The Agenda

How a Sense of Cultural Superiority and Insecurity Create Economic Advantage

Amy Chua and Jed Rubenfeld have a forthcoming book (The Triple Package) on why some cultural groups flourish in the U.S. and others do not. Their thesis has been egregiously misrepresented as racist, on the grounds that identifying successful groups necessarily entails identifying less-successful groups, and for daring to articulate characteristics shared by the successful groups. First, it should be that said that the fact that some groups have been successful along certain dimensions (wealth accumulation, cultural influence, etc.) doesn’t make them intrinsically superior. Rather, their success is an artifact of the institutions of a particular society, and the cultural sensibilities that prevail. Change the institutions and some of the groups that flourish will likely find themselves less successful while others will capitalize on the shift. Cultural practices that are beneficial in one context might be poorly adapted to another. Second, the qualities Chua and Rubenfeld associate with successful groups aren’t unique to those groups, though they are difficult to replicate. Reading about the Chua and Rubenfeld thesis reminded me of the work of Barak Richman of Duke Law School, who has studied the intersection of the economic and cultural practices of Jewish diamond merchants — the following is the abstract of a short paper on “How Communities Create Economic Advantage“:

Diamonds are portable, easily concealable, and extremely valuable, thereby rendering courts powerless in policing diamond theft and credibly enforcing diamond credit sales. Since credit sales are highly preferable to simultaneous exchange, success in the industry requires an ability to enforce executory agreements that are beyond the reach of public courts. Relying on a reputation mechanism that is supported by a distinctive set of industry, family, and community institutions, Jewish diamond merchants have been able to enforce such contracts and have thus maintained industry leadership for several centuries. An industry arbitration system publicizes instances where promises are not kept. Intergenerational legacies induce merchants to deal honestly through their very last transaction, so that their children may inherit valuable livelihoods. And ultra-Orthodox Jews, for whom participation in their communities is paramount, provide important value-added services to the industry without posing the threat of theft and flight.

The diamond industry is idiosyncratic, and it should go without saying that qualities that prove advantageous in the diamond trade might not be of much use in other domains. Yet a strong reputation mechanism can regulate behavior in all kinds of beneficial ways, by promoting impulse control, etc. Chua and Rubenfeld have been mocked for suggesting that successful groups benefit both from a sense of superiority — of being separate and distinct from other groups, and in some sense better — and a sense of insecurity and the vulnerability that comes with it. But the connection should be obvious, as superiority and insecurity both contribute to a concern for the reputation of the broader group. How does my behavior reflect on those associated with me, whether they are part of my family or my extended family? I very much look forward to engaging with Chua and Rubenfeld’s ideas at greater length. They’ve been criticized for being imprecise, as it is hard to measure outcomes for many of the groups they’ve chosen — e.g., we don’t have solid numbers on household incomes for members of the LDS church. I find this is laughable, as it reflects the fact much of the intellectual work produced by our society fixates on the small handful of things that we can measure, even though the things we can’t measure, or can’t measure well, might actually be the most important. Hayek made this point in his 1974 Nobel Memorial Prize lecture:

While in the physical sciences it is generally assumed, probably with good reason, that any important factor which determines the observed events will itself be directly observable and measurable, in the study of such complex phenomena as the market, which depend on the actions of many individuals, all the circumstances which will determine the outcome of a process, for reasons which I shall explain later, will hardly ever be fully known or measurable. 

We know: of course, with regard to the market and similar social structures, a great many facts which we cannot measure and on which indeed we have only some very imprecise and general information. And because the effects of these facts in any particular instance cannot be confirmed by quantitative evidence, they are simply disregarded by those sworn to admit only what they regard as scientific evidence: they thereupon happily proceed on the fiction that the factors which they can measure are the only ones that are relevant.

This is certainly not to say that we should try to get as much hard evidence as we can. But thinkers like Chua and Rubenfeld do us a service by reaching beyond the limits of what we can quantify.