In the last few posts (here, here, here and here), we have discussed how even inefficient institutions such as central planning are not just an outcome of blind ideology and ignorance, but often empower one group in society and enable them to control the rest. This is not to deny that ideology and ignorance play a role in the fates of nations. For example, clearly, if European leaders at Maastricht knew the problems that single currency and implicit bailout guarantees to financial markets on sovereign debt of peripheral countries would create, they would not have opted for it, instead choosing another path to increasing integration in Europe. So what’s needed for a more satisfactory understanding of the interplay between ideas and development is a broader perspective recognizing how differences in ideas, beliefs and ideology interact with institutions and politics, and influence policy and institutional choices.

As we discuss in Why Nations Fail, another popular approach to comparative development is the culture hypothesis, which sees the roots of divergent economic performance across nations in their cultural endowments. The Collins English Language Dictionary defines culture as “the ideas, customs, and art that are produced or shared by a particular society”. Social scientists, particularly economists and political scientists, use it to mean a society’s values, customs and beliefs.

An economist’s way of thinking about this might go as follows: when one analyzes a society by means of an abstract model, it is useful to distinguish between technology, preferences, and institutions. Take standard general equilibrium analysis in economics, pioneered by the work of Kenneth Arrow and Gerard Debreu. This involves specifying technology (e.g., what can be produced from what), the preferences of households, and institutions, which make up the initial endowments, and also the market structure (e.g., competitive markets or monopolistic competition etc.). Here, culture would most closely correspond to preferences. If people in two societies had access to the same technology and had the same endowment and market structure, but different preferences, this would lead to different equilibria. This is not the only impact of culture the economy of course. Once we go beyond the simplest general equilibrium models, culture may also affect how production is organized and how much a society can produce, because people with different preferences, attitudes or beliefs may choose different levels of cooperation.

Religious differences are an especially clear example of cultural differences. Weber’s famous argument in his seminal The Protestant Ethic and the Spirit of Capitalism about Protestantism underpinning capitalist development illustrates this. So does the popular view that there are “national cultures” encouraging or discouraging hard work, openness to ideas and innovation (see, for example, New York Times columnist David Brooks’s argument that Haitians are poor because of their dysfunctional culture).

Just like institutions, culture is a somewhat unfortunate term. It’s used for many different things in the English language (The Collins English Language Dictionary has a dozen other definitions for it). What’s more, social anthropologists often refer to things such as political organization and economic structure as “culture,” adding to potential confusion (and they were there, talking about culture much before economists and political scientists).

Be that as it may. Explaining it all with culture (or blaming it all on culture as the case may be) is hugely popular — that is, “culture” with the narrower definition used by economists and political scientists. The volume edited by Lawrence Harrison and Samuel Huntington, Culture Matters, is a sort of manifesto for this view. Economic historian David Landes in his The Wealth and Poverty of Nations: Why Some Are so Rich and Some so Poor, though listing almost every factor that could potentially shape comparative development as significant, comes down most heavily on the side of culture, in fact, emphasizing the central role that Judeo-Christian culture plays in economic development (and we cannot resist but ask: why on earth England, so far from the center of Judeo-Christian culture, spearheaded the institutional changes and the Industrial Revolution, and places at the center of it such as Italy, Byzantium and the Balkans didn’t).

It was from David Landes that Republican presidential nominee Mitt Romney was taking his cue (and in fact his exact language) when he told a group of elite Israeli businessmen “Culture makes all the difference,” throwing central questions of social science into the middle of the presidential debate.

As we explained in an earlier post and in Foreign Policy (see here), Mitt Romney is better off sticking to politics, or something else if that doesn’t work out in November, than social science. But it would be incorrect to think that this sort of culture view is just something that Mitt Romney and nobody else believes. Even though few would go as far as Harrison, Huntington and Landes in advocating such an extreme form of it, the culture view permeates most writings on comparative development. However, as we have explained in Why Nations Fail, and will discuss again in the next few posts, cultural differences by themselves do not help us much in explaining the deep divides in comparative development. Not only huge differences among places, such as North and South Korea, sharing the same culture emerge even over comparatively short periods of time. But also culture is often endogenous and changes rapidly in the face of changing institutions, incentives and politics. Even more important, culture has great plasticity and adapts to circumstances in subtle ways as we will discuss in the next few posts.

All of this is not to say that we can abstract from culture in economic and social scientific inquiry. Institutions are often held in place by certain beliefs and shared attitudes. And of course those beliefs matter even beyond giving durability to institutions. The right perspective when it comes to culture is then the same as the one for ideology: to develop an approach in which cultural factors interact with institutional and political ones.