"Culture makes all the difference," Mitt Romney
an intimate gathering of Israeli businessmen at Jerusalem's
posh King David Hotel. "And as I come here and I look out over this city and
consider the accomplishments of the people of this nation, I recognize the
power of at least culture and a few other things."
U.S. Republican presidential hopeful, whose own net worth is estimated
at roughly $250
million, went on to compare Israelis' economically comfortable existence with
the more straitened circumstances in Palestinian areas. The comment predictably
drew the ire of Palestinian leaders, with one senior official deriding it
the controversy, Romney then doubled down on his argument in a short op-ed
for the National Review
, asking, "But what
exactly accounts for prosperity if not culture?"
Unfortunately for Romney, the answer
is: quite a lot. True, his cultural explanation for why Israel is richer than
Palestine has sparked an important debate that rarely occurs in the parochial,
U.S.-centric world of American presidential elections. And given the important
role the United States plays in global affairs, a presidential candidate's
views about why the United States is more economically successful than most
parts of the world are an important indicator of how he would approach the job.
Unfortunately, Romney's views are
seriously out of sync with those of the great mass of social scientists. For
one, as his more extended argument in the National
illustrates, he confuses "culture" with institutions. By culture,
social scientists mean people's values and beliefs. Romney refers to Americans'
"work ethic," which is cultural, but he also claims that political and
economic freedoms are the real keys to economic success. But political and
economic freedom are not guaranteed by (or even related to) culture but by
institutions, such as the U.S. Constitution or its system of property rights. Romney
did cite Harvard University historian David Landes, who did indeed argue that values and
beliefs are crucial for economic development, as providing the intellectual origins of his views -- but his
focus on institutions is much more in line with our book Why Nations Fail
than with Landes. Indeed, the facts on the ground
in the Middle East illustrate the power not of culture, but of institutions.
It is true, of course, that living
standards are much higher in Israel than in Gaza or the West Bank -- the gap is
even wider, in fact, than Romney claimed. Israelis have much higher levels of
educational attainment and better technology, and they benefit from much better
provision of public services -- for example, roads, health care, and water -- than
their Palestinian neighbors. There is also no denying that there are important
cultural differences between Palestinians and Israelis: For instance, the
former are primarily Muslims, while the latter are primarily Jewish.
But is there any cause-and-effect
relationship between these cultural realities and differences in prosperity? The
evidence suggests not. In fact, as economists Maristella Botticini and Zvi
Eckstein point out in their recent book, The
Chosen Few: How Education Shaped Jewish History
, the origins of the high
human-capital levels of Jews are in the historical adoption of educational institutions
in Jewish society that induced people to become highly educated. This decision
then led Jews to have a comparative advantage in trade and commerce -- specializations
that have served them well in the modern world. This is where the roots of Israel's
current prosperity lie, because these highly educated people migrated there,
bringing their institutions with them. There was no cultural proclivity that
led Jews to introduce or sustain these rules forcing Jews to educate their
children. Rather, they emerged out of a political struggle between the
Pharisees and the Sadducees to control Jewish society.
These new Israelis migrated to a place that
had suffered a long history of colonial exploitation under the Ottomans and the
British, who created extractive political and economic institutions -- in order
words, political institutions that concentrated power narrowly and economic institutions designed
to redistribute income and power to themselves at the
expense of society. The Israelis replaced these with mostly inclusive institutions
that encouraged technological progress and economic growth and created the
Middle East's first democracy, but did not spread it to the Palestinians.
This happened for several reasons, none
of them cultural. Let's start with the long history of Arab-Israeli enmity: The
existence of the state of Israel was contested by the surrounding Arab states,
leading to a long series of conflicts and Israel's capture of the West Bank
and Gaza in 1967. It is hardly surprising that the Palestinian territories --
under occupation and geographically separated from each other -- were unable to
develop inclusive political and economic institutions under such circumstances.
The effects of the conflict haven't just been limited to the Palestinians: Several
authoritarian Arab governments have used it to divert the attention of their
citizens and consolidate their corrupt grip on power.
The Middle East conflict extracts
political and economic costs on the Palestinians to this day. Israel continues
to expropriate large tracts of land in the West Bank for settlements, and of
course such insecure property rights have been disastrous for investment and
prosperity on the Palestinian side. Both territories have also had serious
economic restrictions imposed on them by the Israeli government, not to mention
the destruction of infrastructure and buildings.
All this may be justified as necessary
to maintain the security of the Israeli state, but it has obvious consequences
for Palestinian prosperity. In addition, the Palestinians have not done well at
creating the type of inclusive political institutions that are critical for
generating economic development. This
is mostly because the conflict and struggle for statehood damages
accountability and creates serious political polarization, not due to any
innate cultural differences.
Leaving aside the case of Israel and
Palestine, we show in Why Nations Fail
that Romney's ideas about "freedom" are much closer to the right way to think
about relative prosperity than his ones about "culture." Rich countries are
those that have created inclusive political and economic institutions. These
spread political power broadly in society and make it accountable; they create
an economy that can harness the talents, skills, and creativities of the vast
mass of their citizens. We also show that cultural differences simply cannot
account for the differences in economic prosperity we see today. They are
either irrelevant, as in the case of the Israelis and the Palestinians, or they are
themselves the product of institutional differences.
The most dramatic example
of this is the divide between North and South Korea -- a previously cohesive
cultural entity driven apart by war and radically different institutions. Since
their split six decades ago, the South has prospered under its inclusive system,
while the North -- with its extractive institutions based on central planning
and continuous repression -- has been driven to the brink of famine. Bizarrely,
Romney cites the case of the Koreas to support his culturalist argument. But the
divergence of these two countries obviously cannot be blamed on deeply rooted
cultural factors -- the only explanation is institutional differences and
geopolitical realities. If Romney truly wants to understand the irrelevance of
cultural factors to countries' success or failure, it's not Jerusalem he
should've visited -- it's the Demilitarized Zone.