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Relationships of Culture and Institutions Vladimir Avtonomov National Research University Higher School of Economics, Moscow; Primakov National Research Institute of World Economy and International Relations Studies of transition from planned to market economies: the changing phocus of attention : • The Washington consensus: macroeconomic stabilisation, price liberalization, privatisation. PROBLEM: deep transformation crisis • Legal and economic institutions/ government policy PROBLEM: imported institutions • MENTALITY/CULTURE Definitions of institutions • Rules of the game plus enforcement mechanisms (North) • Self –supporting system of common beliefs about how the game is played (Aoki) • Habitual ways of doing things and thinking (Veblen) • System of rules, beliefs, norms and organizations producing the regularity of social behaviour (Avner Greif) Definitions of culture • For the majority - something like the sum of traditions, values, norms and beliefs of the society (Beugelsdijk, Maseland) Culture and Institutions • Culture and institutions are not mutually exclusive categories • Institutions unlike culture are not necessarily specific for a given society and not accepted by its members as something invariant. (quantitative difference in stability) Formal and Informal Institutions • Informal institutions overlap or even roughly coincide with culture. • Then the problem “ culture vs. institutions” is reduced to interrelations of formal and informal institutions and becomes “intrainstitutional” • But when we deal with only formal institutions, the problem looks more acute (Alesina and Giuliano support this approach) Economy and Culture: different approaches • Economic imperialism: economic rationality can explain everything including institutions and cultural phenomena • Neo-institutionalism: somewhat modified economic rationality can explain a lot but not in all countries. • Economic sociology (Parsons, Smelser) the cultural subsystem exists besides the economic one and many phenomena which are traditionally called economic exist somewhere on the border between these subsystems .. . • Some sociologists (Zukin, Dimagio) state that the culture limits economic rationality • It is virtually impossible to test all these hypotheses, because of feed-backs.) Formal institutions vs. culture/mentality what is more important? • On the one hand we could find huge differences in economic behaviour in countries with the same national culture and different institutional backgrounds (East and West Germany, North and South Korea) . • On the other hand former socialist countries belonging to Eastern/ Western Christianity differ a lot despite the likeness of formal institutions D. Acemoglu and J.Robinson Inclusive(good) and extractive (bad) institutionscan be plotted along one axis: the difference is quantitative. • Extractive institutions can generate growth (through centralization) but not a sustainable one • But Centralization promotes inclusive institutions?! • Political institutions shape economic ones • Institutions influence culture (trust, propesity to cooperate) which can support institutions • Other cultural aspects ( religion, ethics, values) are irrelevant for explaining inequality of nations North, Wallis, Weingast • Open access orders and limited access orders (natural states) as the means for keeping violence under control • Limited access orders are sustainable and not disfunctional ,difficult to transform but less efficient regarding adaptation to change (creative destruction) • A transition from limited access to open access societies since the middle of XIX century requires qualitative change (threshold conditions). • Formal instituitions (elections, parliaments etc) work differently under different orders! Can’t be imported. Open access is a broader context for institutions! [Could include cultural factors? - beliefs] L. Harrison. Jews, Confucians, and Protestants • Cultural capital: orientation towards future, value of education, of success, thrift, ethical code • D.Landes – “toxic cultures” – cultures are not equally beneficial for economic growth • Haiti and Barbados (the same ethnic origin – different cultures and religions) Harrison: universal culture of progress • Religion: rationality, achivement, mysticism, this world, pragmatism • Fatalism/internal locus of control • Future/present • Thrift • Value of education • Work/achievement ethics • Entrepreneurship • Innovations • Trust Distance • Family • Social capital Formal institutions vs. culture/mentality in relation to Russia • Russian national character is not compatible with market economy and its institutions (D.L’vov) • Russia is a “normal country” which could live well under normal institutions (A.Shleifer and D/Treisman). Preliminary summary • In our view, institutional (formal institutions) and cultural approaches can supplement each other (and neoclassical approach as well). Culture does or doesn’t legitimize formal institutions. • Cultural and institutional approaches are different abstractions representing different layers of the common object - human behaviour. Different models of man used in different approaches: • homo oeconomicus in neoclassical approach • modified homo oeconomicus (+ bounded rationality and opportunistic behaviour) in neoinstitutional approach • model of man for market economy in cultural approach. Model of man for market economy (close to the universal culture by Harrison) two main components: • soft rationality – connection between the activity and its result • some ethics (provides forecastability, needed for prolonged economic activity f.ex. investments) Ethics Can be acertained either: • by trust in friends and relatives • or trust in external environment, market institutions impartial and anonimous. (Greif’s Mediterranian trade) Which ethics and other human characteristics are important for market economy? • ethics of rule-following • trust /reputation (social capital), • fairness, (Rawls: well-ordered is a sociey where the institutions are fair and it is rpublicly recognised) – either impartiality or mutual advantage • equality (some degree of). Unequality distorts the working of institutions and leads to domination • bourgeois virtues : work industrious, education, self-discipline, responsibility, abstinence from immediate satisfation of wants, tidyness + virtues of a ruler? + liberal traits: • high value of liberty, • Internal locus of control