Lawrence Harrison makes the case for the economic importance of culture in the latest issue of Cato Unbound:

How then would Easterly explain why, in multicultural countries where the economic opportunities and incentives are available to all, some ethnic or religious minorities do much better than majority populations, as in the case of the Chinese minorities in Indonesia, the Philippines, and Thailand-and any other place to which the Chinese have migrated, including the United States? Why has the Washington Consensus worked well in India and poorly in Latin America (with the exception of Chile), where socialism, and even authoritarian socialism in the cases of Cuba and Venezuela, appear to be alive and well?

My main complaint about Harrison is that he focuses too much on personal culture (work ethic, emphasis on education, family values) rather than political culture (support for the free market, openness to the world economy, etc.) When you look at the success of Jews or Japanese in the U.S., it’s hard not to give Jewish and Japanese culture a fair share of the credit. But by international standards, these cultural premia are small: Jews make about 70% more than the average American, and Japanese make about 30% more. This is nothing compared to the 7000% (!) premium Americans in America make compared to Somalians in Somalia.

How much of these is personal culture, and how much is political? Simple test: Move a random Somalian to the U.S. He won’t earn the American average, but he can expect his income to rise twenty times. On the other hand, imagine instilling an American ethos in a random Somalian in Somalia. He’d be relatively successful, but it would be surprising if this did more than triple his income.

Nothing to sneeze at? True. But the bottom line is that bearers of dysfunctional cultures who live under functional economic policies are a lot better off than bearers of functional cultures who live under dysfunctional economic policies.