Culture and Prosperity

Talking with Mom and Dad yesterday, I was asked if I’m reading any good books lately. I mentioned the lousy one I’m reading at bedtime, but forgot to tell them about this one: Culture and Prosperity, by John Kay. The by-line says it all: “Why some nations are rich but most remain poor”. With a title like that, can a book be any more interesting?

Kay lives up to his claims – at least, I hope so. That is, I’ve only read 7 chapters out of 29; however, already I find a story developing that is utterly fascinating. Certainly the issue is of paramount importance in the 21st century: the dilemma of how to increase the well-being of the impoverished nations may well determine the happiness of the more fortunate also! In addition to that very political purpose, there are also economic and social/cultural/psychological reasons why the elimination of poverty (or the increase of wealth) is a burning issue for our future well-being. If nothing else, on a purely utilitarian basis, it behooves ALL of us to understand our economic system, and that of the world around us. So – yes, this book qualifies as a most interesting read.

The fact that it is exceedingly well-written is truly icing on the cake. Or, perhaps it’s better said that the style of writing adds vegetables, nuts, and fruits to the meat-and-potatoes argument, such that it provides a full-course meal’s satisfaction. How is this so?

Kay starts off by telling stories of where he lives – in Menton, 30 miles east of Nice, in France, in a chapter called “Postcards from France”. The fact that I was recently IN Nice, and found it delightful, makes it all the more interesting for me. But others will find it fascinating also. Kay peppers his chapters with lots of individualized stories that are interesting. He introduces us, in Chapter 3’s “People” to the economic lives of others around the world – from Roger and Sandra in the Bay Area (where I live) to Harvey and Blythe in Georgia, Heidi and Herman in Zurich, Ravi and Nandini in Mumbai, Sven and Ingrid in Sweden, and Ivan and Olga in Moscow. He contrasts the lives of brothers Raoul in Mexico and Pedro in Los Angeles; of farmer Sicelo and his gold-mine-working-brother Patrick in South Africa; and brothers Heinz and Friedrich, both trained by Siemens, but one stayed in what became East Germany, and one left and worked in West Germany. Now, of course, both are re-united in the country of Germany. All of these individuals exist within economic structures that have evolved out of the interplay between environment and culture and technology, and none lives independently of the economic system that surrounds them.

In the telling subsection titled “Economic Systems Matter”, Kay says: “Productivity is not simply the result of the availability of capital and technology, or differences in the skills of individual workers. In the modern world, skills can be developed everywhere, and capital and technology flow freely among countries.” He continues, “Economic differences persist because output and living standards are the complex product of the economic environment intersecting with social, political, and cultural institutions. The economic lives of individuals are the product of the systems within which they operate.”

Summarizing this chapter for us, Kay asserts: “The stark differences in economic lives that we see around the world are not the result of differences in the availability of resources or education or capital or skills. They are the product of differences in the structure of economic institutions. These latter differences in turn determine the availability of resources, education, capital, and skills.” Finally, he concludes the chapter: “This book is about the institutions that define our economic lives. And it will become apparent that not just economic institutions matter. Economic institutions function only as a part of a social, political, and cultural context. This is what I describe as the embedded market.”

Chapter 4 gives us “Figures”, those tantalizing bits of minutia for which economists are famous. As he says, “…only through economic analyses using aggregates and averages can we move from the particular to the general.” The statistics from 2001 on Gross National Income (GNI) show great disparity among the worlds’ economic systems. The top 19, the rich states, are mainly in Europe. The range of yearly income for the rich is from Switzerland’s $38,330/person to Italy’s $19,390. These nineteen countries account for 800 million people, of whom 300 million are in North America, and slightly more than that in Europe.

The economically-intermediate countries, ranked by GNI, number only twelve, and involve 300 million people. And the vast majority of the world, the 4500 million others, or 4/5ths of the world, live economic lives with less than 1/8 of the Swiss level ($38,330/8), or less than $4,229/person/year. Furthermore, the number of countries ranked in the middle of the world’s economic hierarchy is dwindling, and they are living off of less than they were before. What’s remarkable about the statistics themselves is that normally “Distributions of most variables…are clustered round the average.” Instead of a bell-curve pattern, the statistics on distribution of world income forms two peaks, with the number of low-income countries peaking at well over 5 times that of the wealthy countries (4500/800), with very few intermediaries, looking like an inverted, distorted Bell curve.

Why does this matter to the letter carrier in America? Good question! But, it’s time for me to get on with my economic life by taking my morning bath. I shall return…
7/11/2006 6:20:31 AM