According to the Oxford Dictionary, culture is the ideas, customs, and social behavior of a particular people or society, and the economy is the state of a country in terms of the production and consumption of goods and services and the supply of money. If observed closely one can see that both culture and economy are a product of the people. So do these two systems influence each other?
By identifying and analyzing the cultural beliefs that help a country become more productive and innovative, one could advance their understanding of the conditions needed for economic success. Experts recognize that if a country spends more on physical capital, finance, and technology, the economy will most likely expand faster. However, this does not explain the diversity of growth throughout the world. To explain this, a country must look at the root reasons for a country’s development.
Economists have observed a link between some cultural beliefs to higher levels of economic development. One of these beliefs is a people’s willingness to engage in markets, through investment or employment. The decision to work has economic ramifications for the individual and family, and also for the progress of countries as a whole because labor involvement in the economy has a positive effect on productivity.
Economists will sometimes look at the prevalence of social trust in a specific society to gauge this willingness to participate in markets. Increased social trust has been linked to greater rates of business, innovation, and development in a country’s financial sector in several studies. Countries with low levels of trust between strangers, on the other hand, are less economically developed. Institutions, of course, play a part in this as well. People will tend to trust a nation’s economic institutions with their money if its economic institutions are less transparent and dependable.
Studies have also indicated a link between a country’s economic progress and the depth of its familial relationships. Family companies are frequently associated with stronger family relationships. The prominence of family enterprises can harm the economy since they are frequently less competitive and efficient than other businesses.
However, determining whether a country’s economic progress is mostly due to culture or policy may be difficult. The low productivity in the Soviet Union was caused by the collectivist rule that had been forced on the populace, not by a cultural feature. The financial choices and social mobility of a people are heavily influenced by the economic environment. The case is the same for the physical environment of a country.
The study of culture’s effect on economics is fraught with difficulties. One difficulty with examining the dangers of a particular culture, as economic historian David Landes points out, is that it might lead to xenophobic conclusions.
Another issue is the difficulty of defining culture. The concept’s ambiguity and scope make it difficult to draw firm conclusions about its economic impact. It isn’t always based on objective measurements. It is highly subjective to some extent, and how we assess subjectivity is a problem for economics.
Efforts have been made to provide a more clear definition for economists to utilize. Better methodologies and more data have made qualitatively measuring cultural features simpler over time. In the 1980s, the World Values Survey and the General Social Survey were created to assess people’s values and beliefs, as well as how they evolve.
When you have that knowledge, you can compare it to data that is less subjective, such as growth rates or poverty rates, or the fact that certain nations execute labor market rules one way and others the other. As a result, economists tie the subjective data from these surveys to more objective economic indicators that are collected in a more systematic and well-defined manner from the outset.
Lower caste people in India, for example, are frequently humiliated and denied chances. Karla Hoff, a leading economist, described a field experiment in which schoolchildren from various communities were brought together and paid to solve riddles. The youngsters fared similarly across castes in the control groups when caste was not exposed. When their castes were exposed before the exam, however, the higher caste children performed at the same level and the lower caste children’s performance worsened.
This proved that culture influences a person’s ability to operate. Similarly, Hoff talked about how individuals who live in honor cultures have a hard time working for mutual advantage. Honor-based cultures are more likely to prevent the emergence of cooperative customs among people who contact them often. Conventions develop throughout time. Coordination problems do arise sometimes during the procedure. This makes forming and maintaining cooperative conventions harder, and failure can impede poverty alleviation.
Economists have scorned cultural explanations for economic results for decades. Attempts to combine the two areas resulted in “a blaze of amateur sociology,” according to economist Robert Solow. However, no market emerges in a vacuum. Today’s economists are more ready to acknowledge that a country’s prosperity cannot be described without taking into account the
intricate interaction of many various elements, ranging from its institutions to its cultural beliefs to its environment and pre-modern history. “As useful as economics is, it cannot account for all human behavior. “After including culture in the explanations, economics became a lot more powerful instrument,” Sapienza added.