Prosperity

Why Are Some Countries Poor and Others Rich?

Social norms and the need for inclusive economies

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By Louis Putterman

In their important new book, Why Nations Fail, economist Daron Acemoglu of MIT and economist and political scientist James Robinson of Harvard attempt to explain why some countries are rich and others poor. Acemoglu and Robinson dismiss the idea that culture has anything to do with national economic success.  If Germans are more industrious than, say, Mexicans, they argue, this isn’t a cause of differences in their countries’ respective economic performance but instead a consequence of another variable, the quality of their political and economic institutions.

But separating the quality of institutions from culture, and especially from the norms which underlie aspects of social interaction such as trust and reciprocity, is a daunting challenge.  It may in fact be that norms influence the effectiveness of institutions as much as the reverse.

Evolutionary psychologists, and those economists who’ve taken a leaf from their and related socio-biological approaches, suggest that predispositions towards social behaviors including reciprocity are hard-wired into human nature.  Many allow, however, for a process of co-evolution in which culture and genes work together to determine just how such predispositions manifest in each individual.  While all healthy human beings are susceptible to the influences of socialization and social cues more generally, the extent to which pro-social behaviors are exhibited can vary from one society to another as well as from individual to individual.

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Some of the most remarkable evidence that social norms that differ among societies play an important part in determining the relative wealth of nations was reported in a paper published in Science in 2008 by Benedikt Herrmann, Christian Thoni and Simon Gachter.  The three behavioral/experimental economists conducted voluntary contribution experiments of the kind discussed in my posts “When Nice Guys Finish First” and “If I’m Not for Myself, Who’ll Be for Me?”  Subjects sat in computer labs and made series of decisions about how much money to contribute to a group account and how much to leave in their private funds.  Total earnings are highest when all funds are put in the group account, but each individual has an incentive to hold back his or her own funds.  In half of the periods, the subjects learned how much each other member of their group had put into the group account and each was permitted to reduce the earnings of each other at some cost to herself.

In previous versions of this experiment conducted in Switzerland, England, Germany, and the U.S., contributions to the group account fell with repetition in the condition without punishment opportunities but rose with repetition in the condition with punishment because many subjects took it upon themselves to punish the free riders who didn’t contribute.  A relatively small number of subjects also punished those who contributed, perhaps in attempts to get back at those who had punished them in a previous round.

Herrmann and collaborators replicated the previous results in subject pools in the U.S., Australia, England, Switzerland, Germany, China, and South Korea.  However, when they conducted the identical experiment with subjects in Russia, Ukraine, Belarus, Turkey, Greece, Saudi Arabia, and Muscat, they found that the opportunity to punish other group members had much less ability to stave off a decline in contributions, and that the likely cause was that in those subject pools, punishing cooperators was almost as common as punishing non-cooperators.   As a consequence, subjects in the “bad” subject pools earned less in the experiment than did their counterparts in the “good” ones.

It wasn’t lost on the experimenters that people in the countries having “well behaved” subjects also tend to earn more on average in everyday life than do those in the other countries.  Might this have something to do with the quality of social norms?  The researchers speculated that it might indeed.  They presented evidence showing that in the countries in which punishing of cooperators was rampant in the experiment, survey evidence shows that people generally trust one another less, and that measures of the quality of government, for instance absence of corruption, are also lower.  The case could be made, if not fully proven, that subjects carried into the lab with them the norms and expectations regarding others’ willingness to cooperate and not to take advantage of one another that are pervasive in their societies and that go hand in hand with a well-functioning economy and political system.

Several collaborators and I recently found similar evidence in a somewhat different experiment.  At my own university, Brown, and at universities in Mexico City, Innsbruck (Austria), Seoul (S. Korea) and Ulan Bator (Mongolia), we had subjects engage in a more complex interaction in which the problem was to avoid the temptation to steal from each another so that efforts could be focused on production and not wasted on guarding earnings.  In their first decisions, before having any way to know what fellow subjects would choose to do, considerably more U.S. and Austrian subjects refrained from stealing than did Mexican and Korean ones, with the smallest percentage refraining from theft in the Mongolian sample.

A similar order of success was found, among the country subject pools with respect to reaching and keeping agreements to refrain from theft in a treatment in which groups could exchange messages in chat rooms.  Country rankings in surveys of trust, government quality, prevalence of corruption, and actual incidence of theft in society, are all similar, as are their rankings for per capita income.  So this experiment too supports the idea that the internalizing of pro-social behavioral norms by a society’s members, reinforced by confidence that most others will also behave according to such norms, may indeed be an important factor underpinning the wealth or poverty of nations.

Originally published here.

2016 February 25


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  • Swami

    There is much debate among experts on the drivers of prosperity and freedom. On one side you have those like McCloskey and Weber stressing the importance of cultural frameworks and mindsets. On the other we have North and Acemoglu who stress institutions, especially formal ones.

    I agree with you that they are all describing parts of the same interconnected elephant. Culture and mental frameworks/paradigms impact what type of institutions we adopt and how well they work. The relationship is circular and complex.

  • CH

    All bourgeois history, economics, and social science suffer the same defect. They stop the investigation right where it should begin. They take as given what must itself be explained. Why, for example (assuming it’s true, which I frankly doubt) are Mexicans less willing to “refrain from stealing” than Americans? Could it have something to do with their respective countries’ history and class composition? But no. This alleged national characteristic is taken as an intrinsic “factor” and is then used to explain (I would say justify) why Mexico is poor and the US is rich. Not only that. No clarity can be gained by conflating a “country,” i.e. a modern bourgeois state, with its people, especially its working masses. Whether a country is rich or poor has only the vaguest connection to whether its working class gets by adequately in life.

    Not only social scientists and economists, but all scientists, as well as their sciences, would benefit greatly from a little study of Marx, Engels, Lenin, Luxemburg, and Trotsky. Throw in a little Plekhanov, too, and, while you’re at it, read Yehoshua Yakot’s The Suppression of Philosophy in the USSR (The 1920s & 1930s) and Aleksandr Konstantinovich Voronsky’s Art as the Cognition of Life. You and your science will be the better for it.

  • JMS

    You should come to live in Venezuela. It is a beautiful country where, thanks to the ideas that defend this shameful page, we have poverty, misery, scarcity, famine and people dying for lack of basic medicines.

  • Lee Doran

    Wrong questions get bogus answers … wealth of nations has little to do with anything EXCEPT the wealth of nations. Those who have, take … and then they take more. They do it as long as they can.

    Wealth of health and education and ‘human development’ and lifespan and caring and sharing have literally NOTHING to do with monetary wealth directly … if there is any relationship at all it is inverse.

    The human institutions that most reliably deliver these kinds of wealth are moderate, sporadic Communism focusing on the disadvantaged based on a foundational matriarchal structure and processes of long standing that have also fostered tolerance and pragmatic ‘getting along’ as between, for example, religious groups that elsewhere compete. Kerala is the classic case which shows us the ‘miracle’ of what happens when these kinds of things are fostered and nurtured and cherished – and implemented by a demographic that is majority ♀, as well.

    Such a ‘miracle’ could even be designed – or at least nudged into existence – if anyone cared enough to actually try it on their own home turf… now that’s an hypothesis ripe for testing.

    Asking the correct questions is important for getting the real answers.

    best to all,

    L.

    • Adrian S

      The economy is not 0-sum game, it’s what you conspiracists and anarchists fail to understand. Capitalism doesn’t work when one takes from people that have little, specifically because they have little. For capitalist countries to function, poverty is a problem not something they desire, these countries require trading partners that produce more and more products of high added value that can afford to buy the valuable products they produce themselves. If they would do as you say, their own economies would suffer as when they produce more or products that have higher added value, there would be less people that can afford what they produce, so their own development would stagnate. Again, capital is cumulated, not a 0-sum game, the more stuff is produced, the better off everybody is. It’s very simple…

  • iRon_Mrx

    I didn’t cross reference “Why Nations Fail” by Daron Acemoglu and James Robinson, but any failure to reference Jared Diamond’s treatise “Guns, Germs, and Steel” (1997) when discussing this topic is likely to be fatal. The historical perspective MUST be included along with the economics and political science ones. A common trap is cultural relevance, which Prof. Putterman spends precious paragraphs dealing with, but think of how much further his analysis could have proceeded by standing on the theoretical shoulders of Diamond’s conclusions!
    Economies that have failed to catch up with “first world” economies may just need more time. They may also need to draw lessons from “third world” China and its 60-year plan to develop the equivalent of 150 years. Unless we close the circles of our historical records, we won’t reach a more universal understanding of human and social behavior.

    • HalMorris

      I have no idea what you mean by “I didn’t cross reference …” Perhaps that you haven’t read it?

      Why Nations Fail is a fantastic meticulous work of comparative history out of which comes analysis.

      • iRon_Mrx

        I don’t know if “Why Nations Fail” used Jared Diamond’s treatise in its analysis, I didn’t read it, but that was the point of my comment. Diamond’s work so clearly explains why some countries are poor and some are rich. “Failure” is a more vague measure, but that’s not the title of Prof. Putterman’s article.

    • Derryl Hermanutz

      Why Nations Fail was written explcitly as a contradiction of Jared Diamond’s thesis. Diamond basically said “luck” — the readily exploitable advantages that exist, or don’t exist, in your local environment — is the deciding factor. Acemoglu and Robinson try to reinforce the idea that “superior people” is the deciding factor, regardless how naturally impoverished are the conditions of their local environment. A&R want to support the moral belief that rich people and rich nations “earned” and “deserve” their wealth, and poor people and poor nations deserve their poverty, due to the high moral virtues or low moral failings of the people and nations in question. By establishing this moral causation of the individual and national hierarchy of material wealth and poverty, A&R hope to morally-empirically “justify” the social Darwinist ideology of, “Every man for himself, and devil take the hindmost.” The morally virtuous will rise to wealth and power. The morally vicious will fall into impotent poverty. This is the social order that is created by the invisible hand, probably “God’s” invisible hand. So “God” wants the rich to impose their morally superior will on everybody else, “for their own good”. Diamond’s alternate thesis threatened the moral foundation of the status quo social order. Why Nations Fail is the status quo’s counterattack.

      • iRon_Mrx

        Thank you, Derryl Hermanutz, for your thoughtful, and dare I say, brilliant summary, that went to the central thesis of A&R’s “Why Nations Fail.” As DWAnderson tersely suggested (I’d like to get a more detailed response from him too), A&R’s thought experiment pales by comparison to what I think is a brilliant thesis presented by Jared Diamond in his 1997 Pulitzer Prize awarded “Guns, Germs and Steel.” Without the overarching historical context that begins at the Neolithic Period and the creation of agriculture, all other analyses will fail. This is shown by those conclusions inevitably succumbing to the gravity of social Darwinism and other elitist opinions. I’m surprised, therefore, that more editorial discretion wasn’t exercised with Professor Louis Putterman, and wasn’t exercised on behalf of Evonomic’s readers. •
        It seems to me that the current Information Age will (or should) transition into the Knowledge Age, at least for those of us who remain curious enough to know what the likely future will be beyond our lifetimes. Too often, the status quo has been the two steps backwards for every step forward taken by thoughtful iconoclasts. Jared Diamond’s work provided empirical explanations for the conclusions that help us evolve as civilized beings. Any work, regardless of how arduously researched and written, that supports a nihilistic idea like social Darwinism, won’t help us beyond promoting discussions like this.

  • Too broad a suggested conclusion (even with the tepid caveats) for what is a pretty limited lab experiment.