The Economist
September 5th 2020
59
1
T
he emergence
of the discipline of eco-
nomics in the 18th century was the re-
sult of people trying to explain something
that had never happened before. At the
time a handful of countries were becoming
fabulously rich, while others remained
dirt-poor. In 1500 the world’s richest coun-
try was twice as well-off as the poorest one;
by 1750 the ratio was five to one. It is no co-
incidence that the most famous book in
economics, published in 1776, inquired
into “the Nature and Causes of the Wealth
of Nations”.
In order to explain such a divergence
between rich and poor countries, the early
economists were obsessed with culture, a
catch-all term encompassing a society’s
beliefs, preferences and values. Adam
Smith, the author of “The Wealth of Na-
tions”, explored the ways in which culture
helped or hindered capitalism. He argued
that certain norms were required in order
for market economies to thrive—most im-
portantly, that people would be self-inter-
ested, but that they would satisfy their self-
interest by adapting to the needs of others.
Karl Marx, a few decades later, worried that
a culture of “oriental despotism” prevented
the emergence of capitalism in Asia.
The speculations of Smith, Marx and
others were often vague. Max Weber’s “The
Protestant Ethic and the Spirit of Capital-
ism”, published in 1905, made them con-
crete. Weber argued that Protestants, in
particular Calvinists, drove the emergence
of capitalism due to a strong work ethic.
In the middle of the 20th century such
cultural explanations began to fall out of
favour. The rapid rise of Japan’s economy in
the 1950s, and later of the Asian “tigers”,
quashed the Marxist-Weberian notion that
Western culture alone was conducive to in-
dustrialisation. At the same time the in-
creasing availability of data with which to
do statistical analysis meant that econo-
mists’ attention went elsewhere. Why
bother with hard-to-measure matters such
as morals, when it is possible to plug hard
data such as capital accumulation, wages
or employment into a regression model? In
1970 Robert Solow, a Nobel prizewinner,
quipped that attempts to explain economic
growth with reference to culture ended up
“in a blaze of amateur sociology”.
But an interest in culture remained—
and indeed is now making a comeback.
Since the 1980s datasets such as the World
Values Survey and the General Social Sur-
vey have made it easier to quantitatively
measure cultural preferences and relate
them to economic outcomes. Top eco-
nomic journals now regularly include pa-
pers on the importance of culture. Even
many hardline wonks have come to realise
the limits to pure economic reasoning.
Perhaps the most influential text in the
revival of cultural economics was “Making
Democracy Work”, a book from 1993 by Rob-
ert Putnam. Mr Putnam tried to under-
stand why for many decades northern Italy
had been richer than the south, folding the
explanation under the catch-all term “so-
cial capital”. People in the south were
fiercely loyal to their family, but more dis-
trustful of outsiders—whereas in the north
people were happier to form connections
with strangers, Mr Putnam argued. In the
north people read more newspapers, were
more likely to participate in sports and cul-
tural associations, and voted more fre-
quently in referendums. This, the theory
went, contributed to better local govern-
ment and more efficient economic tran-
sactions, which in turn produced greater
wealth—though Mr Putnam was not clear
about the precise mechanism by which one
thing led to the other.
A group of researchers, largely domin-
ated by Italians who were inspired by Mr
Putnam’s work, has since extended his
ideas, seeking cultural explanations of why
some areas are rich and others poor. A pa-
per from 2004 by Luigi Guiso, Paola Sa-
pienza and Luigi Zingales, also looking at
Italy, finds that in high-social-capital ar-
eas, households invest less in cash and
more in stocks, and make less use of infor-
mal credit. In areas where people do not
really trust those outside their family, it
may be hard to form large business organi-
sations which can benefit from economies
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