Does culture affect the economy?

Economic outcomes are the results of peoples’ activity in terms of earning bread and butter. They could be good or bad, and ultimately economic growth (the holy grail of economics) is affected by them. One of the lesser debated and rarely discussed topics in economics is about the effect of culture on economic outcomes. Hold on, you may say. Whatever does culture have to do with the economy?
Let’s begin with two events that would demonstrate difference between two cultures and different economic outcomes. They occurred at the same time, one in Pakistan and one at the New York Stock Exchange (NYSE). The event in Pakistan was the Senate elections. To put it in simple words, it was less of an election than buying off of souls through Faustian bargains. It was simply a matter of who could pay the right price for getting selected as senator, a job that comes with title, power and prestige while requiring little work, intuition or knowledge. In contrast, on the day of the Senate elections in Pakistan, the reading of the top 10 tech firms listed on NYSE was quiet instructive of the working of the economy. Ten years ago, there were firms on the same list that were now missing. A few had vanished, while a few managed to survive at the bottom.
These two events serve as perfect reflections of culture in respective countries and different economic outcomes. Prospective candidates for Senate elections grew up in a culture where money and social contacts are the traditional ways of becoming wealthy. Once elected as senators, it’s easy to recoup all the expenditure (and make much more) by using that title. You don’t have to be a genius to figure out that this would hardly involve doing something legal. This is a classic example of culture’s effect in the form of an unsavoury social and economic outcome.
In contrast, the heads of those top 10 tech firms on the NYSE (all billionaires) became wealthy by the sheer dint of their hard work, intelligence, creativity and inquisitiveness. They all grew up in a culture that values (and encourages) these traits. Not surprisingly, the economic outcomes in that culture tend to be socially favourable. Moreover, their economic culture runs along the lines of ‘creative destruction’, a term coined by economist Joseph Schumpeter to describe the demise of those firms that cannot compete with others over time. All those firms that were absent from the NYSE list became victims of this creative destruction.
A few more simple examples will suffice, one from an urban setting and the other from a rural setting. Consider first the culture of impatience that is on display on our roads. In case the traffic lights stop working or in the absence of a traffic police warden, there quickly develops a gridlock. That’s because everybody wants to make it quickly to his destination, and the impatience of all leads to a jam. The gridlock results in waste of fuel, plus extra expenditure on vehicles due to frequent collisions. Ultimately, this culture of impatience leads to monetary loss.
Over to the rural example now. Our family house in the village is large. Previously, this let the residents of the house plant vegetables within the house in addition to having lots of fruit trees. The area covered by the house still remains the same. But majority of the fruit trees are now gone and vegetables are not grown anymore. The reason is the change in the habits of the people (a change in culture) that took place over time. Previously, nobody stole vegetables, and neither did anybody touch the fruit trees. Now, as my cousin rightly bemoans, vegetables are not grown because they are stolen or taken away (without permission) by visiting relatives.
A similar fate befell the fruit trees. Fruit is either stolen (despite not even being ripe) or taken away by visitors. Residents cannot stop them because it’s considered non-courteous and offensive to prevent visitors from taking something. Stopping outsiders from doing so was not a problem, but that only invited stone throwing and other forms of retaliation (especially from children) that led to broken windows a few times. Ultimately, exasperated, the residents at the house decided it better not to cultivate vegetables and also to chop off the majority of fruit trees.
So what does all this have to do with a bad economic outcome, you may ask? Well, it should be easy to realise that households now buy vegetables and fruits from the market, costing them a substantial part of their income. But that’s not all. In an age when fruits are put into crates without being ripe (this job is done using chemicals), and vegetables are grown in fields awash with pesticides, there is just no substitute for home-grown vegetables and fruits. Thus, aside from the monetary loss, they are missing out on quality. And all this owes primarily to the prevalent culture. Also consider the fact that a substantial part of production is lost and land remains unutilised.
By now, I hope that readers would be convinced of my argument of culture having a bearing on economic outcomes. I’ve tried to keep my argument as simple as possible. There’s much more to this topic, but the above explanation should hopefully serve as a conviction. But before I bring this column to a close, I want to share with you a personal interpretation and a question to ponder upon.
I believe that whoever has had even a slight interest in Islamic history would have heard of Ibn-e-Khaldun and his famous book Muqaddimah. Aside from his vast discussion of variable topics, one of the book’s lesser noticed attributes relate to astute observations about economic activity and the profile of its participants.
Ibn-e-Khaldun made the general observation that the wealth of rich people had little to do with intelligence and qualification, and more to do with social contacts. Moreover, in order to maintain and protect their wealth, they make every effort to court the friendship of the high and mighty of the land (the easiest way to do that, of course, was to give them monetary benefit or bribe them with money).
Readers should immediately notice the similarity between what Ibn-e-Khaldun described and the above stated example of Senate elections. There is a straightforward interpretation: the kind of culture that affected economic outcomes 700 years ago (the book was written in the 1300s) is still in vogue in countries like Pakistan. In contrast, the majority of western cultures have largely moved away from this kind of palm greasing.
Millionaires and billionaires in industrialised nations have less to worry about bribing government officials to protect their wealth, or to rely on social connections to make a fortune. Is it any coincidence, then, that there is a stark difference in economic performance of those countries and countries like ours?
I’ll now leave you with a simple question. I am hoping that all of you must have visited local banks. Have you noticed that pens at counters, that hardly cost Rs5, are tied to a string? Think about the ‘why’ and then imagine whether this kind of culture can ever inspire stellar economic performance?
The writer is a freelance contributor.
Email: shahid.mohmand@gmail.com
Twitter: ShahidMohmand79
Editor’s note: Islamabad diary is on leave.