Chapter 8 Economic Development and Culture Group 7 Sherel Barcenas Garret Brooks Jamie Duke Katy King Amanda Knapp Sarah Olson Ryan Patterson Luke Ryan
Dec 16, 2015
Chapter 8Economic Development and Culture
Group 7Sherel BarcenasGarret BrooksJamie DukeKaty King
Amanda Knapp
Sarah OlsonRyan PattersonLuke Ryan
Introduction
Background of Global Economic Development
5 Paradoxes: Trade, Democracy, and Open and Free
Markets Culture and Change
Background
Economic development is critical to globalization
Controversy Split paradoxes into 2 categories:
Trade, democracy, and open and free markets
Culture and change
Theory of Comparative Advantage
David Ricardo 19th century the ability of a person or a country to produce a
particular good or service at a lower marginal and opportunity cost
Economic development from:▪ Land▪ Labor▪ Capital
Theory in question:▪ Multinational corporations moving home countries▪ Doing more business and hiring more people outside their
home country
Theory of Mercantilism
Before Ricardo, was mercantilism Supported by colonialism Strict government regulation of economy Accumulation of wealth from resources Development of manufacturing and
agriculture Establish foreign trading monopolies Wealth went to home country, not
colony▪ Lead to independence movements, wars, and
creation of self-sufficient countries in the New World
From Developing to Developed
Economic model for development: Early stages Explosive growth Maturity Decline (not always)
Rate of development increasing rapidly
Factors Leading to Economic Growth
Natural resources Climate Good geographical position Religious-based culture Strong institutions- banks, police,
courts Clusters of industries
Mix of characteristics for success varies
Issues of Export-Driven Trade
Trading partners at disadvantage Population size vs. rate of economic
development Level playing field? To grow requires more resources,
thus increasing the world price National budget deficits Decrease in skilled labor
Immiseration
Phenomenon stating that “a national economy can suffer dramatically even while growing through accumulating capital or improving productivity”
Producing more could saturate market Decrease demand Decrease price Weaken exporting nation’s profits
Solution?
Diversification of products produced However, not always the case Competition can lower price as well
Funding for Economic Development
European Union Provides funds to newly admitted nations Taxes lend money for next admitted nation
World Bank and International Monetary Fund (IMF)
Some funds not successful Corruption Mismanagement Rivalries between people
Ranking Nations
Ranking of economic development potential: Degree of corruption as perceived by
international executives Degree of trust between citizens and
public institutions▪ Police, courts, etc
Poverty Reduction
Many organizations state poverty reduction as their mission However, much of world funds go to
nations without will or ability to reduce poverty
George Lodge and Craig Wilson suggest MultiNational Corporations (MNCs) create an organization where they would invest in developing nations and use the profits to invest in other developing nations
Poverty in the World
According to World Bank: Nearly half world population- $2 a day or
less 1/6 world population- less than $1 a day Poverty fallen from 2/3 of developing
nations to ½ of population between 1981 and 2001
World Trade Organization (WTO)
149 of 220 nations in the world are members
Tariffs lowered Many global issues to be addressed Provides framework to dissolve
disputes
Democracy and Free Market
Amy Chua Communism to Capitalism Ethnically similar majority Lack of business and economic
experience Dependence on minority group
Paradox 8.2
Does trust increase trade among nations? Does increased trade lead to conflict and war among nations?
Does Trust Increase Trade Among Nations?
Nations prefer trading with similar cultures
Canada’s largest trading partner is US.
Being Geographically close lowers transaction cost and risk
Luigi Guiso, Paola Sapienza, Luigi Zingales
Researched surveys in the EU focusing on trusting nationalities Germans most trusted Italians rank lower Germans trust British more than French
Variables to predict the amount of trade between EU nations
Cultural Trust Religion History of war Genetic differences
Increase in trust for any variable between two nations associated with a 30% rise in trade
Does Trade Increase Peace?
U.S. trade with China, India and other developing nations
Historical record is mixed United States and Great Britain Great Britain and Germany
Dr. Katherine Barbieri found increased trade is associated with higher incidence of war
Culture and Change
“Change” usually consist of moving from a traditional way of life to modernized way
Individuals accept change if they can see the benefits from it
Institutions vs. Culture
Institution: an established corporation or corporation (www.merriem-webster.com)
Court of law, police system, government, etc.
Culture: the act of developing the intellectual and moral faculties (
www.merriam-webster.com)
Beliefs, behavior, knowledge, etc.
Institutions
Provide the structure for life at work and outside of work
Need to be trustworthy or people will try to go around the systems Join groups that also avoid systems (legal,
police, tax)▪ Mafia created in Italy▪ Douglas North wins Nobel Prize, shows
trustworthy institutions critical for economic development
Rise and Decline of Nations
Mancer Olson (1982) Work showed that when amounts of
interest groups increase in a country, national prosperity decreases
This occurrence is not only in the United States
Rise and Decline of Nations
Interest groups Helpful because their existence helps
accomplish essential functions (creating diverse views and distribution of their activities, points of view)
Harmful because they can hurt economic growth by drawing the attention of a nation away from good solutions▪ Citizens of the country will see all institutions
as dishonest
The Mystery of Capital
Written by Hernando de Soto (2000)Capital: in Medieval Latin means
“cattle”; symbolizes sources of wealth beyond the meat that can/will become food
It’s difficult, even impossible to create capital without initial capital
Creating change
Powerful interest groups declare property rights on settlers living on public land
Create capital by using little cities or “shantytowns” created by residents San Francisco Solano test Chinese government enforcing
ownership of countryside to create factories, modern cities
Tan and Peng Study (1990s)
Studied three groups of entrepreneurs Native Chinese working in China Chinese Americans White, Anglo-Saxon Americans
Hypothesis: If culture were more important than institutions, the Chinese in mainland China and Chinese Americans would tend to be significantly different in attitudes from their Anglo-Saxon counterparts.
Tan and Peng Study
Findings: similarities were actually between the Anglo-Saxon and Chinese Americans. The native Chinese and Chinese Americans
were not that similar
Conclusion: Institutions are more important than culture, supporting Douglas North’s original idea
Turkey: early 1900s
President Ataturk wanted to separate culture and institutions Changed Turkey from a theocratic,
Muslim nation to secular nation Separated by:
Closed religious schools and lodges Used the Roman alphabet and Western
calendar Used European codes of law instead of
Islamic
Institution vs. Culture
Both are important and relevant, each case depends on which is more important
China’s development leans towards giving culture more importance
Turkey appears to make institutions more relevant
Affects of Economic Development
Individualism Considers one self separate from group
Collectivism Decisions are made in GROUPS best
interest
Hofstede’s Cultural Dimensions Power Distance
Level of societal acceptance of equality/inequality
Individualism Degree of interdependence within society
Uncertainty Avoidance Extent to which members of society feel
threatened by unknown/ambiguous situations Masculinity/ Femininity
Masculinity- Importance on “being the best” Femininity-importance on “liking what you do”
Hofstede’s 5th Dimension
Long Term Orientation Countries are considered short term
oriented or future oriented Emphasizes▪ Persistence▪ Ordering relationship status▪ Behaving in accordance to order▪ Stressing thrift▪ Having sense of shame
Conclusion from Hofstede
Values of economic growth differ by nation
Different religions have “Confucian” values
Nations are Individualistic and Collectivistic at different time periods
Hofstede’s model proved in the short run Individualism occurs as economies grow
What matters is a society that encourages individualism and emphasizes contributions to society
Paradox 8.5
Why do citizens vote for and accept stationary bandits as political leaders? Stationary bandit-Political leader that
resides in the community he eventually weakens or sometimes destroys.
Mancur Olson
Argued that a "roving bandit" (under anarchy) has an incentive only to steal and destroy, whilst a "stationary bandit" (a tyrant) has an incentive to encourage a degree of economic success, since he will expect to be in power long enough to take a share of it
Genghis Khan
Roving bandit during the 13th century
Founder and emperor of Mongol Empire
Conquered most of Central Asia and China
Mao Tse-tung
Political leader of communist China
Influence lasted 40 years
Guerrilla warfare Long March 50 million Chinese
died due to collectivization and thoughtless government policies
Adolf Hitler
German politician and leader of the Nazi Party
Treaty of Versailles WWII Franklin D.
Roosevelt April 30, 1945
Hitler committed suicide