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A Cultural Model of Economic Development
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Globalization, Culture and Economic Development:
A Cultural Model of Economic Success and Failure
Dharm P. S. Bhawuk 1
Vijayan P. Munusamy
David J. Bechtold
Keith Sakuda
University of Hawaii at Manoa
RUNNING HEAD: A Cultural Model of Economic Development
Correspondence should be sent to:
Dharm P. S. Bhawuk
Professor of Management &
Culture and Community Psychology
Shidler College of Business
University of Hawaii at Manoa
2404 Maile Way, Honolulu, HI 96822
Tel: (808) 956 8732 Fax: (808) 956 2774
E-mail: [email protected]
1
We are also grateful to Harry Triandis, Kwok Leung, Rabi Bhagat, Eun Bum Cho, and Valery Rosenblat,
for their constructive feedback. Paper to be presented at the Asia-Pacific Economic and Business History
Conference, February 17-19, 2010, Victoria University of Wellington, New Zealand.
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Globalization, Culture and Economic Development:
A Cultural Model of Economic Success and Failure
Abstract
We present a cultural model of economic development by synthesizing the theory
of collectivism, stages of economic development, and elements of organizational theories.
The thesis is that collectivist values are not detrimental to economic development, and that
organizations in these cultures can still achieve economic development by developing
teamthink. We posit that the four characteristics of collectivism, i.e., interdependence,
making sacrifices for the ingroups, relational social exchange, and being norm driven, lead
to conformity, institutionalization, collective goal congruency, and national goal
congruency, which are quite useful when a country is in the early phases of economic
development. However, these characteristics may also lead to groupthink, thwarting
innovation, which is needed in the later phases of economic development. We propose
that organizations can nurture loose coupling, requisite variety, and competitive
redundancy to develop teamthink, and thus prosper in the later phases of economic
development. We discuss the implications of this model for theory and practice.
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Globalization, Culture and Economic Development:
A Cultural Model of Economic Success and Failure
Hofstede (1980) found that the industrialized wealthy countries scored higher on
individualism than the economically struggling developing countries, which lead to the
popular belief that individualism causes economic development. Many years later,
Hofstede (1997) argued that rather than individualism driving the economic development
of a country, an increase in national wealth leads to an increase in individualism in that
country. The idea is that as people become affluent, they have the financial resource to
choose what they want to do, which in turn leads to social independence (Triandis, 1994).
However, a careful historical analysis in our view does not support either of these
perspectives (Kennedy, 1988).
Kennedy (1988) traced the historical development of economic power of nations,
and discovered that China and India together produced three-fourth of the Gross Domestic
Product (GDP) of the world until 1760, and these two countries were the First World then.
What is today the First World, USA, United Kingdom, Japan, and other European
countries were in fact the Third World. In less than two hundred and fifty years, China and
India have become the Third World, and European countries led by the USA have become
much more affluent. Japan, which according to the same study only produced 4% of world
GDP until the Second World War, has risen to be the second largest economy of the world,
right behind the USA, and scholars have debated whether it would leave the USA behind
economically in the near future. Since two and half centuries are not that long a time for
cultures, and the economic scenario of the world has gone through such a drastic change,
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we posit that it may be inaccurate to link culture to economic progress or lack thereof.
Culture can shape the development of institutions (Greif, 1994, 1997, 2000, ) that can help
or hinder economic development for some time, but culture per say is not a hindrance to
economic development.
Greif (1994) carried out a historical comparative analysis of two groups of
Mediterranean merchants, the Maghribi Jewish merchants of the eleventh century and the
Genoese traders (from the city state of Genoa 2 , which is now a city in Italy) of the twelfth
century. Both these groups traded similar goods, used similar technology (ships etc.),
covered the same region -- from Spain to Constantinople, and faced almost identical
external environment of business, yet each developed different sets of business practices.
Using game theoretic perspective, supplemented by historical analyses, Greif concluded
that cultural beliefs shape the development of economic institutions. The results of his
study showed that the Maghribi culture resembled the modern collectivist cultures,
whereas the Genoese culture resembled current day individualist cultures.
Greif (1993, 1994) demonstrated that the Maghribis believed that they were
members of the same umma (derived from umm meaning mother), shared information
among their own kind, entrusted their business to other Maghribi traders by developing
long-term relationships instead of hiring independent agents, and imposed punishment for
cheaters collectively, which are all traits found among people in collectivist cultures today
(Triandis, 1995). Unlike the Maghribis, the Geonese, inspired by Christianity, believed in
individual existence rather than in family coexistence, hired agents outside of their
2
Columbus grew up in the city state of Genoa, and was denied funding by the San Giorgio banking syndicate.
Unfortunately, the Spanish support led Columbus to explore the Atlantic trade routes, which destroyed Genoa’s business
over the years.
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families, controlled the behavior of the agents through legal framework instead of using
collective will against the deviants, developed a society where traders were different from
agents but agents could become traders over the years, and did not share information with
other traders -- creating the earliest idea of trade secrets, which are all characteristics of
people in individualistic cultures of the present times (Triandis, 1995). Thus, there is
sufficient theoretical basis to analyze economic development using the theory of
individualism and collectivism (Greif, 1997).
In this paper we present a model that synthesizes the defining attributes of
collectivism with Porter’s (1990) stages of economic development, and by focusing on
organizations, which are the engines of economic development, we are able to show that
without sacrificing their cultural strengths, collectivist cultures can still pursue the goals of
economic development successfully. There is an unfortunate trend toward scapegoating
culture, particularly collectivism (Ball, 2001; World Bank, 1993; Tabb, 1996), for
economic failure, and we hope to draw the attention of social scientists to the idea that
economic success is possible through culturally appropriate practices.
A Cultural Model of Economic Development
We propose in this model that the four defining attributes of collectivism (Bhawuk,
2001; Triandis, 1995) encourage collective and national goal congruencies through
conformity and institutionalization. We suggest that the cultural values that contribute to
success in the first two stages of economic development (Porter, 1990) may lead to failure
due to groupthink in the later two stages. Building on organizational literature, we posit
that failure can be avoided by replacing groupthink with teamthink by infusing the
concepts of loose coupling, requisite variety and competitive redundancy in the
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organizations when the economy in a country approaches the third and fourth phases of
economic development, preferably before groupthink sets in. If organizations are not able
to take this by-pass, there is still another path they can follow to turn failure into success,
thus helping their national economies.
--------------------------------------Insert Figure 1 about Here
--------------------------------------Defining Features of Collectivism
The concepts of individualism and collectivism have found many applications
across many disciplines of social science including economics (Ball, 2001; Greif, 1994).
Triandis (1990) proposed that emphasis on agriculture, large families, and unit of survival
(ingroup) appear to be some antecedents of collectivism while socialization for obedience,
duty, and sacrifice for the ingroup seem to be some consequents of collectivism.
Synthesizing the literature, he further proposed that collectivism has four universal
defining attributes: interdependent concept of the self (Markus & Kitayama, 1991), utility
for making sacrifices for in-groups, relational bonding, and norm driven behaviors
(Triandis, 1995). We briefly discuss the four defining attributes of collectivism, and also
show how these attributes are associated with conformity, institutionalization, collective
and national goal congruency as well as group cohesiveness and groupthink.
Although Triandis discussed these four attributes of individualism and collectivism
as separate factors, Bhawuk (2001) integrated them and synthesized them in a theoretical
framework. In this framework, the concept of self is at the center, and the other three
defining attributes relate to how an individual interacts with other groups, how an individual
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interacts with society at large, and how individuals engage in social exchange with other
individuals.
The nature of the self has been argued to be the most central attribute (Bhawuk,
2001; Markus & Kitayama, 1991; Triandis, 1989), which shapes the other characteristics of
collectivism. Concepts like simpatico among Hispanics (Triandis, Marin, Lisansky, &
Betancourt, 1984), Pakikisama among Filipinos (Church, 1987), amae among Japanese
(Doi, 1981), Guanxi (Luo, 2000) among the Chinese, and Philotimo among the Greek
(Triandis, 1994) illustrate the collectivists’ sense of interdependence and their need to
maintain harmony among people with whom they interact closely, and reflect the general
feeling of relatedness with others. One way of describing it is to say that collectivists inherit
their relationships, which are spun around their kinship and their primary network,
consisting of the nuclear family, the extended family, and the locality (e.g., village, town,
and so forth) where they live or from where they originate (Hsu, 1971). They tend to
integrate individuals outside their kinship into their primary network to expand their
relationships. This interdependence coexists with emotional closeness and builds
cohesiveness in people working together. However, the desire to maintain harmony and to
save face also put pressure on dissidents to conform to group norms and decisions, which
may lead to groupthink.
The second characteristic of collectivism pertains to the relationship between self
and groups of people. With interdependent concept of self, collectivists develop ties with
other people to satisfy the needs of the self as well as the members of the collective
included in the self (e.g., their family, kin, friends, and coworkers) with whom they
perceive to have a common fate (Triandis, McCusker & Hui, 1990; Hui & Triandis, 1986).
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This leads to the subordination of individual goals to the goals of a collective (Triandis et
al., 1985; Triandis, 1989), and sharp differentiation between ingroups and outgroups. The
ingroup is accepted as trustworthy, and collectivists are willing to sacrifice their selfinterest to be a part of this group. However, they are likely to indulge in exploitative
exchange with people who are in their out-groups (Triandis et al., 1988). In a study of
Korean children, Han and Park (1995) found that the children favored ingroups over
outgroups in reward allocation at an early age, and it is not a surprise that people in power
allow special privileges to their ingroup members. Individualists, by contrast, do not make
such strong distinctions between in-groups and out-groups.
The collectivists’ subjugation of self interest for the benefit of the group worked
well during the early phases of the economic development of the Southeast Asian region.
Shinataro Ishihara (Mohamad & Ishihara, 1995, p.110) captured this spirit in these words:
“Just as a son or daughter realizes when they have to forgo a personal pleasure for
the good of the family, a company's staff, from the boardroom to the assembly line,
know that compromise accomplishes more than confrontation”.
Collectivists are also found not to indulge in social loafing (Earley, 1989) when
dealing with their ingroups. Therefore, when working as a team, collectivists are likely to
have a tightly integrated and cohesive team that acts like a monolithic unit. Two
antecedents of groupthink, namely illusion of morality and shared stereotypes are likely to
be accentuated by the group cohesiveness and the tendency to justify actions done to
protect the interests of the ingroup. In the same vein, Kim (2000, p. 151) argued that an
over emphasis on ingroup loyalty and harmony coupled with over-emphasis on self-
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regulation led to “factionalism, regionalism, nepotism, and blocked the creation of a wellfunctioning civil and democratic society” in Korea in the past.
The third characteristic of collectivism captures the nature of social exchange
between self and others. With an interdependent concept of self, people inherit
relationships, and are likely to view their relationships as long-term in nature. Therefore,
collectivists are unlikely to break a relationship even if it is not cost effective. Thus,
collectivists value relationships for their own sake, and nurture them with unequal social
exchanges over a long period of time. These relationships are more like communal in
nature (Clark & Mills, 1979), where the relationship is valued in itself, and the exchanges
that go on between people are less important. People feel an equality of affect, e.g., when
one party is happy, the other feels good; and when either party experiences a set-back, the
other feels bad (Mills and Clark, 1982). Individualists, on the other hand, are rational in
their social exchange, and are guided by the principles of equal exchange and cost benefit
analysis.
Finally, the fourth characteristic of collectivism focuses on how individuals interact
with the society at large. Collectivists inherit many relationships and learn to live with the
interdependencies that come with them. Part of managing the interdependencies is to
develop goals that meet the need of more than one’s own self. In the process of taking care
of the needs of one’s ingroup members, a social mechanism evolves in collectivist cultures,
which is driven by norms. Thus, for collectivists it is cognitively easier to resort to methods
that have been tried in the past for interacting with other people. A sense of duty guides
them toward social norms both in the workplace and in interpersonal relationships.
Individualists, on the other hand, are less concerned about others’ needs, and care much less
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about what their family members or co-workers have to say, let alone the extended family,
friends, or neighbors. Some of the characteristics of groupthink like self-censorship, mindguarding, and collective rationalizing, are likely to be accentuated by the tendency of
following a norm in the collectivist cultures.
Consequences of Collectivism
At the psychological level, in relation to group decision making, these four
characteristics of collectivism foster conformity, whereas they contribute to
institutionalization at the organizational level. In a comparative study of Chinese and
American people, Hsu (1981) concluded that collectivists believe in interdependence and
are inclined to conform. In general, in Confucian cultures, conformity tends to govern all
interpersonal relations and carries strong social and cultural approval. The same
conformity can be observed in many social behaviors in other Asian countries. For
example, a subordinate often informs his or her superior before proceeding with an
important decision. Such approval seeking reflects constant self-monitoring with “What
would others think or say if I do this” in mind.
It has been found that collectivist cultures tend to create lasting institutions and
policy shaping structures. For example, the Japanese Union of Scientists and Engineers
(JUSE) was created after World War II to help streamline the scientific developments in
Japan, and they continue to be active, and support the institutionalization of the quality
circle movement that started in Japan (Crocker, Charney, & Chiu, 1984; Konz, 1979).
Quality circles continue to flourish in Japan even today, whereas in the USA it has come
and gone like a fad (Abrahamson, 1996; Castorina & Wood, 1988; Lawler & Morhman,
1985). Similarly, the use of suggestion system has been institutionalized in Japan leading
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to much organizational creativity (Inagami, 1983; Min Basadur, 1992), while this method
never took roots in western management.
The role of government has also been systematically institutionalized in Japan,
Singapore, Korea, and other Asian countries. The Japanese Ministry of Economy, Trade,
and Industry (METI), formerly known as the Ministry of International Trade and Industry
(MITI) is known for its legendary role in the development of Japan after WWII, and it is
this institution building that has earned the country the label Japan Inc 3 . (Tsurutani, 1972),
which has spread to Korea, Singapore, and other countries. This institution building is
inspired and supported by the common fate that people experience in collectivist cultures,
and because of this perception of common fate people are willing to make personal
sacrifices for the common good. For example, Japanese consumers save about 14% as
compared to American consumers who save about 0.5 percent (Synodinos, 2001). This is
despite the fact that the Japanese postal service pays extremely low interest rate, less than
one percent per year, to the depositors, and this personal sacrifice made by the people of
Japan makes cost of capital the lowest in the world for the Japanese businesses, which in
itself is a financial legend.
Collectivist values can lead to group as well as organizational goal congruency. A
reflection of such goal congruency is the low divorce rate found in collectivist cultures,
which is attributed to the fact that people often sacrifice personal interest to preserve
family unity and goals (Bhawuk, 1999). Even though there has been an increase in the rate
3
“Japan Inc.” has a much longer history than most people are aware of, as can be seen in the following
quote: "The industrial hierarchy of Japan is so compact that you can almost think of its works as the
products of a single beautifully integrated and highly diversified corporation ... For a generation ... it has
been Japan Incorporated against the world." (Fortune, 1936, p.77).
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of divorce in some collectivist cultures recently, other countries like India, for example,
continue to have a very low divorce rate, about 1.1 per hundred, as compared to the 38 per
hundred in the USA. At the organizational level, many scholars have studied Japanese,
Chinese, Korean, Indian and other Asian organizations, and concluded that Asian
organizations are different from the Western ones in that there is high goal congruency
between the organization and its employees (Miyajima, 1986; Redding, Norman &
Schlander, 1994; Sinha, 1994; Wang, 1981; Yoo, & Lee, 1987).
It can be argued that the two world wars have shaped the post war economies of
America and Europe. In the same vein, we posit that colonization and World War II have
shaped the economic dynamism of East Asian countries. For example, unlike Europe and
North America, where capitalism evolved from within, capitalism was imposed by the
colonizers on Asian nations (Kim, 1995). Though this imposition altered some of the
cultural values in these countries, and the values of these countries continue to change,
researchers have found that the emphasis on human-relatedness, a characteristic of
collectivism, remains strong (Kim, 1995). In Japan, researchers (Azuma, 1986; Befu,
1986; Kurachi, 1984) note that human relatedness is still strong despite its heavy focus to
industrialization, urbanization, modernization, and capitalism. In fact, Misumi (1985)
argued that the economic success of Japan is due to its “maintenance of human-relatedness,
and not in spite of it” (Kim, 1995, p. 11). Similarly, Steensma, Marino and Weaver (2000)
found that collectivist value relationships and dislike bargaining relationships.
The newly industrialized countries like Hong Kong, Japan, Singapore, South Korea
and Taiwan that were traditionally agrarian succeeded in developing collective norms that
were compatible with their cultural values (Kim, 1995), and still succeeded economically.
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The motivation to be economically independent from the West led people in these
collectivist cultures to develop stronger national congruencies. This is also captured in the
popularity of terms like Japan Inc. (Tsurutani, 1972). The idea of having a country
“incorporated” much like an organization, appealed to other Asian countries, and we can
find reference to “Korea Inc.” and “Singapore Inc.” in the business literature. At the
individual level, for example, it has been argued that “Korean entrepreneurs and employers
have historically emphasized their unselfish contributions to national progress (Eckert,
1993, p.117). Korean employees also share the same characteristic, and are known to take
fewer vacation days and put in hundreds of hours more than the American workers (Koo,
1994).
In sum, the collectivist values captured by the four characteristics can have a
positive effect on organizations in building teams through conformity and collective goal
congruency, and can also lead to national goal congruency and institutionalization of
organizational practices like quality circles, partnership among government and private
organizations, etc. The Asian success came from the collective effort driven by
nationalism in the face of much national adversity. The collectivist sense of common fate
has been an energizing force for innovation and change in these countries. To quote Porter
(1990, p. 282), “Pressure and challenge, not “a quiet life,” has led firms and nations to
advance.” We can see in what follows that in the two early phases of economic
development, ability of collectivist cultures to achieve national goal congruency through
collective values can play a major role in economic success and in competing with other
nations.
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Factor Driven Economy
When the economy is factor driven, competitive advantages are derived solely from
basic factors of production -- cheap and abundant labor, natural resources (petroleum, coal,
iron and other metals, industrial diamond, etc.) that can be used in manufacturing by other
countries, and favorable growing conditions of certain agricultural products. The nations
in this stage develop policies to achieve an efficient use of these factors for economic
growth, and offer, among others, tax holidays, exclusive rights to markets, special import
facilities and foreign currency privileges. Organizations are more reactive, and try to take
advantage of these policies to be profitable. According to Porter (1990), the tendency to
focus on the factors of production in a way limits the types of industries a nation can
develop. He argued that although all nations capitalize on their factors advantage, only a
few ever pass through this stage and move to a more advanced stage, and clearly, Japan,
Korea, Taiwan, Singapore, Hong Kong have done this. Porter cautioned that “a factordriven economy is one with a poor foundation for sustained productivity growth” (1990, p.
548),” and the big bulk of developing countries struggling with poverty in Asia, Africa,
and South America exemplify this.
Investment Driven Economy
In the next stage, competitive advantage at the national level is accomplished by
aggressively investing in education, technology and management methods to enhance
production capabilities. It is this combination of factor advantages as well as newly
acquired and improved upon manufacturing capability that allows the nation to achieve
credibility as an industrial entity. As a part of the natural outcome of developing from a
factor driven to an investment driven economy is a change in the labor force from being
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semi-skilled to better educated and, correspondingly, better paid. Over time, increasing
labor costs have a negative impact on the competitiveness of the country. However, in the
early stages of development the increased efficiency and productivity within the economy
offsets the increase in labor costs. It is this increased productivity that allows for
exponential growth of the nation's economy (Porter, 1990), and the increase in domestic
discretionary income can either be saved and reinvested into the economy, or spent on
consumer products.
Economic Success
We posit that cultural values that lead to collective and national goal congruencies
play a key role in the factor and investment driven economies, which is corroborated in the
development of many of the East Asian economies in the last thirty years. Inspired by the
national goal of economic development, these countries quickly achieved efficiencies in
industries where they had factor advantages, and reinvested the surplus into the acquisition
of technology as well as the education and training of the domestic workforce. Thus, there
is a plausible case to support that cultural values of collectivism can lead to economic
success, which is one of our major thesis. However, the cultural values that play a positive
role in this stage of economic development are not able to contribute once the economic
development is forced to move into the innovation-driven stage, which gets further
compounded by the development of globalization and hypercompetition. This is because
success can easily breed an attitude that leads policy makers and managers not to see or
pay attention to the need to change the policies and organizational structures 4 and values to
4
Ted Levitt referred to such blind spots in marketing as “Marketing Myopia” in his now classic article. In R & D
centers this same attitude takes the form of “Not invented here,” therefore not good or worth paying attention to.
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be competitive in the changing global business world. Such attitudes supported by
extreme conformity can easily lead to groupthink, which is detrimental to organizations
when they need to be innovation driven. In the next sections we discuss these issues and
how organizations can bypass the consequences of groupthink.
Groupthink
Moderate to high group cohesiveness is one of the antecedents of groupthink (Janis,
1982). However, acting alone, cohesiveness does not create groupthink. Janis identified
the following secondary conditions that foster groupthink: 1) insulation of the group, 2) a
stated leader preference for a certain decision, 3) a lack of norms requiring methodical
procedures, and 4) homogeneity of member’s social background and ideology. Janis
recognized two other factors coming from the external environment, high stress from
external forces and low self-esteem within the group due to past failures. All these factors
set the stage for flawed, and destructive, group decision making. The symptoms of
groupthink have been described by Janis (1982) to include direct social pressure on
members who do not agree with the shared beliefs of the group, members self-censoring so
as to conform with the consensus of the group, members viewing themselves as
invulnerable and sharing an illusion of unanimity, an emergence of self-appointed mindguards who screen out adverse information from the group, collective effort by group
members to rationalize their actions as well as to describe themselves as inherently moral,
and the use of stereotypes about others to portray them as weak or incompetent.
Ultimately groups that experience groupthink make poor information searches and
incomplete surveys of both objectives and alternatives before they make decisions. They
also experience selective bias in processing the information that they use in the decisions
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that they make. These groups fail to examine fully the risks associated with their preferred
choice as well as become unwilling to reappraise initially rejected alternatives. Janis
(1982) asserted that under groupthink the probability that an effective decision will be
made sharply diminishes, because the group uses flawed decision processes. He proposed
that the quality of decisions was contingent upon the soundness of the procedures through
which they were taken. Previous research has also shown that the tendency for groupthink
in cohesive groups is quite high (Asch, 1952; Kiesler, 1969; Hare, 1976; McGrath, 1984).
Reviewing three decades of literature on groupthink, Baron (2005, p. 219)
concluded that “the evidence has largely failed to support the formulation’s more
ambitious and controversial predictions, specifically those linking certain antecedent
conditions with groupthink phenomena,” and offered a ubiquity model of groupthink. He
reduced the antecedents of groupthink to three variables. These three antecedents are
found to relate to the four defining attributes of collectivism. First, he argued that the
individuals in the group share social identification with group members, which is similar to
collectivists having an interdependent concept of self, a self that they share with others.
Second, there is a dominant group norm, which is much like the collectivists being norm
driven. Clearly, it would require much effort for a group of individualists, who are driven
by their individual attitudes, values, and beliefs, to develop a strong group norm compared
to collectivists. Third, there is a lack of situational self-efficacy. Again, past research has
shown that collectivists emphasize on collective-efficacy (Triandis, 1989), which would
lead to a lack of situational-efficacy when facing decisions that affects their ingroup
members. Thus, the same goal congruencies that lead to economic success can also lead to
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economic failure if divergent views are not examined in the context of rapidly changing
economy as is experienced in the current times with globalization.
Economic Failure
Once nations are successful in investment-driven economy, they are forced to move
into the innovation stage as the earlier economic success raises the cost of factor
production (e.g. labor) and they start to lose their competitive advantage, which is further
intensified by globalization. In addition, the domestics markets become more sophisticated
due to higher standards of living, which demands innovative products of higher-quality. In
order to maintain some competitive advantage firms must seek out new advantages by
being increasingly more innovative in their product offerings as well as more flexible in
their firm’s strategy. Groupthink becomes a great liability in this phase. Due to excessive
groupthink in organizations and among policy makers, nations lose their ability to compete
in the innovation stage. For example, the 1997 financial crisis in Southeast Asia was not
due to a collapse of production capabilities but an inability to respond to changing
domestic and world conditions quickly, including making changes in financial policies that
were no longer appropriate (Khatri, Wen, Fuie & Geok, 1999). As cultural influence
cannot be eliminated, and it might be detrimental to do so, we propose the concepts of
loose coupling, requisite variety and competitive redundancy, which can counterbalance
the negative effects of some of the cultural influences that lead to groupthink. They can
also help create teamthink, which can facilitate organizations to be more successful in the
innovation and wealth driven stages of economic development.
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Towards Innovation and Wealth Driven Economy
We posit that there are two paths for nations with collectivist cultures to develop
teamthink, and hence move towards innovation and wealth driven economies. The first
path is more like a bypass and is available before groupthink starts to set in, whereas the
second path is a reaction to failures resulting from groupthink, and is available after
groupthink sets in.
Path 1 is most applicable to nations when they are fast becoming industrialized and
some of their organizations begin to emerge as a leader in the world market, or when the
cost of manufacturing makes transferring them off-shore more profitable. In the late 1980s
many of the Japanese companies like Toyota, Honda, Canon, Matsushita Electrical, etc.
were clearly emerging ahead of other companies in their industries in the USA and Europe.
Also, about this time Sony and other companies were moving many manufacturing plants
to other South East Asian countries like Malaysia and Thailand. This would be ideal time
for government policy makers to start changing their policy toward nurturing the service
industry instead of protecting their manufacturing industry through excise and other
benefits. And manufacturing companies would need to become more competitive through
innovation. This is found in the case of Toyota and many other Japanese companies,
which have developed effective multifunctional teams to take ideas from design to market
in less than two years (Ward et al., 1995). We suggest that the application of “loose
coupling,” “requisite variety,” and “competitive redundancy” will help organizations to
preemptively avoid groupthink.
Path 2 is most relevant to countries that have gained economic success through the
first two phases of economic development, but are struggling in the third stage due to
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20
groupthink in policy making as well as in organizations where managers continue to push
the same strategy despite failures in the global market place. Though this is not the
preferred path, it is still available to both managers in organizations and policy makers in
government. When countries are in crisis, it is harder to change their course, because
people continue to think that what has worked in the past should work, not realizing that
the environment and the economy have changed, which call for new approaches. As can
be seen in the model, both these paths lead toward teamthink through loose coupling,
requisite variety, and competitive redundancy. Teamthink allows organizations and
nations to gain divergent perspectives, which is critical to recognize opportunities and
obstacles and to create synergy. One may wonder how these organizational variables
influence policy makers in the government. Policies that force organizations in the first
two stages of economic development to stick to a narrow specialization in some area of
production should be relaxed, and new policies should allow organizations to develop the
requisite variety to meet the environmental challenges. Again, in the early stages of
economic development, governments develop policies that focus on optimization or
resource conservation, and they need to set a broader course for organizations for them to
explore requisite variety and competitive redundancy. Next, we discuss how these
organizational constructs can lead to the development of teamthink.
Loose Coupling
The concept of “loose coupling” was first used by March and Simon (1958) in
describing the relationships that exist between the various units of an organization
(Spender & Grinyer, 1995). On the surface the term may appear to be an oxymoron
because of the inherent contradiction between the two words, loose and coupling, because
A Cultural Model of Economic Development
21
“loose” suggests separateness and “coupling” suggests connectivity among various
organizational units. However, the insight of the construct lies in balancing these inherent
contradictions.
This construct gained popularity after Weick’s (1976) seminal study of educational
organizations as loosely coupled systems (Spender & Grevesen, 1999). He described seven
advantages of such systems. First, such organizational systems know their environments
better because their elements are free to interact with the environment, and could be
observing the environment from many different perspectives. For example, the business
school of a university could be a global player whereas the medical school could be a local
player, allowing the university to please different constituencies by meeting their disparate
needs. On the other hand, tightly coupled systems have in effect fewer probes to scan the
environment independently, and are not able to understand and predict the environment as
well.
Second, loosely coupled systems enable one element of the system to adjust and
adapt to a new contingency without affecting the whole system (Weick, 1976). This was
also supported by Levinthal (1997), who argued that in changing environments, loosely
coupled organizations are more able to engage in effective local adaptation and as such
have a higher rate of success. In the above example, the medical or business schools of the
university could change their policies, to become local or global, independent of each other
without adversely impacting each other or the general policy of the university. Third,
Weick argued that loose coupling allows the survival of a portion of an organization. For
example, the traditional photo business of Kodak could fold without hurting the digital
imaging business, since these units work rather independently. This idea is particularly
A Cultural Model of Economic Development
22
relevant to the discussion of hypercompetition and other environmental uncertainties
caused by globalization.
Fourth, loosely coupled system could retain a greater number of mutations and
novel solutions due to the preservation of separateness and uniqueness of elements in the
system. Fifth, loosely coupled systems allow the system to function even if some part of
the system is down. Sixth, self-determination results from autonomy that loosely coupled
systems allow their elements. And finally, loosely coupled systems are relatively
inexpensive to manage because they require less coordination (Weick, 1976).
The benefits of loosely coupled systems are clear. For example, in Japan, loosely
connected business organizations that were reformed from tightly controlled Zaibatsu, 5
proved to be a significant contributor to its economic development (Kashima & Callan,
1994). Samsung, the most profitable technology company, ahead of Microsoft, IBM and
Intel in the first quarter of 2004, is the largest loose conglomerate (Chaebol) in Korea. It
differs from other Korean Chaebols and even Japanese and US companies in that it treats
internal vendors and external vendors in a similar manner with no favoritism in pricing
(Brown & Doebelle, 2004). These examples show that “loose coupling” is something that
Asian organizations can practice with effort, and it not only facilitates organizational
learning, but also enhances the effectiveness and efficiency of organizations. Loosely
coupled system may in fact be a good system to deal with the challenges of globalization,
which requires a balance between global and local needs.
5
It is interesting to note that the term zaibatsu and chaebol have the same two Chinese characters, which
means “wealth clique” (Guillen, 2001, p. 44).
A Cultural Model of Economic Development
23
Theoretically, the concept of loose coupling already exists at the societal level in
collectivist cultures. For example, the distinction between an ingroup and outgroup lies in
that the relationship between individuals in an ingroup is tight and the relationship between
members from outgroups is loose. Considering that most collectivist cultures in the precolonial times appeared to be societies in harmony, it is plausible that these cultures can
deal with contradictions, and can cultivate the notion of loose coupling.
Requisite Variety
The law of requisite variety states that the internal environment of an organization
should have enough distinctive characteristics in order to deal with the variability of
external environment (Ashby, 1958). If the environment is fast changing in many areas,
then the organization can adapt better if it is internally diverse enough to tap all the signals
coming from the environment. For example, the political system in a country could be
changing, the consumer needs and taste may be changing, the workforce demographic may
be changing, the standard of living of the nation may be rising, and many multinational
companies may be entering into the local market. To deal with all these changes an
organization needs more than one of its units to simultaneously scan changes in these
areas. If it only has a planning department responsible for monitoring the changes, it is
likely to fail to respond to changes in the environment. In other words, organizations are
effective when they are diverse internally to capitalize on the diversity in the external
environment (Hon & Brunner, 2000).
The concept of requisite variety has found many applications in organizational
literature since it first appeared in the fifties (Ashby, 1958). For example, it has been
applied to diversity (Weick, 1979), knowledge management (Nonaka, 1994; Chen & Lin,
A Cultural Model of Economic Development
24
2004), value creation and sustained growth (Rastogi, 2003), strategic management
(Maranville, 1999; Burton & Forsyth, 1986), and ethics (Husted, 1993). Krefting, Kirby,
and Krzystofiak (1997) argued that varying the internal environment through heterogeneity
of workforce and greater participation would facilitate requisite variety and reduce
groupthink. In a way, requisite variety is also the characteristic that helps organizations to
recognize diverse groups and foster productive relationships among them. Lacking
requisite variety, organizations may not even recognize some groups as strategic
constituencies. Shifting the paradigm from conformity and control to the paradigm of
diverse ideas and participation has been argued as a major strategy for organizational
success (McDaniel & Walls, 1997). Examples of this can be found in the Asian cultures.
For example, China introduced the ‘three-in-one’ principle as the national industrial policy
to ensure that technicians, workers, and managers worked together for technological
innovation (Wang, 1994).
At the national level policies can be developed that support the development of
requisite variety. For example, the multi-language policies in India and Singapore have
helped these countries not only to develop their human resource, but also to reach out to a
broader market place with products and services. Recently, the Malaysian politicians
argued that the acquisition of Tamil and Mandarin languages in addition to Bahasa
Malaysia and English would be an added advantage in view of the opening of the markets
in India and China, 6 and also added Mandarin and Tamil language classes in Malaysian
national schools.
6
http://www.mic.org.my/newsdetail.php?id=156; see also
http://www.pmo.gov.my/website/webdb.nsf/0/3802e7accec7cc3148256fef0001fadb?OpenDocument&Click=
A Cultural Model of Economic Development
25
Adler (2002) argued that diverse groups inherently reduce the probability of
groupthink through their composition. Bhawuk, Podsiadlowski, Graf, & Triandis (2002)
noted that diversity is not only reflected in objective or demographic variables but also in
subjective, cultural behavior, attitudes, norms, and values. Krefting, Kirby, and
Krzystofiak (1997, p. 385) cautioned that just having demographic diversity is a “flawed
proxy for requisite variety because it focuses on artificial requirements and fails to
overcome organizations' tendencies to suppress alternative voices.” They further asserted
that organizations need to be aware, recognize and protect the diversity voice in order to
truly tap the requisite capabilities of their workforce. Though, diverse groups might take
more time to reach decisions (Fisher, 1980), the likelihood that they would explore the full
range of alternatives is higher (Triandis, Kurowski & Gelfand, 1994). Not doing so,
organizations may miss the opportunity to respond to signals from the environment.
Competitive Redundancy
The term redundancy is often associated with wasting resources, and this notion is
founded on the mechanistic worldview and resource-based view of organizations.
Mechanistic approaches to manage organizations encourage high degrees of specialization
(Morgan, 1998) and discourage redundancies. In the resource-based view, it is implied
that firms have limited resources and as such, redundancies should be avoided in order to
be focused. Emery and Trist’s (1965) classic research on organizational environment
argued that industries experience different rate of change in the environment. They
categorized environments broadly -- from those that change slowly to those that change
rapidly, and called them placid-randomized environment, placid-clustered environment,
disturbed-reactive environment and turbulent-field environment. It can be argued that
A Cultural Model of Economic Development
26
turbulent-field environment is more relevant today due to globalization and rapid
technological change compared to forty years ago, and so organizations need to develop
competitive redundancies.
Another example of competitive redundancy is found in the way Toyota pursues
the design of automobiles. Toyota develops many prototypes before selecting a final
design. Unlike other car manufacturers who pursue one design iteratively, Toyota’s
engineers think about sets of design alternatives. In contrary to the conventional wisdom
that suggests this process to be inefficient, Ward, Liker, Cristiano, and Sobeck (1995)
found that the process of having redundancies in the design phase actually contributed to a
quicker and cheaper production of Toyota cars in the end.
Learning many tasks through job rotation rather than focusing on specializing on a
single task also reflects redundancy. However, this method is found to make
manufacturing companies leaner in the end. Nonaka (1988) argued that the degree of new
perspectives depends on the degree of task rotation. His argument is supported by the fact
that the generation of new perspectives depends on new meaning, which is task-specific.
In other words, task rotation enables organizations to tap new perspectives from their
employees. Similarly, redundancy in Japanese “Ringi” system of decision making, quality
circles, and autonomous work teams have also been found to contribute to organizational
success.
We posit that collectivist societies already have cultural competencies in dealing
with competitive redundancy in that they develop multiple web-like relationships, and
regularly transact in this social network, blurring the difference between work and social
networks. Interestingly, even though ‘redundant contacts’ have been identified as an
A Cultural Model of Economic Development
27
ineffective way to build networks in the western world (Burt, 1992), it might be effective
in Eastern societies where redundant contacts do play an important role in building
relationship due to their distinction of ingroups and outgroups. Knowing more than one
person in an outgroup would certainly help in reducing the network distance caused by the
ingroup and outgroup differentiation. As redundancies here are based on the
differentiation between ingroups and outgroups, it inherently has the characteristic of loose
coupling, which is one of the preconditions for teamthink.
Toward Teamthink
Building on their work with self-managing teams, Neck & Manz (1994) proposed
the concept of teamthink as an alternative to groupthink. Teamthink describes group
decision making processes that draw upon the same basic antecedent conditions as
groupthink, but leads groups to productive and effective decision making. Unlike
groupthink, teamthink has been described as constructive, and is considered a more
effective way of making decisions as well as enhancing team performance. Some
symptoms of teamthink include the encouragement of divergent voices and ideas, the open
expression of concern, an awareness of limitations, recognition of unique attributes of
members, and discussion of collective doubts.
In comparing the two phenomena we must analyze the antecedent conditions
closely. Interestingly group cohesion is a central element to both these constructs. Group
cohesion serves to bring together the group, and gives a collective identity to the team
members. Deviating from groupthink, teamthink nourishes divergent views from all group
members, the freedom to openly express concerns and alternative ideas, and the uniqueness
A Cultural Model of Economic Development
28
of every member. It also encourages the discussion of collective doubts and the limitations
as well as the threats associated with a decision (Neck & Manz, 1994).
Neck and Manz (1994) identified several contingency factors that ultimately
determine whether a group will develop constructive or destructive group processes. Of
these factors the most critical factor is the team leader, which the authors described as
being the primary mechanism by which the mind of the group revolves. Leaders that
deliberately seek-out divergent opinions as well as encourage full assessments of the risks
and benefits of all alternatives begin to set the stage for productive, constructive decision
making in groups.
The cultural beliefs of the members of the group, especially as it applies to the use
of norms as heuristics in decision making, are also critical to the emergence of teamthink.
Unlike Janis (1982), who viewed group norms as a way of censoring members and
controlling the flow of divergent beliefs in destructive decision making, Neck and Manz
believe that norms that encourage group members to express divergent opinions can be
established, which in turn can enhance the development of a constructive decision making
process. This in turn would allow the group to maximize the acquisition and interpretation
of all relevant information, and fully consider the risks and benefits of both the preferred
course of action as well as other viable alternatives. This in turn can maximize the
potential outcomes of every decision that a team makes. We posit that loose coupling,
requisite variety and competitive redundancy can create the ground for teamthink to
emerge, since these three organizational strategies would support diversity, critical
thinking, and evaluation of all possible alternatives. Thus, teamthink can help the
organizations deal with the challenges of the next two phases of economic development.
A Cultural Model of Economic Development
29
Innovation Driven Economy
In the innovation-driven stage, the industrial developments of the country would
have outpaced the advantages due to country factor benefits. The acquisition of
technology in existing industries can no longer support continuing production efficiencies
because costs of labor, due to a better-educated population, are increasing at a rate faster
than improvements in production (Porter, 1990). An additional complication is the
growing sophistication of domestic markets, and the expectation that these markets
demand more innovative and higher quality products. In order to maintain competitive
advantages firms must seek out new advantages by being increasingly more innovative in
their product and service offerings as well as more flexible in their firm’s strategy.
Wealth Driven Economy
The final stage in Porter's model is called the wealth-driven economy. In this stage,
the driving force is the wealth that has already been achieved from existing industries.
This stage can ultimately lead to decline, according to Porter, unless the nation and the
firm seek out new competitive advantages. This is done by widening out and adding new
industries that have high value added capabilities while at the same time weeding out those
industries whose advantages came from country factors or investment factors, which are no
longer profitable. For example, Japanese television manufacturers moved from Japan to
Korea to Taiwan, and now they are in China. Again, it makes intuitive sense that by
nurturing loose coupling, requisite variety, and competitive redundancy, organizations can
explore the demands of the environment better, and be economically successful in this
stage of economic development.
A Cultural Model of Economic Development
30
Figure 2 synthesizes how Porter’s four stage model operates in the cultural space
shaped by globalization and interacts with governmental policies and organizational
strategies. It shows how the production frontier expands as the economy grows from stage
one to two to three to four. Every country has multiple cultures, and often there is a
dominant culture. Cultural space refers to the various cultures present within a national
boundary and their interactions. Cultural theories Parsons and Shils, 1951; Kluckhohn &
Strodtbeck, 1961; Hofstede, 1980; Triandis, 1995; Trompenaars & Hampden-Turner,
1997; Leung & Bond, 2004) are tools that facilitate mapping the cultural space.
Organizations are engines of economic development and act within the cultural space of
the country. Organizations act to expand the production frontier. Governments seek to
support such expansion, but may inadvertently create policies that hinder growth of the
economic frontier.
--------------------------------------Insert Figure 2 about Here
--------------------------------------Economic Success
Janis (1982) asserted that the probability that a successful decision would result
under the flawed decision processes of groupthink is quite unlikely. He proposed that the
quality of decisions was contingent upon the soundness of the procedures through which
they were made. We posit that loose coupling, requisite variety, and competitive
redundancy can enrich the decision process, which would improve the quality of decision,
and thus lead to economic success.
A Cultural Model of Economic Development
31
Discussion
There are three major contributions of our model. First, through a synthesis of
organizational variables, process of economic development, and culture theory, our model
takes a small step in the direction of presenting a new paradigm in the study of culture and
economic success. We posit that all cultures have the potential to be economically
successful, and they need to find their own mechanisms to go from one stage of economic
development to another. We presented the case of how collectivist cultures, which
represents a vast majority of developing nations in the world, could pursue economic
development without sacrificing their cultural values. This is made possible by the
theoretical advancement in cultural studies in the past 25 years and the availability of rich
literature on culture and decision making process, which was perhaps not possible at the
time of the writings of influential development economists such as Myrdal (1971) and
Galbraith (1962), since cultural studies and research on decision making were still in their
infancy then. In the past, researchers have focused on identifying elements of culture that
are positive or negative for economic development. We do not think this is a productive
research path. We agree with those who argue that culture as a whole can play a positive
role as a facilitator of economic development (Azfar, 1992), and showed that the negative
effect of cultural values can be reduced by using tools that are compatible with cultural
values. Counter-cultural practices often do not take root, and either get distorted over a
period of time, or simply become ineffective.
Second, our model enriches Porter’s idea of stages of economic development.
Specifically, it links organizational theories and culture to Porter’s model. Loose coupling,
requisite variety and competitive redundancy are presented as concepts and tools that can
A Cultural Model of Economic Development
32
be used to transform organizations in the lower two phases to the higher two levels of
economic development. Porter exhorts organizations to innovate and to look for new
industries where they can get high rate of return on their investments, but does not provide
organizational mechanism to achieve these goals. Our model fills that lacuna in his work.
Third, our model provides tools that can be used by collectivist nations to move
forward in their economic development. Many collectivist countries are not fairing well in
transforming their economic development to the stage of innovation and wealth because of
the lack of teamthink. We posit through our model that the imbalance created by
groupthink can be balanced by adding the norms of loose coupling, requisite variety and
competitive redundancies. It is important to note that the key lies in balancing, not
eliminating, the existing norms. Metaphorically, it is similar to balancing a car wheel
where new wheel weights are added to ensure smooth running of the car. Though the
wheel works well initially, it becomes imbalanced after some time but we do not change
the wheel just because it is imbalanced. Similarly, the cultural values of collectivism do
not need to be discarded, but rather complemented with the norms of teamthink. As we
posited earlier, the problem of groupthink tends to appear at the higher stages of economic
development when the pressure to innovate is paramount. As noise and vibration are the
signs of an imbalanced wheel; illusion of invulnerability, closed-mindedness, pressures
toward uniformity, and illusion of unanimity are some signs of groupthink.
Our model is also useful in explaining the importance of collective and national
goal congruency for economic development. For example, Sri Lanka had one of the
highest GDP in the South Asian region in the early 1980s, but its inability to sustain
national goal congruency has led the GDP of the country to fall to one of the lowest in the
A Cultural Model of Economic Development
33
region. Many Asian countries are never able to develop national economic goal
congruency. For example, Nepal was led by two monarchs who were always consolidating
their own position in the country, which led to the creation of a political system that served
their interests well, but did not help create a national economic goal. It is no wonder that,
much like Sri Lanka, the country that aspired to be a zone of peace has slipped on the list
of unstable countries, which is not even safe for tourists – the primary income source for
Nepal. Thus, the development of national economic goal congruency, much like Japan,
Korea, Singapore, and Taiwan have done, is a precondition for economic development.
We also clarified the spurious relationship between individualism and national
wealth. Consistent with our analysis, when one examines economic indicators like Gross
National Growth (GNG), it appears that collectivism is more predictive of wealth (r = .70,
p < .001), as was shown in the twenty-country data from the Chinese culture connection
(1987). Schwartz (1994) also reported that larger household sizes, a measure of
collectivism, predicted national wealth, and argued that the association between
individualism and wealth might have changed in the last twenty-five years since Hofstede's
(1980) analysis. He noted that the correlation between GNP and Autonomy dimension
only accounted for half the variance in his 1990 data as compared to Hofstede's 1970s data.
As we suggested earlier, trying to blame culture for economic failure is a sterile intellectual
journey, akin to the colonial mindset, which should be abandoned sooner than later in light
of the historical (Kennedy, 1988) and theoretical (Greif, 1993, 1994, 2000) evidence
against it.
History has shown that cultural values that are implicated for failures now have
indeed contributed to success in the past. The notion that East Asian countries have
A Cultural Model of Economic Development
34
become economically successful only recently is flawed, since they have been successful
in the past. For example, Malacca (part of Malaysia) was a key economic player and the
most important port in the world hosting as many as 2000 ships a day during the 15th
century (Elegant, 1999). A Portuguese writer named Tom Pires declared that “whoever
was the lord of Malacca had his hand on the throat of Venice” (Longmire, 1984). 7
Similarly, in the 11th century during the Song dynasty, the Chinese developed the world’s
most productive agricultural system and had the finest commercial ships. They also
introduced the world’s first paper money, long before any of the Western countries
(Zhiling, 1997).
For the global economy to flourish, it is important that the developing countries of
the world, whose culture is mostly collectivist, make economic progress. Though recent
research in management and social science has implied that these countries need to
overhaul their culture to model after that of the western countries, we posit that such
countercultural approaches are likely to lead to failure and suffer much backlash. Indeed,
as the model presented in this paper showed, it is possible to retain the important cultural
values of collectivist cultures and still move to the later stages of economic development
proposed by Porter (1990) using the organizational concepts of loose coupling, requisite
variety, and competitive redundancy. As aptly put by Guillen (2001, p.4), “economic
development is about finding politically feasible, ideologically tolerable, and economically
workable combinations of domestic and foreign resources to promote growth.” Culture is
one of the most critical resources, and it is hoped that the theoretical framework presented
7
Myrdal( 1971) also suggested that the average economic level in Malaysia might have been higher than in
the Western European countries when industrial revolution began.
A Cultural Model of Economic Development
35
here would facilitate in understanding the role of cultural variables of collectivism in
describing the roots of economic success or failure.
A Cultural Model of Economic Development
36
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Defining Features of Collectivism
• Interdependent Concept of Self
• Utility for making sacrifice for ingroups
• Relational Bonding
• Norm Driven Behaviors
Consequences of Collectivism
• Conformity
• Institutionalization
• Collective Goal Congruency
• National Goal Congruency
Factor Driven Economy
Investment Driven Economy
Loose Coupling
Requisite Variety
Competitive Redundancy
Path 1
Economic Success
Teamthink
Groupthink
Path 2
Economic Failure
Innovation Driven Economy
Wealth Driven Economy
Economic Success
Figure 1: A Cultural Model of Economic Development
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