Mitt Romney’s argument that the contrast between Israel’s economic success and the economic stagnation of the Arab world is attributable largely to a difference in culture has evoked a stimulating debate — oops, sorry, liberals are “stimulating,” conservatives are “controversial.” The latest contributor to it is Richard Cohen, who adds a column to the debate in today’s Washington Post, more or less on Romney’s side, which I found, ah, surprisingly stimulating. So far my judgment is that Romney has had the best of the controversy. But his most subtle opponent is my old friend Fareed Zakaria, also in the Post, who argues that it is capitalism rather than culture that drives success. Fareed’s argument should be read in full.
But one of his stronger points is as follows: “Ironically, the argument that culture is central to a country’s success has been used most frequently by Asian strongmen to argue that their countries need not adopt Western-style democracy. Singapore’s Lee Kuan Yew has made this case passionately for decades. It is an odd claim, because Singapore’s own success would seem to contradict it. It is not so different from neighboring Malaysia. The crucial difference is that Singapore had extremely good leadership that pursued good economic policies with relentless discipline.”
The examples Fareed gives, however, triggered a memory going back to the 1980s when I wrote several articles with my even older friend, the late Lord (P. T.) Bauer. As a specialist in development economics, Peter had obviously given Romney’s question a great deal of thought. He had spent many years in Malaya researching into the rubber industry, and he had refined his answer down to something like this. My less elegant paraphrase follows:
#more#Economic development is the result of two factors: culture and policies (or institutions.) We see this from the examples of Malaya and Germany. Since 1945 the people of Germany, who share the same culture, have been living under two different sets of political and economic institutions. Those living in West Germany under capitalism have prospered far more than those living under communism in East Germany. So policies/institutions matter to economic development. On the other hand, there are three ethnic groups in Malaya — the Chinese, the Indians, and the Malays. They all live under the same institutions, but they prosper at very different rates in the following order: The Chinese do best, the Indians better, and the Malays worst. So culture matters too.
Peter would add two points. First, the success of the Chinese and Indians in Malaya was all the more striking and significant because Malaya’s institutions discriminated against them on behalf of the Malays unofficially and through the Bumiputera system of affirmative action. (Thomas Sowell’s Affirmative Action Around the World: An Empirical Study documented the world-wide extent of this paradox — and its main result, namely that the main beneficiaries of this official discrimination were not the poor but the top tiers of favored groups.)
Second, we should not necessarily conclude that a culture is “wrong” in some wider sense because it doesn’t excel at economic development. Buddhist priests have a culture that prizes other things, principally holiness, above prosperity. Who is to say that they are wrong? What we can say, however, is that Buddhist priests shouldn’t complain if they are under-represented in multinational boardrooms or on the front page of Forbes magazine.
So culture and institutions both matter. Romney is at least half-right, and maybe more than half-right. For the moment most Arabs live under regimes that pursue policies detrimental to development in one way or another. Under those regimes the Palestinians outside Palestine, especially in the Gulf States, seem to achieve greater prosperity than do most other Arabs. We shall discover the precise truth about (differential) Arab economic stagnation when they all live in a Middle East composed of market democracies. When that happens I look forward to sifting through the evidence with Peter Bauer, in between harp concertos.