Economic Development and Culture

1. Economic Development and Culture Team 7 Chapter 8 Ben Kerstens, Kyle Hassan, Wade English, Devon Purcell, Greg Lappo, James Mounts, Kelsie Lynn, Michael Barker, Chris Gist, Jacque Daly

2. Background • 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

3. 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

4. Background, Cont. • 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.

5. 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

6. 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)

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

8. Developing Nations • 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

9. Destructive Cycle • 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

10. Destructive Cycle cont. • 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

11. Conclusion of paradox 8.1 • 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

12. Paradox 8.2Does trust increase trade among nations? Does increased trade lead to conflict and war among nations?

13. Trust and Trade • Culture • Geography • Alan Rugman on Globalization http://www.geographicguide.net/europe/maps-europe/political.htm

14. Trust and Trade Continued • Democracy and peace • Study on trust and trade http://www.americancitizenstogether.org/ACT/Web/Cartoons_2.html

15. War and Trade • Does trade lead to peace? • History is mixed • How can increased trade lead to war? • WTO and International Court of Justice

16. Conclusion • No steadfast conclusion http://www.costpernews.com/archives/will-affiliate-marketing-make-it/

17. Paradox 8.3Are institutions more important than culture for explaining economic development? • Institutions- Courts of Law, Police Systems, and Government systems • Trustworthy as perceived by Citizens • Circumvent the Legal System • Gangs • Italian Mafia

18. Institutions Critical for Economic Development • Douglas North (Nobel Prize Economics) • Need trustworthy Institutions • MancurOlsen (1982) • Increase in Interest Groups=Decrease in Prosperity • When institutions impede progress

19. Why Capitalism Triumphs/Fails • Hernando de Soto (2000) • West has more capital • Essentials-Capital cannot be created without initial capital. • “Dead Capital” ⇨“Genuine/Active Capital” • Shantytowns

20. “Dead” to “Active” Capital • 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

21. China’s Development • 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

22. 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

23. Turkey’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

24. 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.

25. Paradox 8.4Does economic development and globalization lead to individualism? 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.

26. Hofstede and Bond (1988) • 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

27. Confusion Dynamism 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.

28. Results • 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.

29. Examples

30. Paradox 8.5Why do citizens vote for and accept stationary bandits as political leaders? • Developed and developing countries can regress economically • Russia • Japan • Germany

31. How and why regression occurs • Mancur Olson – Roving and Stationary Bandits • Genghis Khan – Roving Bandit • Joseph Stalin – Stationary Bandit • Adolph Hitler – Stationary Bandit

32. Thank You DankeSchön

33. DEBATTE DEBATE

34. Background • 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?

35. Paradox 8.1

36. Paradox 8.2 • How do you think your country would trust the other groups countries? • Would this lead to greater peace and/or trade?

37. Paradox 8.3 • Are there some instances where institutions aren’t the answer and a more cultural approach is necessary?

38. Paradox 8.4

39. Paradox 8.5 • Stationary Bandits • Do you think the protests and revolt against Muammar Gaddafi in Libya is happening because he is a stationary bandit?

40. DankefürEureteilnahme Prost!