Friday, May 31, 2013

Culture's effect on economic progress

CULTURE can be defined as the characteristics of a group of people, including language, cuisine, social habits, arts, music etc. The culture of a people influences to a very large degree how they behave in relation to economic activity, and can have a significant impact on how economically successful they are also. We have heard many references to the Chinese and Jews made by Jamaicans who say that they are "mean", which really means frugal, or as one caller to Perkins Online said "One Chinese do five somebody work", which means that they are more productive.

These references are used by many Jamaicans to explain why the Chinese or Jews seem to accumulate more wealth than the ones making the reference, and in fact it was a part of our culture that accumulating wealth is sometimes referred to in disparaging terms. So our emphasis is always on how we can take from the "rich" to help the "poor" rather than how we can make everyone rich. This is in contrast to the US where they speak of the American dream, which is a reference to the belief that in the US anyone can become rich if they work hard enough.

A man buys vegetables from a street vendor in Shanghai, China. (PHOTO: AP)

So these examples illustrate the effect that cultural belief can have on economic progress. In fact, I have often heard reference to the view that one of the reasons for Trinidad's greater focus on manufacturing than Jamaica, is that while we were buying new motor vehicles, they were buying new machinery and equipment.

Whether these references can be proven or not, the fact is that we have long recognised the impact of cultural practices on economic progress. This is not strange to economic theory, as we often forget that economics as a social science means that the base of its influence is individual behaviour, or microeconomics. We tend to focus more on macroeconomics. But macroeconomics is really just an outcome of what happens at the microeconomics level. So the appetite of Jamaicans for car loans impacts negatively the NIR, as we do not produce cars, so that our individual desires for motor vehicles means that we must find the foreign exchange to purchase those cars.

This would not be a problem if we earned enough money to pay for those car imports, but the problem is that another part of our cultural behaviour is that we do not place a great degree of emphasis on productivity. This is reflected in the industrial disputes we see sometimes; the labour laws; and the public sector employment rules which emphasise longevity in the job over productivity. This also works against the public sector workers themselves, because they do not gain from being more productive. So what is the incentive to be more productive?

This behaviour then translates into the inability of the government to pay the public sector more, because without greater productivity we face inefficient bureaucracy, which affects private sector profitability and activity, which in turn negatively affects fiscal revenues and exports, resulting of course in the need to finance our culturally driven consumption appetite for foreign goods, which we can't afford because of low productivity, hence leading to the need for debt and a high debt to GDP ratio.

So this vicious circle shows us what effect the behaviour of each individual has on the state of our economy. Our economic and social behaviour is driven by what we have grown up learning from our cultural practices, unlike the Chinese and Jews. When I was growing up I was accused of belonging to the former group. Hence we come back to the explanation by some Jamaicans that the Chinese and Jews are better off than they are because of cultural practices which are taught in the home or at school.

This need to change our cultural habits is recognised by the minister of finance. In a presentation about two weeks ago (which was repeated by him the following week) he stated in no uncertain terms (in fact it was the main focus of the presentation) that if we are to succeed with the IMF programme and change our economic fortunes, then it can only work if we change the way we do things. In other words, focus on productivity, consuming what we produce or what we can afford to, and develop a disciplined society.

This is one of the most important presentations I have heard, as it recognises the real source of our economic problems. As I have always said, our economic problems have cultural roots. Unless we change the way we produce and consume, then all we will be doing is kicking the can down the road.

I remember when Ronnie Thwaites was the host of Independent Talk, he always said that if we want to see this country improve then we must place a check on our consumption patterns and Parliament must make sure that when the expenditure budget is presented we go through the items with a fine-tooth comb to ensure value for money.

One of the primary roles of fiscal policy is to ensure that the economic behaviour of companies and individuals result in economic prosperity. In other words, fiscal policy (in particular tax policy) should be developed based on how it impacts economic behaviour, rather than how much money it can raise for government. Tax reform is not just about adhering to an IMF agreement, but rather what sort of economic behaviour it causes. This was the aim of the PSWG submission, and is also the intent of the current tax reform proposal being developed by the government.

So the next time someone says that another person is "mean" or wants to take away someone else's work by "doing five somebody work", remember the literal translation in another culture is "frugal" and 'productive".

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