12 July 2019 0 Comments

On the deep causes of prosperity

“Culture could not matter as much”

I recently stumbled on a piece of article that discusses the sources of growth and prosperity and could not help but think about the challenges many countries across the globe are facing to spur up economic growth and lift many out of poverty. Beyond the traditional neoclassical sources (capital accumulation, enforcement of property rights, legal system, productivity, etc.) a new literature on the topic establishes that deep sources related to trust, cooperation, and numerous other social traits highly correlate with income per capita. The challenge thereafter is to establish a causal link between these features and successful economic growth, and highlight the blueprint of a policy agenda that could be laid out for policymakers.

I beg to question part of the conclusions of this new school of the growth literature and would use a few stylized facts of the modern area to illustrate my point. First, if social traits related to culture and folkways were so detrimental to the growth paradigm and owing to the consideration that these norms vary slowly on the time scale, it becomes difficult to understand recent success stories. Over the last five decades, countries like China, or South Korea and Taiwan before that, were able to sustain unprecedented levels of economic growth that set them apart from the rest of the developing in less than two generations.

After all, in the aftermath of the Independence movement in Africa, South Korea and Ghana had similar standards of livings though I would argue that norms, cultures and folkways differ markedly in both societies. Fast forward fifty years later on the eve of the 21st century, and South Korea’s income per capita is 11 times higher. Could culture and social norms change so much in two generations to explain such a disparity in the profile of growths across the two Nations? I doubt it. If anything I think the correlation between these “hard to measure” social norms and income reflects other intangibles that change with prosperity. Growth and prosperity could increase educational attainment, which in turn affects people’s propensity to cooperate and become better citizens. This new literature does raise valid questions inherent to the growth process. For instance, why did South Korea adopt the right institutional set-up to promote economic growth while Ghana could not? Is that disparity in political choices related to a difference in cultures? But if this answer is positive then why did not North Korea adopt a set of institutions similar to the one down South although one could make the point that social norms and folkways are broadly alike. These interrogations just highlight the complexity of the matter and those who subscribe to Path-dependence theories have a lot to say about a country’s trajectory.

I just finished reading a book by Patrick Manning about the Economic History of Dahomey (Current Republic of Benin), formerly known as the Slave Coast which was one of the richest Kingdoms in Africa. In the middle of the Nineteenth Century, Dahomey’s income per capita was estimated to be around one fifth of the U.S’s. By 1960, on the eve of the Country’s Independence vis à vis its colonial Master France, that gap has increased fivefold. This outcome is the result of a Colonial rule which set up extractive institutions, progressively destroyed the country’s major export commodity (Palm Kernel and Palm Oil)  and imposed numerous inefficiencies onto the local productive sector. After independence, the country went through a period of political instability with several coups, and later embarked on an authoritarian marxist regime, which contrary to expectations contributed to the emergence of a somewhat significant industrial base. The average growth of income per capita in Benin declined from 2.0% in the nineteenth century, to -1.2 % over the French colonial rule and -0.2% over the period 1960-1990. Since 1990, the country adopted a new Constitutional order with a democratic political system and a Capitalist economy. Quite remarkably, the growth of income per capita has averaged 2% over 1990-2000, 2.5% over 2000-2010 and around 3% since 2010.

All of this point to an improvement of the welfare of the local population. A path dependence argument could suggest that the country’s dismal economic achievement after the French invasion is tied up to the Colonial rule. Had Benin witnessed a 2% growth in income per capita throughout the twentieth century (similar to pre-colonial trends), the country’s income per capita would be about 8 times higher than what it currently is. An interesting counterfactual exercise is one which explores the fortune of the Dahomey Kingdom, had Behanzin (The King of Dahomey in the 1880s) not attacked the French contingent established on the Atlantic Coast in the early 1890s. This event set up the invasion which culminated in the French conquest of the Kingdom. Another counterfactual development is one according to which Matthieu Kerekou, the General who took control of the country after a coup in 1972, had not chosen Marxism-Leninism as the dominant economic ideology for 17 years. If anything, it is impossible to explain the complexity of the growth paradigm with a single dimension. Many other pieces matter and unexpected hazards (natural disasters, wars, conflicts, invasion, etc) definitely alter the trajectory of a society. The current distribution of income per capita across the globe results from a combination of different institutions but is also reflective of past shocks that shaped the course of every society.

useful links : https://www.econlib.org/library/Columns/y2019/Klingfolkways.html  

https://growthecon.com/blog/Deep-Roots-4/

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