Cont.

Ranking Nations◦ http://www.heritage.org/index/ranking

Nations in Class:◦ Germany: 71.8 (23rd)◦ Norway: 70.3 (30th)◦ Switzerland: 81.9 (5th)◦ Spain: 70.2 (31st)◦ Sweden: 71.9 (22nd)◦ China: 52.0 (135th)◦ Japan: 72.8 (20th)◦ Italy: 60.3 (82nd)

Background, Cont.

Amy Chua links democracy and markets. Fall of the Berlin Wall and the move from

communism to capitalism, and the belief that democracy and free and open markets would transform the world into a peaceful global community

Rise of militant Islam, ethnic wars, two genocides, and increasing threat of nuclear war

Paradox 8.1Are democracy and free markets antithetical to each other?

Majority tend to be ethnically related and poor

Elect popular leaders who have little if any understanding of business and economics

Leaders become dependent on educated and skilled members of the minority that control a disproportionate share of the national wealth

Indonesian Riots of 1998

Developing Nations

Happens when developing nations introduce democratic elections at the early stages of economic development.

When governments become dependent on the minority group, bribery and corruption usually occur, and demagogues appear who incite envy and hatred of the minority group

Destructive Cycle

Developing nations open up markets dramatically to international trade by lowering tariffs.

Not free because both market-dominant majority and Knowledgeable, networked minority engage in bribery and related activities to satisfy the other group and benefit themselves

Inequalities persist and usually increase, sometimes significantly

Destructive Cycle cont.

Democracy and free markets, which exist simultaneously in developed economies, are opposed to one another in many developing nations

There are no policy suggestions, but this allows us to understand more clearly the process of ethnic antagonisms and violence

Conclusion of paradox 8.1

Paradox 8.2

Does trust increase trade among nations?

Does increased trade lead to conflict and war among nations?

Trust and Trade Culture

Geography

Alan Rugman on Globalization

http://www.geographicguide.net/europe/maps-europe/political.htm

Trust and Trade Continued Democracy and peace

Study on trust and trade

http://www.americancitizenstogether.org/ACT/Web/Cartoons_2.html

War and Trade Does trade lead to peace?

History is mixed

How can increased trade lead to war?

WTO and International Court of Justice

Conclusion

No steadfast conclusion

http://www.costpernews.com/archives/will-affiliate-marketing-make-it/

Institutions- Courts of Law, Police Systems, and Government systems

Trustworthy as perceived by Citizens

Circumvent the Legal System◦ Gangs◦ Italian Mafia

Paradox 8.3Are institutions more important than culture for explaining economic development?

Douglas North (Nobel Prize Economics)◦ Need trustworthy Institutions

Mancur Olsen (1982)◦ Increase in Interest Groups=Decrease in

Prosperity◦ When institutions impede progress

Institutions Critical for Economic Development

Hernando de Soto (2000)◦ West has more capital

◦ Essentials-Capital cannot be created without initial capital.

◦“Dead Capital” ⇨ “Genuine/Active

Capital” Shantytowns

Why Capitalism Triumphs/Fails

Particular Issue in China and Russia◦ 60% of population resides in countryside◦ Livelihood is farming◦ Stricken of lifestyle when Government enforce

ownership Argentinean Barrio- Buenos Aires

◦ 829 settlers in total◦ 419 received title and 410 did not◦ Improved quality of life

“Dead” to “Active” Capital

Tan (1999) and Peng (2002) Study of China’s Development◦ Native Chinese working in China under

Communist governmental rule and institutions

◦ Chinese Americans

◦ White Anglo-Saxon Americans

Concluded institutions are more important than culture

China’s Development

North (2005) pointed out about China’s development◦ 1. While the institutions China employed are

different from developed nations, the incentive implications were similar.

◦ 2. China has been confronting new problems and realistically attempting new solutions

North’s analysis of China’s development suggests culture is more relevant than institutions

China’s Development

Turkey changed from a theocratic Muslim nation to a secular nation in a few years (even though the population was 99% Muslim)

Major changes included:◦ Shift from Islamic to European code of laws◦ Closing of religious schools and lodges◦ Use of the Roman alphabet ◦ Recognition of the Western calendar rather than a religious

one

Turkey’s development indicates institutions are more important than culture

Turkey’s Development

Paradox 8.3Are institutions more important than culture for explaining economic development?

There may be no solution to the paradox about the relative importance of culture and institutions. They are both important, they are very closely related but separate concepts.

Individualism - Individualism stresses the primacy of the individual, who sees themselves independent from the group an makes decisions accordingly.

Collectivism - The opposite of individualism, the individual makes decisions in terms of group values rather than personal preferences.

Question - When nations become more economically developed to they tend to become more individualistic.

Paradox 8.4Does economic development and globalization lead to individualism?

Replication of original Hofstede survey; focused on 22 nations on all five continents.

Original four dimensions could not be statistically related to economic development.

Three of four dimensions were found in all the countries, uncertainty avoidance was not.

Survey discovered a new dimension called Confusion dynamism

Hofstede and Bond (1988)

Confusion dynamism- emphasizes persistence, ordering relationships by status, behaving in accordance with this order, stressing thrift, and having a sense of shame.

Confusion dynamism is extremely prevalent in the east Asian countries.

Confucius created the ideal person who contributes to society

This dimension can be statistically correlated with economic growth.

Confusion Dynamism

Individualism and collectivism can exist together within a culture

Key: Delay present gratification for future rewards

Increased GNP or wealth generates individualism

Increased individualism accompanies economic growth

Greater affluence allows individuals to make broader choices and satisfy a larger number of needs and desires.

Results

Germ

any

Spai

n

Switz

erla

nd

Swed

enIta

ly

Japa

n

Norway

China

Unite

d St

ates

0

20

40

60

80

100

Hofstedes' individualistic score

Hofstedes' individ-ualistic score

Examples

Developed and developing countries can regress economically

◦Russia◦Japan◦Germany

Paradox 8.5

Why do citizens vote for and accept stationary bandits as political leaders?

How and why regression occurs

◦ Mancur Olson – Roving and Stationary Bandits Genghis Khan – Roving Bandit Joseph Stalin – Stationary Bandit Adolph Hitler – Stationary Bandit

Thank YouDanke Schön

DEBATTEDEBATE

Why does providing aid to developing countries usually fail?

What are the problems between helping nations develop (with global funding) and the self interest of multinational companies?

Background

Paradox 8.1

How do you think your country would trust the other groups countries?

Would this lead to greater peace and/or trade?

Paradox 8.2

Are there some instances where institutions aren’t the answer and a more cultural approach is necessary?

Paradox 8.3

Paradox 8.4

Stationary Bandits◦ Do you think the protests and revolt against

Muammar Gaddafi in Libya is happening because he is a stationary bandit?

Paradox 8.5

Danke für Eure teilnahme

Prost!