The Cultural Foundations of Economic Development

Emily Chamlee-Wright

• Publisher: Routledge
• Year: 2002
• ISBN:
  9781134700103
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

Chalmlee-Wright argues that international aid programmes have often been unsuccessful because they are imported.
The economics of the Austrian School provide a far stronger theoretical framework which can introduce cultural analysis into questions of economic development and other market processes.

1: MARKETS AS AN EXTENSION OF CULTURE

A walk through central Accra, the capital city of Ghana, is almost a religious experience for an economist. Ghanaian marketplaces are the site of intense and vigorous bargaining. Although it is officially illegal to trade outside the market area designated by the city council, the streets teem with hawkers selling produce and fish from their head trays. What strikes the economist most is the precision and efficiency of these small transactions. The sidewalks are scarcely passable as market women perch four deep on either side. Their voices rise and fall in laughter and conversation, briefly pausing to catch the attention of potential customers. The camaraderie and good nature of the market should not deceive the observer into seeing the marketplace only as a point of social contact, however. While it undoubtedly fills this role as well, the keen alertness to the smallest of profit opportunities is always at work. In southern Ghana and many cities of West Africa, this is the work of women. Some young men dot the marketplace selling frozen yogurt or second-hand clothing, yet the majority of goods are marketed by women and girls (Lawson 1971; Pellow 1977; Clark 1994).

A striking pattern which emerges is the hierarchical nature of goods sold and the conditions under which women and girls trade. Girls sell water from jugs atop their heads to bus commuters, parched from the dusty hot car-park. Girls and young women hawk baked goods or traditional foods that their mothers or aunts have prepared. Women of various ages sell fish and produce either from head trays or seated on the sidewalks. The most comfortable conditions are those within the established market stalls. Here is where one will find more expensive items such as imported cloth for sale, as well as staple foods, canned goods, jewelry, and a few services such as sewing.¹ While the conditions here are cooler and cleaner, access requires financial capital many market women do not have—limited access to capital being the most frequently cited problem microenterprise entrepreneurs face throughout the developing world (Kurwijila and Due 1991; Levy 1993; Lycette and White 1989; Squire 1981; Steel and Webster 1991; United Nations 1995).

In the first four decades of research on developing countries, the role of women in the market system was all but ignored by mainstream economists. The male bias of the profession in the early years of the economic development discipline, along with Western notions of women’s role in economic activity, contributed to this oversight. The main mechanism for the oversight was the miscategorization of female market activity as a variant of domestic labor (Smith 1978). The habit of not counting domestic labor as real economic activity still pervades the discipline and is itself problematic (Anker 1994; Goldschmidt-Clermont 1994; Waring 1988). This mistake is compounded, however, when the public nature of female work is systematically ignored. Indeed, much of the indigenous African market is driven by women, in part as a means to fulfilling their domestic responsibilities. According to the United Nations Development Fund for Women, female labor and entrepreneurship accounts for 80 percent of all the food produced, processed, and marketed in sub-Saharan Africa. This may even be too conservative an estimate, given the hidden character of women’s work in Muslim areas (P.Hill 1969; Schildkrout 1983). The tragedy is not just that women have been slighted by not receiving due recognition for their role in economic growth. The real tragedy lies in the fact that, since women were ignored, the indigenous economy was also overlooked for its role in economic development.

More recent research has significantly improved our understanding of the importance of informal market trading to economic development. For various reasons—including the questionable legal status of firms in the informal economy, the desire to avoid revealing income levels to government officials, and the ease with which entrepreneurs both enter and leave the informal market—measuring the size of the informal sector presents many practical problems. But recent attempts to establish a more accurate accounting of the informal sector relate to the significant role indigenous markets play around the world. In their extensive survey of the informal sector in Peru, for example, Hernando De Soto (1989:61) and the Instituto Libertad y Democracia found that 83 percent of market trading in Lima was attributed to the informal sector. The International Labor Organization (ILO) estimates that 61 percent of the urban labor force in sub-Saharan Africa are employed in the informal sector (ILO 1990). Thus, if for no other reason, the role indigenous markets play in employment, production, and distribution necessitates that they capture the attention of development theorists and policy makers.

Much of the literature concentrates upon the limitations indigenous markets face, particularly their inability to take advantage of economies of scale. Yet, the small and medium-sized enterprises characteristic of the informal sector also have particular advantages in production and marketing. Relative to large-scale industry, microenterprises within the informal sector can often take advantage of low-cost labor, they can more easily fill niche markets, and have the potential to be more flexible in responding to changing market conditions (Sandesara 1991). With the advent of structural adjustment programs designed to reduce the size of the bureaucratic sector, indigenous markets often represent the best hope of avoiding widespread unemployment and deepening poverty; but this also means that those who already operate within the indigenous economy will face even greater competition (Parker et al. 1995; Steel and Takagi 1983).

It is clear that development analysts must now take informal or indigenous markets seriously in their search for solutions to continued economic stagnation. What is less clear, however, is what tools to employ in our attempt to better understand the potential and limitations of indigenous markets; to understand the contributions made by and the constraints faced by indigenous entrepreneurs. Further, finding such tools is essential if we expect to make wise policy recommendations.

As we study indigenous markets up close, we find that standard economic models pass over much of the context-specific detail of market and other social processes. Rules which govern credit acquisition and capital accumulation, for instance, differ dramatically from one cultural context to another. (See, for example, Timberg and Aiyar (1984) for India; Shanmugan (1991) for Malaysia; Hiebert (1993) for Vietnam; Little (1965) for West Africa.)

Corporate practices which support economic success in one cultural context, such as the Japanese use of Confucian symbolism, ceremony, and training, often meet with failure in another (Clegg and Redding 1990), as they do not fit the new cultural context (Lavoie and Chamlee-Wright forthcoming). Government institutions often meet with different records of success depending on the cultural and historical context, as Putnam et al. (1983; Putnam 1993) found in their studies of Italian regional governance. Patterns of economic development once assumed to be universal, are now recognized as contingent and dependent upon cultural and historical influences. Trade among the Kenyan pastoralists known as the Orma, for example, became widespread as a result of the conversion to Islam as it provided a common institutional structure by which to engage in long-distance and inter-temporal exchange (Ensminger 1992). Standard neoclassical economics cannot adequately address such issues, as it has no way of incorporating the role of culture in the market process. This chapter is an attempt to integrate cultural analysis within our economic methodology so that we might be in a position to better understand the nature of economic development itself, and to have a better guide in our search for sound economic policy.

The term “culture,” as it is used here, is not simply meant as an independent force imposing itself on social institutions and individual behavior. Rather, culture is intimately connected to social institutions and individual behavior. Culture is better characterized as a context rather than an independent force. Culture is not just a list of rules constraining behavior that would otherwise maximize profit or utility. Culture is the context in which meaning is negotiated and renegotiated. Social institutions depend upon this framework of meaning, as it provides legitimation to institutional rules. Police and court systems would be incapable of enforcing property rights and contracts, for instance, if most members of a society did not accept the legitimacy of the institutional rules. Such acceptance comes not from social contracts devised in the abstract, but through an evolutionary process within the culture of a community.

Not only does culture provide the “glue” which enables social institutions to stick, it is the context in which individuals make sense of the world around them. Objects and actions have no inherent meaning in and of themselves. Individuals must interpret their meaning within a particular language community, at a particular point in history, in reference to a complex of meanings that have already been read out of previous experience. Culture provides the interpretive framework that allows us to understand objects as symbols, actions as part of an overall plan, or interaction as social relationship. The world is never experienced directly. It must be interpreted through the lens of culture. Thus, understanding complex social interaction— the sort which is most interesting to economists, anthropologists, and other social scientists—will require us to address the cultural context in which it takes place.

Introducing aspects of culture is not novel to economics, yet a full appreciation has not yet been realized. Economists usually recognize only two functions of culture within the economy— determining preferences and constraining optimizing behavior. The first approach, or what we might call “Culture as Preferences” is the most dismissive. Since economic analysis generally takes preferences as given, the forces which shape those preferences tend to be of little interest. This position assumes that once preferences are formed, they play a neutral role in the market process. Yet, if cultural influences promote distrust for one’s fellows as the basis for wise business practices, we can expect that the costs of acquiring credit are higher in this case than in cultures where trust is the initial response. The Grameen Bank in Bangladesh has used the trust and shared sense of mutual obligation present among women in that culture to generate a 98 percent loan recovery rate from their practice of group-lending (Wahid 1994). The capacity of some ethnic groups, as within Jewish, Chinese, and Indian cultures, to resettle across vast distances while maintaining tight bonds of kinship, nationality, and identity have enabled them to establish successful global economic networks (Kotkin 1992). Cultural and economic processes do not neatly separate out from one another. Such “preferences” for caution, trust, and ethnic identity are not neutral. Rather, the specific cultural context shapes and directs individual economic choices and the market process.

The second approach, or what we might call “Culture as Constraints,” concedes a slightly more active role to culture, as it recognizes the non-neutral role customary rules, which evolve out of the cultural context, might play in constraining optimizing behavior. For example, Akerlof (1980) describes how individuals may adhere to social customs over time, even if it is economically disadvantageous, if there is a corresponding cost in lost reputation for non-compliance. Thus, the social custom of a “fair” (but above market-clearing) wage may result in unemployment and the inefficient allocation of resources. Within development literature, customary practices or value systems are blamed for discouraging the efficient allocation of resources (Lewis 1955; McClelland 1961). Traditional allegiance to the family farm rather than expansion into alternative trade, for example, is blamed for stifling economic development.

Yet, this approach fails to recognize the enabling role culture plays in economic processes. By selecting out only those aspects of culture which inhibit allocative efficiency, we set culture up as a counter-rational force; as if without culture, market exchange would be a smooth frictionless process. Yet, in accepting this account of the world, we forget that in a world without culture, property rights, legal custom, and language would not emerge. We have to ask ourselves how smooth and frictionless exchange would be without the benefit of such institutions. Further, culture is the context of shared meaning that enables the entrepreneur to make sense of the economic environment. Neoclassical literature tends to treat economically efficient or “correct” decisions as separable from the cultural context. However, in the abstract, efficiency only means that certain criteria are well-balanced against other criteria. Just what those criteria are have to be interpreted. Other than at the most abstract level, any meaningful notion of efficiency will be, at least in part, culturally defined. Wise or efficient decisions will only be so with reference to a particular context—including the cultural context. Thus, rather than a counter-rational force which inhibits efficient decision making, culture provides the framework within which to interpret the best course of action.

Economic anthropologists have a much longer history than economists in attempting to bridge the gaps between culture and economic theory (see, for example, Malinowski [1922] 1961). By the late 1930s, economic anthropologists were beginning to accept the principles of neoclassical economics as their theoretical guide in what were then called “primitive societies.” For the time, this was a significant move, as it suggested that all peoples—whether European or African, colonialist or native—shared the universal quality of rationality. If all individuals were essentially the same in this respect, then neoclassical tools and concepts ought to be equally applicable around the globe. Many within anthropology saw this as a radical advance, as it provided a theoretical framework within which to model and understand non-Western cultures. Similarly, such a move represented a crowning achievement for neoclassical theory, as it could generate explanations for social and economic behavior across the globe.

But the match which seemed to be made in heaven was not to survive. By the 1950s and into the 1960s, neoclassical economics faced serious challenges as to its universal applicability. Many economic anthropologists argued that a theoretical paradigm which grew out of an advanced industrialized context would ultimately distort rather than explain the realities of pre-industrial societies. Cultural anthropologists also rejected neoclassical theory as incapable of addressing the differences among cultures with regard to economic decisions and institutions. Most anthropologists accepted the validity of neoclassical theory when applied within a Western industrialized context. But for their own areas of interest, most were willing to leave the principles of economic theory behind.

The debate over the role neoclassical theory can play in pre-industrialized contexts dominated the economic anthropology literature of the 1960s. The “formalists” were those who argued in favor of the universal applicability of neoclassical theory, even in pre-industrial societies. The “substantivists” were those who saw this as an empty enterprise, given the industrialized context out of which neoclassical economics emerged. The formalist-substantivist debate has been detailed elsewhere (LeClair and Schneider 1968). The point behind revisiting the debate here is to identify the subtler shortcomings of neoclassical theory which were missed by both sides. This new perspective of the debate will open the way for an alternative route by which the connections between culture and economy can be investigated; yet perhaps this time, with greater success.

The “new institutionalist economics” represents an important advance in this direction, as it attempts to ground neoclassical analysis within specific institutional contexts—a dimension of the market process essentially missed within standard theory. We will move a step beyond this by investigating the cultural context which gives rise to social institutions on the one hand, and shapes the perspective with which entrepreneurs carve out opportunities for profit on the other. In order to make this next step, Austrian economics offers an alternative to the institutionless, cultureless neoclassical paradigm. In particular, the interpretive tradition within Austrian economics and cultural anthropology makes it possible to address the role culture plays in shaping entrepreneurship and the social institutions necessary for economic development. Such an approach may convince social scientists outside of economics to consider once again the value of economic theory in their own investigations. Further, cultural analysis will allow economists to address questions that are systematically pushed aside by neoclassical theory, but which are fundamental to the development process.

ECONOMIC THEORY AND ECONOMIC ANTHROPOLOGY

Considered by many to be the father of economic anthropology, Bronislaw Malinowski was among the first to investigate the social context of economic activity. His ethnographic studies of Trobriand Island ([1922] 1961) detailed the complex rituals of indigenous exchange practices, and explored the functions of magic in instilling hope and confidence before setting out upon trade expeditions. The talent Malinowski possessed as an ethnographer, however, did not save him from drawing some erroneous conclusions.

Malinowski ([1922] 1961) rejected the notion that Trobriand Islanders were motivated by self-interest. In fact, he held economic theory in disdain and characterized the “primitive economic man” concept in mocking tones. In his account of the Trobriand Islanders’ yam harvest, Malinowski argues that rather than self-interest, the prestige behind the title tokwabagula or “good gardener” was the primary motivation.

The most important point about this is, however, that all, or almost all of the fruits of his work, and certainly any surplus he can achieve by extra effort, goes not to the man himself, but to his relatives-in-law… [I]t may be said that about three quarters of a man’s crop go partly as tribute to the chief, partly as his due to his sister’s (or mother’s) husband and family.

But although he thus derives practically no personal benefit in the utilitarian sense from his harvest, the gardener receives much praise and renown from its size and quality, and that in a direct and circumstantial manner. For all the crops, after being harvested, are displayed for some time afterwards in the gardens, piled up in neat, conical heaps under small shelters made of yam vine. Each man’s harvest is thus exhibited for criticism in his own plot, and parties of natives walk about from garden to garden, admiring, comparing, and praising the best results.

(Malinowski [1922] 1961, reprinted in LeClair and Schneider 1968:20)

The contradictions within these paragraphs appear evident to any student of modern economic theory. Malinowski missed the point that economic ends do not necessarily have to involve monetary or material ends, and that all wants, whether monetary, material, or social, are part of the fundamental economic problem if scarce means must be employed to satisfy them. The gardeners Malinowski described use scarce means (land, labor, time, seed, equipment, etc.) to achieve the ends of prestige and social obligation. Rather than denying the self-interested rationality of the Trobriand Islanders, Malinowski’s own account serves to demonstrate the keen efficiency they display in the pursuit of the ends they found most important.² Yet, as apparent as these mistakes seem today, others followed Malinowski’s disdain for economic theory. “By following Malinowski, anthropologists were systematically and uncritically cutting themselves from the one body of theory which sought to illuminate economic phenomena” (LeClair and Schneider 1968:5).

Within the period of a single year, however, three anthropologists independently offered devastating critiques of Malinowski. D.M.Goodfellow (1939), Melville Herskovits ([1940] 1952), and later Raymond Firth (1951) made use of rational choice theories in their studies of economic phenomena in South Africa, West Africa, and Polynesia, respectively. To varying degrees, all three followed a Robbinsian approach to the nature of the economic problem. The universal nature of economics, according to Robbins (1932), does not lie in a universal pursuit of material wealth. The universal nature of the economic problem lies in the fact that human wants are virtually...