Friday, June 10, 2005

Culture and Prosperity : The Truth About Markets - Why Some Nations Are Rich but Most Remain Poor by John Kay

Jonathan Wight summarizes Kay's thesis:

...if we wish to understand why Norway is rich and Nigeria is poor, the bottom line is "Rich states are the product of—literally—centuries of coevolution of civil society, politics, and economic institutions. [This is] a coevolution that we only partially understand and cannot transplant." ... Attempting to construct an ahistorical and acultural account of economic development in which the only institution that matters is "private property" is more than foolish—it is hazardous to the success of markets. ... [In some countries] institutions are ineffective or directed toward nonrelevant social and economic objectives (e.g., rent seeking). Because of idiosyncratic path dependencies, it is difficult to later simply say to Nigeria, "Go and imitate what Norway did with its oil wealth."

Author: Wight, Jonathan B.
Source: Southern Economic Journal; Jan2005, Vol. 71 Issue 3, p683, 3p
Document Type: Book Review

These are pessimistic but practical thoughts. You do not create a vibrant economy simply by saying the magic words "private property." If that's all the advice we as economists have to offer the results of the application of that advice will bring undeserved disrepute to markets.


Blogger EclectEcon said...

Are you saying that private property is a necessary but not a sufficient condition for economic growth? If so, I agree. But regardless of the differences in cultures, I do not see how economic growth can be sustained without the existence of some system of private property rights and the enforcement of those rights. But maybe I am just too close to the Coase Theorem ...

1:36 PM  
Anonymous Anonymous said...

There are other factors you need to think of, though, when you compare Nigeria with Norway. Norway was a very poor country at the turn of the twentieth century - witness the huge numbers of Norwegians who emigrated. However, since then it has had only five years of conflict, and, although the German occupation of 1940-45 was brutal in many ways, it was not particularly destructive in terms of infrastructure. And it was in a region that is prosperous.

Perhaps most importantly, it chose to focus on creating a very high, state-supported, level of education for all its people. That investment of resources began to pay clear dividends in the early 1960s, and it was compounded by the discovery of oil, followed by the sound investment of those revenues in the decades after.

Note that Norway did this through the kind of state-intensive involvement you continually rail against. Despite the large state sector (or because of it?), the people of Norway have an extraordinarily high standard of living. Perhaps there is something to be said for the European model after all?

(Nahhh - you'd never agree to that!)

2:10 PM  
Blogger John B. Chilton said...

Dear Anonymous:

Thank you for your comments about Norway. You're streaks ahead of what I know about Norway.

I'd say Norway has evolved excellent institutions that serve it well, and that these would be far from trivial to replicate. I take your point that an economy can do well and not fit the Anglo-American model.

Of course Norway had luck on its side with the discovery of oil. How well would it do if it used industrial policy to pick a "winning industry." And would France, Spain or Italy have done as well as Norway if the oil had been discovered in the Mediterrannean?

2:30 PM  

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