To What Extent Do Cultural Beliefs Forged in the Distant Past, Shape Our Economic Behaviour Today?

To what extent do cultural beliefs forged in the distant past, shape our economic behaviour today?

Often, in Economics, we find that there are a variety of different explanations for a number of things, some that are not even of an Economic nature. It can occur that noneconomic arguments are declared to be invalid, but with the right empirical studies it is possible to add validity to these noneconomic arguments. This essay will try and provide a justification of how cultural beliefs from the distant past has helped shape the economic behaviour that we experience today by looking at specific cultural attributes that individuals exhibit and the channels through which cultural beliefs have an impact on economic behaviour.

Cultural beliefs can be broadly described as the customs, institutions and achievements of a particular nation or group of people (Oxford South African Concise Dictionary, 2010, s.v. ‘culture’). Culture and the accompanying beliefs are transmitted in social groups through communication and remains fairly unchanged from generation to generation (Guiso, Sapienza & Zingales, 2006:24).

The view that cultural beliefs can be used to explain economic phenomena is a concept that is indigenous to classical economists (Guiso, Sapienza & Zingales, 2006:26). Not only does cultural beliefs influence economic behaviour, it has an indirect impact on economic performance, as well, due to the fact that it alters economic behaviour of individuals and firms which will translate into improved or weakened economic performance. A case study done on firms in France found a positive correlation between cultural beliefs and the relative growth performance of firms, the firm’s relative return on investments and its relative returns on sales. These cultural attributes include responsibility, trust, adaptation, anticipation, entrepreneurship and consistency (Calori & Sarnin, 1991:71). Logically, this make sense, because if individuals in a firm display cultural attributes that are conducive to a successful working environment, the results for the firm will be positive, but the question remains as to where these cultural attributes come from.

Culture and the accompanying beliefs is something that is formed over centuries and is something that individuals have little control over. Each individual’s culture and their individual beliefs can be influenced by a variety of factors, but at the heart of each individual’s culture and beliefs certain common factors will always be evident, such as the individual’s ethnicity, race, family history and religious practices. These are attributes that individuals have little to no control over, which leads to the conclusion that culture is considered to be a “given” to individuals and is very difficult for them to control these factors, because it is rooted in the past (Guiso, Sapienza & Zingales, 2006:24). Because of the fact that individuals cannot change their culture, it does not mean that we should disregard the effects of cultural beliefs, because these cultural beliefs have a direct impact on other attributes such as trust. Trust is one of the biggest cultural attributes that affect economic behaviour, because almost all transactions that are conducted in the normal course of business requires a certain level of trust between the parties that are involved in the transaction (Arrow, 1972:357).

Trust is not only an important factor to consider between the transactions of individuals, but also between countries. Countries generally have, or do not have, trust between each other based on experiences that they had in the past or political judgement calls that have been made from either’s side. This can clearly be seen in the case where embargoes and sanctions are set in place between countries to prohibit international trade (Pride, Hughes & Kapoor, 2014).

Transmission mechanisms

Based on the knowledge that cultural beliefs have an affect on economic behaviour, we can identify the channels in which cultural beliefs can affect economic behaviour. between two channels in which culture can ultimately affect economic behaviour. The channels through which culture affects economic behaviour are, respectively, through economic preferences, which include factors such as fertility rates and labour force participation preferences; and through political preferences, which include factors such as fiscal redistribution preferences (Guiso, Sapienza & Zingales, 2006:37). In essence, this tells us that cultural beliefs do not have a direct impact on economic behaviour, but rather an indirect impact by making use of either of the two aforementioned transmission mechanisms to affect economic behaviour. A practical example would be in cultures where the beliefs are that many children indicate wealth. Accordingly, the fertility rates in these cultures will generally be high, which will lead to less active participants in the labour force, because the women will be taking care of the children. This, therefore, alters their economic behaviour based on a cultural belief which has been accepted from the past.

When we look at the cultural beliefs of individuals, we are generally able to categorise the cultural beliefs of individuals into different groups.  For the sake of convenience, this essay will restrict the cultural beliefs to two different groups, which have a large impact on economic behaviour in the sense that it manifests very different economic behaviour. These groups of cultural beliefs are i) individualism versus collectivism and ii) pragmatism versus proceduralism (Casson, 2006:361), which will each be discussed in individual sections below.

Individualism versus collectivism

Individualism refers to “the subordination of the goals of the collectivists to individual goals”. Individualists generally prioritise their own preferences and needs, because they are driven by their own beliefs and values. Accordingly, individualists will always strive to achieve their personal goals (Olsson & Paik, 2016:5). Individualism is generally not conducive for economic performance of a country, due to the economic behaviour of each individual being to strive towards their individual goals and never towards one goal to improve the economic performance of the country.

Collectivism can be considered the opposite of individualism, i.e. a belief system which is mainly driven by social norms, which consists of individuals who are interdependent of one another and who consider themselves to be a part of the collective striving towards a single goal (Olsson & Paik, 2016:5-6). Collectivism is generally conducive for improving economic performance, because the economic behaviour of individuals in a collectivist society will be to strive towards a uniform goal, which is to the benefit of society.