A couple of articles by Claudia Williamson and Rachel
Mathers provide a good place to start to think about this question.
The authors construct an economic culture index by
identifying four categories of culture likely to encourage economic interaction
and hence promote economic development. The categories are: trust (percentage who say most people can
be trusted); respect (percentage who
choose tolerance and respect for other people as one of the most desirable
qualities for children to learn at home); individual
self-determination (average rating on a scale of 1 to 10 where the highest
rating is given where respondents claims a great deal of control over the way
their lives turn out and the lowest rating where they claim no control); and individualism (percentage who choose
obedience as one of the most desirable qualities for children to learn is
viewed as a negative factor). The data comes from World Values Surveys and culture
index scores for each country are obtained using principal component analysis.
The economic freedom data used in the studies comes from the
Fraser Institute. This economic freedom index combines economic and
institutional variables relating to size of government, monetary policy and
price stability, legal structure and security of private ownership, freedom to
trade with foreigners, and regulation of credit, labour and business.
The studies use regression analysis in an attempt to disentangle
the impact of economic culture and economic freedom on growth in per capita
incomes. There are some differences in the conclusions of the two articles.
The first article, ‘Economic Freedom, Culture and Growth’,
for which Claudia Williamson is lead author, was published in Public Choice (2011). The authors found
that economic freedom is “relatively more important for growth than culture”
and suggested that “culture and economic freedom may best be described as
substitutes”. They suggested that trust and respect may become less important from
an economic growth perspective as economic institutions are established to
enforce property rights and contracts. The authors also acknowledged that
culture may have important indirect effects on economic growth by promoting
establishment of economic freedom.
The second article, ‘Cultural Context: Explaining the Productivity
of Capitalism’ for which Rachel Mathers is lead author, was published in Kyklos (2011). This article extends the
line of analysis by including an interaction term (the product of the culture
and freedom indexes). The authors find that “such interaction does demonstrate
a significant and positive effect on economic growth”. They conclude that if economic
culture is deficient, “economic freedom alone may not possess the necessary
binding constraints to be as effective as theory predicts”.
After reading these articles again I wanted to get a better
feel for the data which the authors use. The first chart has been constructed using the
summary data provided in Appendix 2 of the Public
Choice article. (The culture index has been rebased from a 0-10 scale to
1-10 scale to assist subsequent analysis) The size of the balls in the chart (it
would not be appropriate to refer to them as bubbles) represents the per capita
income level for each country in 2000 (That year is chosen for consistency with
other data used in the studies. The relevant variable is rgdpl Penn World
Tables version 6.2).
What the chart shows is, of course, consistent with some
substitution between culture and economic freedom – for example, both Singapore
and Sweden manage to have relatively high per capita income levels. It
suggests, however, that substitution possibilities are limited. The countries
that rate highly in terms of culture also tend to rate highly in economic
freedom, and vice versa.
The finding in the Kyklos
article concerning the importance of interaction between culture and freedom
suggested to me that it might make sense to use a Cobb Douglas production
function in further regression analysis. The isoquants in Chart 2 have been
constructed using the coefficients of such an analysis. The isoquants show the
differing combinations of culture and freedom that are estimated to produce a given
level of average income. The per capita income level of the US in 2000 was
about 4.25 times that of Mexico, which in turn was a bit more than 4.25 times that of
Ghana.
Intercept 2.44
(0.64)
Ln Culture 0.66
(0.21)
Ln Freedom 3.20
(0.47)
Adj R2= 0.68
N=81)
If the isoquants are interpreted as reflecting a production
function, the Chart suggests that in the absence of a supportive culture, high
levels of economic freedom cannot produce high average income levels. However,
it might be more appropriate for the isoquants to be interpreted as being
determined simultaneously by interaction between culture, economic freedom and
development levels. Under that interpretation, a high level of economic freedom
is unlikely to be sustainable in the absence of some cultural support because law
and order problems would constitute a major threat to lives and property.
It seems to me that in trying to put together a plausible story
of economic development, it makes sense to speculate that interactions between
culture and economic freedom facilitate market exchanges, which in turn provide
incentives for participants to gain reputations as being worthy of trust. As people
become more trustworthy and trusting, and more respectful of the rights other
people, they could be expected to support greater economic freedom. We may thus
observe a virtuous cycle where economic freedom promotes economic development
and economic development promotes a culture supporting greater economic
freedom.
However, I have yet to provide a satisfactory answer the question raised in my last past of whether emancipative values (as defined by Christian Welzel) support economic freedom.
However, I have yet to provide a satisfactory answer the question raised in my last past of whether emancipative values (as defined by Christian Welzel) support economic freedom.