Culture Matters

Economists conventionally list land, labor and capital as the three factors of production. If combined appropriately using the right technology, stuff is produced. This produced stuff is then the total income. Productive efficiency is important of course for a society to be economically secure. Then there is the matter of equity. You have to distribute the stuff produced equitably. Productive efficiency and distributive equity must be part of a healthy economy. But then if sufficient factors of production exist and the technology is also available, then how does one account for the failure of some societies in overcoming poverty?

I believe that the choices that society makes depends on the cultural and institutional capital of the society. As much as land, labor, capital, and technology matter, the social capital — that is the cultural norms and values and institutions — matter fundamentally.

This line of thought was prompted by a report in the New York Times. It was the story of Shazia Khalid who was raped and then persecuted by all and sundry for her “sin.” This happened in Pakistan. The culture of that place is such that the victim is blamed. Rape is seen as a insult to the family honor which can only be restored by killing the woman who was violated.

The values of the society matter more than the availability of PCs and the ability to surf the internet and get neat stuff off the world wide web. Third world under-developed societies need a change of values desperately if they are to get out of the cycle of poverty. Unfortunately, values are endogenous and they can only change with great difficulty. They cannot be imposed externally any more than “democracy” be imposed externally as the US is ostensibly attempting to do in Iraq.

The sense of fairness and justice is, in my opinion, the major determinant of how developed a society is. And in some sense, development is the basis for economic development. Until a society has justice and fairness as its core values, it cannot get beyond a Hobbesian existence.