The Economics of National Cultures--Posner

In our last week's postings on the French riots precipitated by the new employment law, now in force, that allows employers to fire, without cause, during the first two years of employment employees under the age of 26, Gary Becker and I offered some possible explanations for the riots that did not depend on any notion of a distinctive French political or social culture. But it is difficult to resist attributing some causal efficacy to cultural factors. The new law permits, though within a very limited scope, employment at will, the dominant employment contract in the private sector in the United States--and public opinion polls indicate that the French are more hostile toward capitalism than virtually any other nation; a recent poll finds that only 36 percent of the French have a favorable opinion of capitalism, compared to 71 percent of Americans. The French are at once highly statist, which is related to the rejection of capitalism, and highly prone to riots and work stoppages, which may also be, as I will suggest. They are unusually xenophobic, as indicated by their efforts to prevent the incorporation of English words into the French language, their resistance to foreign acquisition of French companies, and their emphatically independent line (going back to De Gaulle) in foreign relations and military matters. The French are, in short, culturally distinct. Can an economic account of cultural difference be given? If so, the starting points would be habit, on which Becker has written, and the economics of organizations, networks, and language, on all of which I have done some work. Much behavior is habitual, and this can be given an economic meaning. Behavior is habitual when it is done without conscious thought, or more precisely with limited thought. (More technically, behavior is habitual when cost and benefit are time-dependent and cost is negatively related to time and benefit positively related to it. See Gary S. Becker, "Habits, Addictions, and Traditions," 45 Kyklos 327, 336 (1992), and notice that the obverse case—cost positively, benefit negatively, related to time—is that of boredom.) One is conscious that one is brushing one'’s teeth, but the amount of thinking that is involved is very slight; one does't think about which tooth to brush next, how long to brush, how much toothpaste to put on the brush, and so forth. So transforming behavior from deliberated to habitual, usually by repetition, economizes on cognitive effort, and is thus cost-effective. The cost of making it habitual is a sunk cost, moreover, which means that once behavior is habitual it is cheap to continue with it. This discourages change, since new costs would have to be incurred. Culture is similar. The way in which people speak (including pronunciation, grammar, syntax, and vocabulary), gesture, hold their bodies, grimace, use knife and fork, greet one another, behave toward members of the opposite sex, and otherwise conduct themselves in their basic social interactions is to a high degree habitual, most of that behavioral repetoire having been learned and mastered in early childhood--when learning costs (notably of language) are low. To change one's cultural identity as an adult requires incurring heavy time costs, often with limited results--a foreigner is unlikely ever to lose all traces of foreignness. This is one reason why there are many different languages, even though it would be more efficient (costs of change aside) if everybody in the world spoke the same language. Beliefs also have an important habitual element. If one is brought up to believe that being American or French is very special and that foreign attitudes and behaviors should be held at bay, the adherence to those beliefs is cheap. Once you believe something, you will be reluctant to incur the cost of changing the belief unless assailed by some doubt that you cannot easily resist; and people do not like being in a state of doubt. Most people cannot give a good account or defense of their beliefs; they believe something because they have always believed it, not because they have a good, conscious reason to believe it. Once a belief system is entrenched, it is likely to persist indefinitely until a very rude reality check causes the costs of continued adherence to the system to exceed the costs of change. That has not yet happened in France, a rich country--surprisingly so, given its high unemployment rate and overregulation. GDP per capita is the 21st highest in the world, and though significantly lower than that of the United States is comparable to that of Germany and the United Kingdom, and higher than Sweden's. In addition, France has the world third-highest life expectancy and its workers have a great deal of leisure. The country can afford high unemployment and a short work week for those who are employed because it has the most productive workforce in the world, though in part this is an artifact of high unemployment--the unproductive workers aren't employed. The high standard of living of the French, which actually understates the quality of French life because of their leisure and life expectancy, discourages the French from reexamining their political beliefs, since such reexamination would be costly, whereas continued adherence to their beliefs is costless in the sense of requiring no mental energy and not preventing the enjoyment of a good life by most people. A weak work ethic weakens resistance to the inconvenience caused by riots and work stoppages. There is an interesting literature on organizational culture--the beliefs, norms, customary practices, methods, etc. that are found in, and vary among, particular organizations--that bears on our subject. The literature emphasizes the difficulty of changing an organization's culture. A famous study of our failure in Vietnam, by Robert Komer (Bureaucracy Does Its Thing: Institutional Constraints on U.S.-GVN Performance in Vietnam (R–967–ARPA, Aug. 1972), and a similar recent study by John Nagl (Learning to Eat Soup with a Knife: Counterinsurgency Lessons from Malaya and Vietnam (paperback ed. 2005)), document the inability of our government to change the organizational culture of our armed forces, even though it was plain to many people in government that that culture was poorly suited to the conditions of the Vietnam war. Business failures frequently stem from the same cultural inertia, even though business receives from the market strong signals that its culture is maladapted. The explanation is in part the sunk-costs problem that I have emphasized, but also the "network" character of an organization's culture, which makes it necessary, in order to change the culture in a constructive way, to change a great many things at once, and some of the things may be very difficult to change. For example, when the Detroit auto companies began losing market share to Japanese manufacturers, they studied Japanese methods and decided to adopt one of them, the "quality circle" approach whereby workers were encouraged to take an active role in suggesting productivity enhancements. Transposed to the United States, the approach failed because workers realized that improvements in productivity might endanger their job. This wasn't a problem in Japan because workers in the Japanese automobile industry had de facto lifetime tenure, which our workers did not. In Vietnam the obstacles to our armed forces' changing their organizational culture was that the culture was optimized to a continuing threat, namely that of a conventional war in Europe. Secretary of Defense Rumsfeld has had a somewhat easier job of altering the armed forces' culture to make it more responsive to what is being called "postmodern warfare," illustrated by the struggle against global terrorism and the insurgency in Iraq, because the threat of a conventional war has receded. In addition, in seeking to transform the armed forces, Rumsfeld is aided by the fact that technological innovation, the key to his concept of transformation, is an element of the traditional U.S. military culture. So culture is habit writ large and is difficult to change because habits are difficult to change. And changing national cultures, like changing social norms and customs (themselves a part of culture), is particularly difficult, because of the lack of centralized direction. In principle, the culture of a nation's military can be changed by an order of the commander in chief, though in practice such an order is likely to be foiled by passive resistance within the organization. But a national culture has no hierarchy, unless the nation is totalitarian. To change a nation's language or any other deep-seated feature of its culture requires coordinated action without a coordinator. Imagine a country whose leaders thought it would be more efficient for drivers to drive on the right-hand side of the road rather than the left but decided to leave the change to the spontaneous decision of the drivers. The dramatic though not complete changes in the German and Japanese national cultures that occurred in the wake of World War II were facilitated by the fact that in each case the war had smashed much of the existing national culture as well as demonstrated its dysfunctional character. That has yet to happen in France.

Comments

[Ken]

What about international culture? Or its momentum? Couldn't you say that the French lawmakers, influenced by globalization-friendly trends and the perceived progress of liberalization, are also making decisions based on habit and culture? (Or perhaps more precisely, failing to make decisions and instead following popular international trends?)

[ben]

Ken

Would another way to phrase this be that the French government is following the path of least resistance? Of course, saying that just shifts the question to why present action has the least resistance.

But keeping up with the Joneses is a real phenomenon among governments. Here in New Zealand there has been an increasing proposensity for market regulators to look to overseas benchmarks, highlight where NZ is lagging, infer some sort of market failure, and regulate. For NZ regulators, the path of least resistance is increasingly doing whatever it is that countries who enjoy more success than us in a particular area are doing, rather than engaging in the (often) harder task of thinking things out from first principles. Benchmarking has become a habit.

Posner said, "French are, in short, culturally distinct." Perhaps the French are liberalizing the market in spite of an international trend rather than because of it.

[Larry]

While I like your argument in general, the lack of productivity suggestions from American auto workers could have a different explanation than job tenure fears. They are much stupider than Japanese auto workers.

[Paco]

Dear Judge Posner,

With your most recent entries, Becker and you have once again amply demonstrated the wide reach of economic logic. I only question one thing. You state at the end of your first paragraph that the French are 'culturally distinct'. Is this not a tautology, in that all cultures at a lower level of abstraction are 'distinct' to a certain degree?

Perhaps it would be more accurate to say that the French are more 'pesky' (or prefer more leisure to income) than other peoples.

Also, I wonder what you make of Professor Laurence Friedman's 'convergence thesis'? According to Friedman, cultures are 'converging' more and more due to the global movement of ideas, goods, and services.

[Paco]

Dear Judge Posner,

With your most recent entries, Becker and you have once again amply demonstrated the wide reach of economic logic. I only question one thing. You state at the end of your first paragraph that the French are 'culturally distinct'. Is this not a tautology, in that all cultures at a lower level of abstraction are 'distinct' to a certain degree?

Perhaps it would be more accurate to say that the French are more 'pesky' (or prefer more leisure to income) than other peoples.

Also, I wonder what you make of Professor Laurence Friedman's 'convergence thesis'? According to Friedman, cultures are 'converging' more and more due to the global movement of ideas, goods, and services.

[Arun Khanna]

A key element of the economics of national culture is the long lagged economic effect. This can explain why France with its cultural barriers is still doing well in per capita income levels but not so well in per capita income growth rates.

[anaxanagorenas]

Paco,

Conditional or unconditional beta-convergence?

[Patrick]

Isn't the simple solution that those who are protesting are overwhelmingly those who will get jobs and therefore those whose privileges are under attack?

Step 1: Pass a law that says that all people employed for more than three months are automatically employed for life if not on a specific class of contract subject to specific case-by-case exemption from the local government authority.
Step 2: Pass a law that makes it illegal to fire lifetime employees without (strong) cause or imminent insolvency (with its own dire consequences)
Step 3: Pass a law substantially mitigating operation of the first and second law by introducing a general exception to the first that does not attract the second with respect of a specific class.
Step 4: Specific class protests.

Nothing distinct about it.

[Robert Love]

This is an excellent post, but I take issue with one of its propositions: "The country can afford high unemployment and a short work week for those who are employed because it has the most productive workforce in the world, though in part this is an artifact of high unemployment--the unproductive workers aren't employed."

While high unemployment is a fact, I am not sure that I agree with what you claim is the upshot of that--that "the unproductive workers aren't employed." I live in France and my experience has been that the workers here are terribly inefficient, especially in the services industry. I live in a fairly affluent section of Paris, and it was still very difficult to get internet service in a reasonable time (it took weeks). Moreover, the responsiveness to problems I've had with that service and various other services (cell phones and electricity for instance) has been quite slow. When settling a problem with one of these companies, one usually has to make two phone calls where one would do, due to lack of reliability on the part of the service representative. Also, systems management at places like universities, government offices, and the airport are sub-par by US standards. It often seems that the result you get out of any particular encounter entirely depends on the particular person you are speaking to and not company policy, leaving one with the unsatisfied by the inconsistencies and lack of integrity of man workers here.

In short, I figured that these inefficiencies resulted from the fact that workers were lazy on account of not being able to be fired with ease. What's the incentive to work hard once one has a job after all?

With this in mind, I wonder exactly how France can have "the most productive workforce in the world." I have heard this before, and I am sure that you have some support for the statement, but I am not convinced. It just seems odd in light of the fact that any person I know who has spent time in both countries agrees with me that France is much less efficient than the US, especially in industries involving services and logisitical challenges.

[robert]

A change in the direction of a society's culture can only come about by a change in its philosophy. And that change can only be made by a society's intellectuals. Intellectuals set in motion the ideas that will be prominent in a particular culture and most then accept these ideas by default.
Europe's Enlightenment thinkers have given way to post-modern, deconstructionist intellectuals advocating, among other things, statism over capitalism (read "Anti-Americanism"), collectivism over individualism, and mysticism/faith over reason. A society that accepts these ideas as definitive of its culture cannot, in the long run, succeeed.
France, Europe and the intellectual elites of America are indicative of this philosophical malaise. The result has been (and continues to be) poitical correctness, multiculturalism, the expansion of the welfare state, etc.
Given the above, is it any wonder that France--and, to a similar extent, most of Europe--is experiencing problems? And how long until America, whose public intellectuals are of the same stripe, win out over leftover Enlightenment ideas?
French cultural problems are a symptom of a much larger disease and a clarion call to everyone.

[robert]

"And how long until..." was to read "And how long until the ideas of America's public intellectuals, who are of the same stripe, win out over leftover Enlightenment ideas?"

[Jose]

Hi,

I think the puzzle, from the point of view of economic theory, is that France is simultaneously a rich country, most people enjoys plenty of leisure, it has a generous welfare system, and a rigid labor market (that is, a lot of labor stability). In few words, paradise on earth.

I agree with Posner: why a country will want to change their beliefs and culture when the outcome can be so good?

The only reason is if France is mortaging its future.

It follows that: or France will become a poor country soon, or labor market rigidity/flexibility is not an important determinant of productivity and wealth.

Will reality check come? Economists should be able to predict when labor market rigidity will make France a poor country. If this will happen in the far future or the probability is low (given current laws) then it may be optimal not to change.

[N.E.Hatfield]

The Economics of National Cultures? Is "Globalization" really nothing more than a euphemism for Asian Mercantilism and Capitalism's exploitation of Labor on an international scale? Didn't Orwell remind the world of what happens when a national culture is overcome by monolithic economic forces such as are overwhelming the world today?

[Steve Sailer]

In explaining different levels of rioting, please don't overlook the simple appeal of tradition.

Unlike in America, street fighting has an admired past in France, and thus it's more admired in the present, as well. And thus it's more common there than here.

Several days of street fighting preceded the liberation of Paris in 1944, and over 1,000 died in the urban uprising that brought the new patriot king to the throne in 1830 (an event similar to the Glorious Revolution in England in 1688). There are also more contentious episodes of street fighting in French history, such as the Paris Commune of 1870-71, that are admired by at least a swath of French opinion today. It's safe to say that political change in French history is accompanied by the erecting of barricades in the streets of Paris, while political upheavals in England have traditionally been accompanied by battles in Ireland.

If you want to see the impact of tradition, look at the amazing riots in South Korea. That country, by the way, in direct contrast to France, might be the hardest working country on earth, yet it also has the most slam-bang and best organized riots on earth. South Korea has a huge conscript riot police but they make no effort to quell riots. Their mission is not to stop riots but to do battle with the rioters. Apparently, well organized communal violence is an old Korean tradition.

For a striking picture of a highly regimented South Korean riot from the Riot Porn blog, see http://isteve.blogspot.com/2005/11/riot-porn.html

[Shine]

Mr.Posner,would you mind saying something about the exchange rate of RMB? Do you think U.S common consumers will stand with guys who claim to burden pressure on China?You know if that occurs ,cheap merchandises made in China will disappear in the market.

[Shine]

Mr.Posner,would you mind saying something about the exchange rate of RMB? Do you think U.S common consumers will stand with guys who claim to burden pressure on China?You know if that occurs ,cheap merchandises made in China will disappear in the market.

[Bastiat]

Someone took issue with (or was confused by) Prof. Posner's observation that:

"[France] can afford high unemployment and a short work week for those who are employed because it has the most productive workforce in the world, though in part this is an artifact of high unemployment--the unproductive workers aren't employed."

I recall a McKinsey Global Institute study within the past couple years that observed that France had the highest national productivity and yet, industry by industry, its productivity was generally well below that of the U.S. (on the order of 10-20 percent below U.S. levels in many cases.)

This is possible because a great number of service industries, employing a material percentage of the workforce, exist in the U.S. but not in France because of French market rigidities and high labor costs. These service sectors have relatively low labor productivity; accordingly, they depress U.S. aggregate labor productivity compared with France. These sectors also tend to employ the least skilled; hence Posner's comment.

Jose noted that Posner's paradox indicates that France is "paradise on earth." It certainly is for graduates of the Sorbonne and INSEAD and for many French lucky enough to be employed. For the inhabitants of the housing estates in the banlieues that ring most large French cities, however, life is as it has been for those on the outside of India's closed labor shops for decades: grim and hopeless.

Finally, one factor exacerbating the French unrest that neither Posner nor Becker mentioned in their current posts is institutional failure. The Financial Times this morning has an interesting article on the subject. France has had 26 governments during the past 25 years. Its presidential powers are unchecked; its prime minister is unaccountable to voters; its parliament is weak.

Whereas the U.K. had a stable (if Draconian) government under Thatcher that liberalized its stagnant and riven economy through the '80s, France has no such short-term stability that enables such reform.

The French may riot because of their "peskiness." They may also riot because their democratic institutions are structurally unsound.

[N.E.Hatfield]

Ahh... Dear friends, we will not go quietly into the night.

Voltaire

[Bastiat]

In that case please read an enlightening book until dawn occurs for you...

Exactly how can 200 self-sufficient economies be more efficient and productive than a single integrated one? Minnesota should obviously insulate its economy and Scandinavian collective values from the reckless laissez faire of Texas.

Or not. Government, whether in a U.S. state or a sovereign nation, retains ultimate power over the rules of trade within its boundaries.

Anyway, as economies evolve they tilt toward services, most of which are produced and consumed locally. Eliminiating trade barriers has no effect on this trend.

As for Orwell, he warned of the danger of fascism arising from state control of commerce. And the "exploitation of labor?" Yawn. People work in conditions that you consider exploitative because their next best alternative is even worse. Stifling economic development and trade simply entrenches the conditions you claim to deplore.

[Arun Khanna]

Hatfield said: Ahh... Dear friends, we will not go quietly into the night. Voltaire

It's not where you go to hide in the night that bothers us. It's just that even in the morn after Communism's collapse, you are still a bother.

[anon]

"While I like your argument in general, the lack of productivity suggestions from American auto workers could have a different explanation than job tenure fears. They are much stupider than Japanese auto workers."

You have to look at management. It is not just the workers. The workers at GM did not decide to put so much into SUVs around year 2005 (see Hummer). Management came up with production plans and forecasts. Management planned and executed acquisitions. Management allocated the R&D, engineering and design budgets. Management is responsible for the performance of the autos.

[Stephen van Beek]

The comments of Mr Becker speak of the paucity of imagination and the fertility of psychological fascism that fuels modern capitalism and its kept poodles.

The arrogant assumption that all are to be the same is the fiat of the Borg Queen herself: "Resistance is futile" You will be assimilated!"

In fact, resistance is essential to the survival of all independent cultures. Those committed to the notion of a life one actually experiences as a person, rather than fulfillng the role obligations of a 'consumer', create more 'wealth' in the sense of human values than any dreary economist bent on reducing individuals to a production statistic in a model of mere monetary values, is capable of perceiving.

[notaspambot]

It seems to me that when launching into explanations of culture via the rational-actor model, some explanation ought to be given of why you have chosen those tools and neglected the approaches of disciplines that have taken "cultural" issues as a more primary focus, such as sociology, social psychology, and anthropology. Why assume that a preference-satisfaction model is the best explanation for all forms of human behavior?

[Wicks Cherrycoke]

Reading Posner's comments on how France's rate of productivity is skewed by the country's high unemployment rate -- in that only the most productive workers have the jobs -- it strikes me not only that the "Anglo-American" and "French" models differ in how the most productive workers are rewarded, but that how the French tolerate a form of inequality and, indeed, hold it as a badge of the alleged superiority of their system.

In the "Anglo-American" model, both the productive and the unproductive have jobs, but the rewards for the former are higher and increasing more rapidly. This results in inequality in earnings. Under the French model, the productive are rewarded by having jobs at all. Earnings for those who have jobs are less "unequal" than the "Anglo-American" model. But that overlooks the fact that the less productive simply do not get jobs in the first place. Thus, the inequality is found in who gets jobs, not in pay.

Here in the USA this would be objectionable. The French tolerate this, and view it as somehow superior to the "Anglo-American" model. Yet you can very easily say that the efforts of the productive to protect their privileged positions under French employment law is every bit as "selfish" and "self interested" as capitalists are supposed to be.

[Anonymous]

nice
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