Understanding the Culture of Markets

Virgil Storr

• Publisher: Routledge
• Year: 2013
• ISBN:
  9781136214103
• Edition: 1
• Topic: Business
• Subtopic: Business generale
• Index: Business

How does culture impact economic life? Is culture like a ball and chain that actors must lug around as they pursue their material interests? Or, is culture like a tool-kit from which entrepreneurs can draw resources to aid them in their efforts? Or, is being immersed in a culture like wearing a pair of blinders? Or, is culture like wearing a pair of glasses with tinted lenses? Understanding the Culture of Markets explores how culture shapes economic activity and describes how social scientists (especially economists) should incorporate considerations of culture into their analysis.

Although most social scientists recognize that culture shapes economic behavior and outcomes, the majority of economists are not very interested in culture. Understanding the Culture of Markets begins with a discussion of the reasons why economists are reluctant to incorporate culture into economic analysis. It then goes on to describe how culture shapes economic life, and critiques those few efforts by economists to discuss the relationship between culture and markets. Finally, building on the work of Max Weber, it outlines and defends an approach to understanding the culture of markets.

In order to understand real world markets, economists must pay attention to how culture shapes economic activity. If culture does indeed color economic life, economists cannot really avoid culture. Instead, the choice that they face is not whether or not to incorporate culture into their analysis but whether to employ culture implicitly or explicitly. Ignoring culture may be possible but avoiding culture is impossible. Understanding the Culture of Markets will appeal to economists interested in how culture impacts economic life, in addition to economic anthropologists and economic sociologists. It should be useful in graduate and undergraduate courses in all of those fields.

1 Introduction

Culture shapes economic behavior and outcomes. Although most economists believe that culture does not matter, if I am right that culture colors economic life, economists cannot really avoid culture. They can attempt to ignore it. But it will implicitly sneak into their studies. They can attempt to articulate the assumptions that they are making about the role of culture when they abstract from it or they can explicitly integrate cultural considerations into their theories and empirical research. This, however, raises the question of how best to incorporate culture into economic analysis. What, for instance, is the relationship between culture and markets? How does culture impact economic life? Is culture like a ball and chain that actors must lug around as they pursue their material interests? Perhaps, lighter and less burdensome in some contexts, while in others the dead hands of past generations severely hampering economic life. Or, is culture like a toolkit from which entrepreneurs can draw resources to aid them in their efforts? Everyone’s toolbox stocked with different cultural assets that they can employ as they go about their business. Or, is being immersed in a culture like wearing a pair of blinders? Some prospects kept out of the entrepreneur’s field of vision, and others more easily brought into view. Or, is culture like wearing a pair of glasses with tinted lenses? Some opportunities easier to find and focus on than others while looking through the lenses, and everything appearing to have a particular tint.

Grappling with these questions has become more common within economics in recent years. Indeed, several recent articles and books within economics have explored how culture impacts economic life.¹ In his seminal paper, Greif (1994) explores the relationship between cultural beliefs and the structure of economic institutions.² As he explains, cultural beliefs shape institutions and, because cultural beliefs persist, they come to determine the character of the social and economic institutions that are adopted as well as the path of institutional development. According to Greif (ibid.: 914), his “findings suggest the theoretical and historical importance of culture in determining societal organizations, in leading to path dependence of institutional frameworks, and in forestalling successful intersociety adoption of institutions.” Studying the Maghribi traders of the eleventh century and the Genoese traders of the twelfth century, Greif (ibid.) found that the economic institutions that these groups adopted differed because their cultures differed.³ The Maghribis had collectivist beliefs while the Genoese had more individualist beliefs.⁴ The Maghribis, having more collectivist beliefs, invested in information sharing and (albeit rarely) employed collective punishment (ibid.: 923). Moreover, when the Maghribis expanded their trading to new centers they relied on other Maghribis to serve as agents (ibid.: 930). “Among the Maghribis,” Greif (ibid.: 936) explains, “collective cultural beliefs led to a collectivist society with an economic self-enforcing collective punishment, horizontal agency relations, segregation, and an in-group social communication network.” The Genoese, having more individualist beliefs, did not invest in information sharing nor did they employ collective punishment (ibid.: 923). Additionally, they relied on both Genoese and non-Genoese agents when they expanded their trade (ibid.: 931). “Among the Genoese,” Greif (ibid. 936) explains, “individualist cultural beliefs led to an individualist society with a vertical and integrated social structure, a relatively low level of communication, and no economic self-enforcing collective punishment.” These differences in cultural beliefs, thus, explain why the individualist Genoese developed formal legal and political arrangements in order to facilitate collective actions while the collectivist Maghribis were able to rely on informal institutions.⁵

Guiso et al. (2006), similarly, explore whether or not culture affects economic outcomes. They argue that culture affects beliefs and values and that those beliefs and values, in turn, affect economic performance. They claim, for instance, that culture determines a group’s religious values and that religious values in turn shape the group’s saving decisions and also its taste for redistribution. Catholic countries, they note, tend to have higher national savings rates and lower tax rates than Protestant countries. These findings lead the authors to conclude that cultural differences in beliefs can produce important differences in economic performance. Additionally, Guiso et al. (2009) find that cultural factors such as religion, a history of conflicts, and genetic similarities can affect individuals’ willingness to trust citizens of other countries and so their willingness to trade with foreigners.

Tabellini (2008, 2010) has also argued that culture is the “missing link” that explains economic backwardness in certain contexts. Norms of morality, he suggests, emerge from institutions of the previous eras. As he explains, cultures that practice “generalized morality” (i.e. where everyone in society is treated according to norms of good conduct) perform better than cultures practicing “limited morality” (i.e. where norms of good conduct only apply to the limited group of people that the individual feels close to). This is because transaction costs tend to be lower where a “generalized morality” exists. According to Tabellini (2008: 8), for instance, “law enforcement is easier” in cultures that practice generalized morality

because citizens are more likely to be law abiding; bureaucrats are more likely to refrain from corruption; and voters expect and demand higher standards of behavior from political representatives, and are more inclined to vote based on general social welfare rather than personal benefit criteria.

Cultures that are individualistic and engender mutual trust, these studies tend to conclude, facilitate economic exchange. The cultural legacy of communism, collectivism, colonialism and corruption, on the other hand, stands in the way of development in the transitioning and developing worlds. Economists in this area have tended to highlight the extent to which cultures can stand in the way of economic progress. In this regard, Harrison’s Who Prospers? How Cultural Values Shape Economic and Political Success (1992) is a classic example. “Some cultures are progress-prone,” Harrison offers bluntly, “while others are not.” The world, in his view, is divided into cultures that “nurture human creative capacity and progress” and “those that don’t.” More recently, in Understanding the Process of Economic Change , North (2005) has argued that the way people perceive the world influences their belief systems, that their beliefs in turn influence the institutions they select to constrain the choices they make, and that the choices they make lead to the outcomes that we observe in the world. Like Guiso et al. and Greif, North underscores the importance of religious beliefs and collectivist/ individualist beliefs in leading to the adoption of institutions that can either facilitate economic development or hamper it.

Arguably, these efforts to explore the relationship between culture and markets within economics tend to employ fairly narrow notions of culture.⁶ Outside of economics, especially within economic sociology and economic anthropology, richer conceptions of culture tend to be employed. Following Max Weber, for instance, economic anthropologist Clifford Geertz (1973: 5) has defined culture as webs of significance in which human beings are suspended and which they themselves have spun.⁷ Culture, Geertz (ibid.: 89) explains, “denotes an historically transmitted pattern of meanings embodied in symbols, a system of inherited conceptions expressed in symbolic forms by means of which men communicate, perpetuate, and develop their knowledge about and attitudes toward life.” This definition deserves unpacking. Human beings are born into, raised and come to be enmeshed in a complex collection (i.e. a “pattern of meanings embodied in symbols”) of shared beliefs about how the world works (i.e. “knowledge about” life) and ethical values (i.e. “attitudes toward life”) that have evolved over time (i.e. are “inherited” and “historically transmitted”). A cultural system, Geertz (ibid.:90) further explains, consists of a people’s worldview and ethos that both confront and mutually confirm one another. “A group’s ethos,” Geertz (ibid.) writes,

is rendered intellectually reasonable by being shown to represent a way of life ideally adapted to the actual state of affairs the world view describes, while the world view is rendered emotionally convincing by being presented as an image of an actual state of affairs peculiarly well-arranged to accommodate such a way of life.

For Geertz, then, a cultural system, like all systems, is a complex integrated whole that is not defined by any one or even any subset of its constituent parts.⁸

Following Geertz, I define culture as a historically transmitted pattern of meanings that is shared by a group of people and learned by new members as they become a part of the group.⁹ Additionally, I argue that understanding the pattern of meanings that shape an individual’s identification and assessment of desirable ends and appropriate means is critical to understanding his/her (economic) behavior. As Geertz (1973: 14) explains, “understanding a people’s culture exposes their normalness without reducing their particularity.... It renders them accessible: setting them in the frame of their own banalities, it dissolves their opacity.” Reality is processed through the lens of culture. As such, different cultural lenses can and do give rise to different conceptions of the good, different economic choices and so different economic outcomes.

Rather than treating culture as a pattern of meanings, however, the temptation for most economists examining the role of culture is to identify one or a few easily measurable factors and to have those serve as proxies for entire cultures (see, for instance, Guiso et al. 2006; Tabellini 2008; Fernandez and Fogli 2009; Williamson and Mathers 2011). Unfortunately, this approach (i.e. employing a few easily measurable factors as proxies for entire cultures) risks treating cultures as homogenous and static systems.¹⁰ Cultures, however, are not homogenous. Even in so-called “progress-resistant” cultures, there are attitudes and beliefs that work to promote progress. A definite spirit of enterprise can be found in the most unlikely places. Slaves throughout the Caribbean, for instance, grew produce for market on their quasi-private plots during their free time and traded their surplus produce in an effort to improve their living standards (Tomich 1991; Storr 2004). While there may be prevailing attitudes in a particular culture that hamper progress, there is no such thing as a culture that cannot develop. To be sure, it is possible for some of the attitudes, views and values within a particular culture to be a barrier to entrepreneurship and so economic development. But no culture is entirely progressresistant and all cultures are heterogeneous and have competing beliefs, some of which will promote enterprise and others that will discourage it. Of course, certain values are more compatible with markets than others but we should not be so pessimistic as to assume that there are large pockets in the world where we cannot locate market-friendly values.

Similarly, although cultural change is necessarily path dependent, cultures are not static. So-called “progress-resistant” cultures can grow more “progress-prone” over time. Chinese institutions and attitudes, for instance, are inarguably more individualistic and supportive of profit seeking in the 2010s than they were in the 1970s (see Allison and Lin 1999; Chow 2010). The same is true for India where the attitudes that supported central planning in the 1950s and 1960s gave ground to attitudes that supported technological innovation in the 2000s (see Rodrik and Subramanian 2005). A culture can change over time to reflect shifting beliefs, new information, and even contact with other cultures. And, though cultural systems survive and are transmitted throughout successive generations, changes do take place, a people’s ethos and worldview do evolve.

Rather than homogenous and static, cultures are both heterogeneous and dynamic. As Lavoie and Chamlee-Wright (2000: 13) point out,

culture is not an immutable given with which a society must learn to live. Nor is it homogenous within nations, or even within families. It is a complex of diverse tensions, ever evolving, always open to new manifestations and permutations.

How, then, should economists study the culture of markets? As I will argue, economists should look to Max Weber for insight into how to study the culture of markets.¹¹

Perhaps economists should adopt a Weberian approach to studying the culture of markets

Max Weber is among the most important figures in modern social science and his writings have crossed into a number disciplines including economics, sociology, political science, anthropology and jurisprudence. Within economics, Weber is arguably best known (and either roundly criticized or enthusiastically embraced) for The Protestant Ethic and the Spirit of Capitalism (1905), General Economic History (1927), and perhaps his writings on the methodology of the social sciences. Although economists still engage his economic histories and methodological writings, his other contributions to economics (e.g. to marginal utility theory or institutional economics) have gone largely unnoticed, and his influence on the discipline is rather minimal.¹² Outside of economics, however, Weber is quite influential. As Kalberg (2005: 1) writes, “of the three major founders of modern sociology, Max Weber spans the widest horizon.” “Among sociologists,” as Käsler (1988: ix) also describes, “Weber is recognized as one of the principal ‘founding fathers’ of the discipline.” And, “Weber has become regarded throughout the world as an undisputed ‘classic’ of sociology. Every lexicon or ‘history’ of this discipline mentions his name as central and emphasizes his authoritative influence on its development” (ibid.: 211). Similarly, as Coser (2005: xxv) remarks, “Weber’s impact on modern social science is similar to that of Lord Keynes on modern economics. Like the work of Keynes, the work of Weber is a landmark. There is a pre-Weberian and a post-Weberian sociology.” His two-volume Economy and Society (1978), for instance, is viewed as a foundational text within modern sociology. Similarly, his works on the religions of India and China as well as on Ancient Judaism are considered seminal works. The methodological discussions and substantive claims he advanced in those volumes have helped to shape a number of sub-disciplines within sociology, especially economic sociology, the sociology of religion, the sociology of law, urban sociology, industrial sociology, and political sociology.

Importantly, for our purposes here, Weber’s Sozialökonimik or “social economics” also offers a fruitful approach to studying the culture of markets. According to Weber (1949: 65), social economics is concerned with a wide range of subjects; “the domain of such subjects extends naturally... through the totality of cultural life.” “The basic element in those phenomena which we call... ‘social economic’,” Weber (ibid.: 64) explains,

is constituted by the fact that our physical existence and the satisfaction of our most ideal needs are everywhere confronted with the quantitative limits and the qualitative inadequacy of the necessary external means, so that their satisfaction requires planful provision and work, struggle with nature and the association of human beings.

Social economics, thus, recognizes scarcity as the fundamental social scientific problem that it must confront. Its chief task is to explain the consequences of the scarcity of means; specifically, that the satisfaction of our wants requires that we plan, that we work, and that we cooperate with others.

For Weber, social economic phenomena fall into three different categories: (a) “pure” economic phenomena, (b) economically relevant phenomena, and (c) economically conditioned phenomena.¹³ Economic phenomena, Weber (1949:64) explains, are “events and constellations of norms, institutions, etc., the economic aspect of which constitutes their primary cultural significance for us.” Economic events such as exchange and competition, economic norms such as offering employees a lunch break, economic institutions such as money and credit, economic relationships such as those between buyer and seller, and economic organizations such as banks and multinational corporations would all fall into this category because it is their economic aspect that interests social economists.¹⁴

The second category, econom...

Table of contents

• Front Cover
• Understanding the Culture of Markets
• Routledge Foundations of the Market Economy
• Title
• Copyright
• Dedication
• Contents
• Preface
• 1 Introduction
• 2 Economists should study culture
• 3 But economists often misunderstand the relationship between culture and markets
• 4 Economists ought to be looking at the spirits that animate markets
• 5 This does not mean that economists have to abandon economics
• Epilogue
• Notes
• Bibliography
• Index