Culture and Institutions
By Arnold Kling
Fred Pryor has a new book, called Capitalism Reassessed, a title which does not really say what the book is about. He uses various qualitative data sources to classify OECD economies into subsets. Some excerpts from the book below the fold.
cities were shrinking because fewer urban dwellers could be supported by the food produced by a farmer in the rural sector. This is a sign of diminishing returns to the land…, which acted as a brake on the development of capitalism.
He is offering this as one explanation for the failure of capitalism to emerge in India and China. In contrast, the UK and northwest Europe were able to overcome environmental constraints by obtaining crops from the New World.
Using a number of institutional indicators and letting the data pick the classifications through cluster analyis, Pryor finds four groups of countries within the OECD (the richest countries). The U.S. falls within a group that consists mostly of Anglo-Saxon countries, where (p. 97):
workers have less legal protection against job loss and fewer safeguards for collective bargaining, and the system of vocational education is less developed. Workers have little role in the decision making of their firms and a less apparent social partnership with management than the other nations. In contrast, enterprises enjoy more autonomy than in other nations…governments have more effective antitrust laws, a smaller share of the total labor force, and a lower ratio of transfer expenditures to GDP.
In the Scandinavian countries, which he calls the Nordic cluster (p.98)
wages are likely to be negotiated not at the firm level, but at the level of the industry or even nationwide; more is invested in training workers, and the social partnership of capital and labor is greater…Competition in the product market is less, the role of national employer organizations is relatively strong, and the financial sector is more concentrated…government expenditures as a share of GDP are high, the government has a greater share of total employment, and the coverage of the social insurance system is broader.
Next come the Western European countries within the OECD (Austria, Begium, France, Germany, Netherlands, p. 98):
a higher share of workers in these countries are covered by collective bargaining agreements and they have a high social partnership of labor and capital…firm ownership is less widespread, rights of minority stockholders are low, accounting standards are less comprehensive, and a smaller share of industrial investment is financed through the stock market. Finally, government transfers as a ratio to the GDP are high, and central bank independence from the government is high.
Finally comes the South European countries (Greece, Italy, Portugal, Spain, p. 99):
these countries have more legal protection against job loss, high safeguards for collective bargaining, and a smaller share of workers belonging to labor unions…more regulation of the product market, a more unfavorable legal environment for markets, more barriers to starting new businesses, fewer stockholder rights, and less concentration of banking activities.
Next, Pryor uses data from the World Values Survey to sort countries into cultural clusters, and the resulting clusters are quite similar to his institutional clusters. For example, he finds that people in the Nordic cluster (p. 124)
show significantly more interpersonal trust…greater confidence in their political institutions…greater desire for maintenance of law and order…believe in the importance of teaching children to be independent…and responsible…but less likely to believe that they should be taught to work hard
Western Europeans (p. 125)
reveal feelings of significantly greater alienation…and envy…less inclined to believe that children should be taught to be unselfish…less likely to stress that children should be encouraged to work hard…
Another interesting finding is that East and West Germans are close culturally. This makes it less likely that causality runs from the economic system to cultural beliefs, and it becomes more likely that causality runs in the other direction.
Keep in mind that the cultural data is largely survey-based. I worry that surveys could measure what people would like to signal about their beliefs, not necessarily their beliefs. Still, the research is quite interesting.