Political economy was born to explain the reasons for the wealth of nations and to remedy their poverty. A discipline with a high impact on society, closely related to philosophy and ethics.
In the works of the founder, Adam Smith, it is difficult to separate these components of thought which are always closely linked and refer to each other, as a book by Claudio Napoleoni, "The Physiocrats, Smith, Ricardo, Marx" well explains. The origins of political economy, which has now become a classic in the history of economic thought, recently republished by goWare
However, explaining the reasons for the wealth or poverty of a community and trying to derive an economic theory from it is not an undertaking that has yet succeeded.
Classical economists thought that the determining factor of a community's wealth or poverty was culture, a category, however, too inclusive to derive clear lines of interpretation.
Fall and resurrection of the cultural economy
This approach, precisely because of its generality, subsequently fell into disfavor. Economists went to prefer one more oriented towards data science which gradually began to become available in ever greater quantities. But even this new method has not led to any coherent formulation of the reasons for the poverty and wealth of nations.
The so-called "cultural economy", i.e. the classic form of interpretation, has therefore recently made a comeback, enriched, however, with new analytical tools and more information provided by history and sociology.
The Economist has for its part reconstructed this path of economic thought around wealth and poverty in an essay entitled "Economists are turning to culture to explain wealth and poverty".
We are pleased to offer it to our readers in Italian translation. Perhaps it is time to really reflect on it given that inequalities are increasingly widening not only between nations, but also within them.
The birth of political economy
The birth of economics in the eighteenth century occurred when some scholars began to question something that had never happened before. At the time a handful of countries were getting fabulously rich, while others were lagging behind. In 1500, the richest country in the world was twice as well-off as the poorest one; by 1750 the ratio had risen to five to one.
It is no coincidence that the most famous book on economics, published in 1776, questions precisely the nature and causes of the wealth of nations.
To explain such a divergence between rich and poor countries, early economists focused on culture, a term that encompassed a society's beliefs, tastes, and values. Adam Smith, the author of The Wealth of Nations, explored the various ways that culture helped or hindered the economy.
He argued that certain conditions, let's say cultural ones, are necessary for market economies to flourish. A very important thing is that people are not motivated only by their own private interest, but that they satisfy it while respecting the needs of the other members of the community.
Marx and Weber
Karl Marx, a few decades later, feared that a culture he called "Oriental despotism" was preventing the emergence of capitalism in Asia. The Frankfurt School historian Karl August Wittfogel devoted a monumental study to the question of Eastern despotism. In this fundamental book he postulated a close connection between the type of agricultural techniques and the socio-political developments of Eastern nations.
The speculations of Smith, Marx, and others were ultimately theories. Max Weber's Protestant Ethic and the Spirit of Capitalism, published in 1905, made them more concrete and real. Weber argued that Protestants, especially Calvinists, fostered the emergence of capitalism through a strong work ethic. An explanation that had a large success, but still left many crucial aspects in the shade.
The questioning of the cultural economy
In the mid-XNUMXth century such cultural theories began to fall out of favor. The rapid rise of the Japanese economy in the XNUMXs, and later that of the Asian "tigers", undermined the Marxist-Weberian idea that Western culture alone was a favorable environment for industrialization.
At the same time, the growing availability of data with which to conduct statistical analyzes of economic phenomena has meant that the attention of economists has shifted elsewhere.
Why bother with hard-to-measure issues like morals when you can use data like capital accumulation, wages or employment to build a model of interpretation?
In 1970, Nobel Prize winner Robert Solow wrote that attempts to explain economic growth by reference to culture ended "in a blaze of amateurish sociology."
But the interest in culture has, in any case, remained, and in fact is making a comeback. Since the XNUMXs, data classes such as those from the World Values Survey and the General Social Survey have made it easier to quantitatively measure the cultural preferences of communities and relate them to economic outcomes.
Major business journals regularly include articles on the importance of culture in the formation of wealth. Many sector magazines have realized the limits of pure economic reasoning.
Robert Putman and the Italian case
Perhaps the most influential text contributing to the resurgence of cultural understanding of economics has been Making Democracy Work, a 1993 book by Robert Putnam. Putnam tried to understand why Northern Italy is richer than the South, and he found the reason in what he calls "social capital".
Putnam argues that the people of southern Italy were fiercely loyal to their families and highly wary of strangers, while the people of the north were quick to bond with strangers.
In the north, people read more newspapers, were more likely to join sports and cultural associations, and voted more frequently in elections.
This, according to the American economist's theory, has helped to improve local government and make economic transactions more efficient, which in turn have produced greater wealth. It must be said, however, that Putnam is not clear about the precise mechanism by which one leads to another.
In Putman's footsteps
A group of mostly Italian researchers took inspiration from Putnam's work, broadening his ideas and seeking cultural explanations as to why some areas are rich and others poor.
In a 2004 article, Luigi Guiso, Paola Sapienza and Luigi Zingales, still looking at Italy, noted that in areas with high social capitalization, families invested more in shares, resorting less to informal credit.
Furthermore, in areas where people did not really trust those outside the family circle, it was difficult to form large business organizations so as to benefit from economies of scale and new technologies.
This suggests that it is no coincidence that the average firm in Lombardy, a wealthy region in northern Italy, has 13 employees on average, compared with five in Calabria, a poor region in the south.
Beyond Italy
Others have looked beyond Italy. In A Culture of Growth, published in 2016, Joel Mokyr of Northwestern University posits the "principle of contestability" as the reason why some countries have industrialized but others have not.
Organizations such as the Royal Society, founded in London in 1660, were forums for the exchange of ideas, where people presented their discoveries and viciously criticized the theories of others. At all levels there was strong contestability.
Furthermore, over time, the focus of science in Western Europe has shifted from that of "accumulating nonsensical empirical facts," as Mokyr puts it, to discoveries that could have been used in the real world.
Scientific inquiry has been the basis of European economic exceptionalism. Nothing comparable has happened in other parts of the world.
The two questions suspended
The revival of cultural theories of wealth and poverty seems to have taken a considerable step forward methodologically. Yet there are still two big questions that it hasn't answered. The first concerns the origins of cultural traits: where do they come from?
The second is why communities from seemingly similar cultures sometimes have such different economic outcomes.
To answer these questions, economists have come to appreciate the importance of history and, in particular, of the 'historical accident'.
The Historic Incident: Egypt and Namibia
Let us first take the question of the origin of the cultural traits of a community. Some research suggests that they are the product of changes that occurred hundreds of years ago. A 2013 article by the late Alberto Alesina and two of his colleagues analyzes why some countries have very different female labor force participation rates.
Egypt and Namibia are equally wealthy, but the share of Namibian women in the labor force is more than double that of Egyptian women. Alesina attributes such differences largely to differences in pre-industrial agriculture and environmental conditions.
Plowing, common in Egypt, required a lot of upper body strength, so men had the advantage. Shifting cultivation, more common in Namibia, used more handy hand tools, such as the hoe, which suited women better. The effect of these agricultural technologies is reflected today in the employment statistics of the female labor force.
The role of diseases
Other economists look to earlier history to explain income and wealth inequalities. A 2019 article by Benjamin Enke of Harvard University found evidence that pre-industrial ethnicities exposed to high local spread of pathogens showed closer kinship ties. Which means, in effect, that people were strongly united in the family clan, but suspicious of strangers.
In a place threatened by disease, close family ties were beneficial because they reduced the need to travel and thus decreased the risk of contagion. Areas that hundreds of years ago had closer kinship systems tend to be poorer today. A situation that emerged, for the first time, during the industrial revolution.
Other research has looked even further back, suggesting that contemporary cultural traits are the result of genetic variation. But this remains niche research, and most economists are careful not to talk about genetics.
The case of Guatemala and Costa Rica
A body of research focuses on cases where culture is not a sufficient explanation for understanding economic outcomes. Take the case of Guatemala and Costa Rica. “The two countries had similar histories, similar geography and cultural heritages, and found themselves with equal economic opportunities in the 2019th century,” write Daron Acemoglu and James Robinson in The Narrow Corridor, a book published in XNUMX.
But today Costa Rica's median income is more than double that of Guatemala. The reason for the difference at first seemed purely causal to the two scholars. Eventually it became clear that it was about the coffee.
In Costa Rica, the development of coffee plantations to supply the European market led to a more balanced relationship between state and society, perhaps because the country had a lot of fertile land and widespread smallholding. In Guatemala, however, coffee has led to the emergence of a rapacious government.
The role of institutions
In addition to culture, therefore, a growing group of economists are looking at "institutions", often understood as a legal and regulatory system. Some cultural economists argue that attention to institutions proves their point: what are institutions if not the product of norms, values and inclinations?
The different beliefs of Americans and Europeans about the causes of inequality, for example, explain why European welfare states are more generous than those overseas.
But in many cases the birth of institutions may have nothing to do with the culture of a country. Sometimes it's just "pure chance".
Joel Mokyr demonstrates that Europe, fragmented into many states, was the perfect scenario for innovation: intellectuals who had challenged the dominant culture or were bearers of a non-homologated thought, thus incurring the wrath of the established authorities, could move elsewhere. Thomas Hobbes wrote "Leviathan" in Paris. Spinoza has landed in Amsterdam
In China, however, Mokyr argues, freethinkers had few escape routes. The Europeans had not planned such a system. It just happened.
The wholesomeness
Other work by Acemoglu and Robinson, along with MIT's Simon Johnson, found an additional element of randomness that may explain today's patterns of wealth and poverty, i.e. which countries are more prone to certain diseases.
The death rate of settlers was low in some colonized countries, such as New Zealand and Australia, in part because the types of diseases that developed there were less virulent. In others, such as Mali and Nigeria, death rates were much higher.
The colonizers did not want to settle in countries with a high risk of disease, also because they only wanted to take the raw materials of those countries. Thus in countries such as Mali and Nigeria, the colonizers, instead of settling there permanently, have set up systems to maximize the extraction of resources with the least number of presences on the territory.
This, say Acemoglu, Johnson and Robinson, produced rapacious political systems that have endured to this day.
Still far from a real theory
Are economists today closer to answering the fundamental question of their science? Beyond Max Weber's simplistic certainty, it seems likely that some countries are rich and others poor due to some messy combination of factors: economic incentives, culture, institutions, and chance. The most important factor is yet to be discovered.
In 1817 Thomas Malthus, an early political economist, wrote in a letter to David Ricardo, another economic thinker, that "the causes of the wealth and poverty of nations [were] the grand subject of all inquiries in political economy."
The rebirth of cultural economy two centuries after the birth of political economy has helped this research, but this is far from finished.
