Does Respecting the Individual Promote Prosperity?

I am covering in my Ph.D. development class today a fascinating new body of research by economists that studies the effects of cultural values on economic development (see some references at the bottom). To drastically oversimplify, values across different cultures lie along a spectrum between two separate poles: (1) valuing individual autonomy, believing in equal treatment of individuals, reliance on formal law, the same moral standards apply to all, enforcement of morality is between individuals vs. (2) seeing the individual mainly or only as part of the group, different standards of treatment for group insiders and outsiders, morality only applies to interactions within the group, group enforcement of moral standards, reliance on informal rather than formal institutions.

To continue the drastic oversimplification, the values closer to the first pole are more consistent with the kind of good government associated with democratic capitalism, while values closer to the second pole are more associated with authoritarian and collectivist politics and economics. Measurement of all this stuff is a tricky issue, but here are two illustrative associations:

Then it also turns out this same measure can predict which countries are richer or poorer:

I’m sure there are several issues that occur immediately to readers: (1) the huge variance around the fitted line, and (2) possible reverse causality from development/democracy to values.

On (1), in defense of the statistical associations shown, scatter plots always look terrible if you are not used to them. This is a remarkably strong statistical association by normal standards. However, it certainly is true that culture is not destiny as there is a huge variance of outcomes for the “group values” cultures. Singapore succeeds despite collectivist values, for example. One interesting bit of research suggests that “group values” cultures will export products that don’t require as much impersonal contract enforcement, and thus values is part of what makes you specialize, and specialization is away of getting around cultural “disadvantages.”

On (2), the research suggests that values are determined by more long run factors, such as a long history of despotic rule (yes there is reverse causality from despotism to values but it operates over a very long time), and also intriguing clues about long run cultural values that are contained in linguistic structure within each culture (do you have to say the subject pronouns “I” and “he/she”, as in English, or can you drop them, as in Spanish, along with whether there are different forms of “you” depending on the status of the person you are addressing). Using these determinants of values, researchers have made some progress on establishing a causal link from values to development/democracy.

So the bottom line (again drastically oversimplified) could be something like “the value of individual liberty promotes prosperity.”

So all of the discussion we have already had on this blog on how aid agencies seem to have so little respect for the poor as individuals seems more relevant than ever.

References (not responsible for my simplifications!):

Guido Tabellini, Institutions and Culture, Presidential lecture presented at the meetings of the European Economic Association,Budapest, August 2007. (Tabellini talks about “generalized vs. limited morality” and “trust & respect”)

Licht, Amir N., Chanan Goldschmidt, and Shalom H. Schwartz (2007), Culture rules: The foundations of the rule of law and other norms of governance, Journal of Comparative Economics, 35 659–688.