Culture and Economic Systems

ABSTRACT. Applying a cluster analysis to the results of the World Value Study, this article shows that the OECD nations have five distinct patterns of cultural characteristics. Moreover, these five cultural systems are almost the same as a classification of economic systems that have been derived from a cluster analysis of their economic institutions. A comparison of the cultural characteristics of East and West Germany suggests that the economic system has relatively little influence on the cultural systems. Instead, in a democracy, where the economic system is not imposed by force, the cultural characteristics are more likely to determine the economic system, rather than the reverse. I Introduction WHY DOES A COUNTRY have one type of economic system rather than another? Although a wide variety of answers have been offered, this article focuses on the role of culture--the values, beliefs, and attitudes of a population. It is well known that the various cultural characteristics of the industrialized countries are quite different from those of the developing nations (Inglehart et al. 1998, 2004; Licht et al. 2003). This analysis shows that the various cultural characteristics of the OECD nations form quite distinct clusters--cultural systems--and, moreover, that the groups of nations with different cultural systems are almost exactly the same as the groups of nations classified by their economic systems. The correlation between cultural systems and economic systems does not, of course, solve the question of the direction of causality. Unfortunately, investigation of these issues is hampered by the lack of reliable long-term evidence on changes of either cultural or economic systems. It is possible, however, to take advantage of certain data on the differences and similarities of the cultural and economic systems of East and West Germany and on the difficulties of the former communist nations in adopting "Western" institutions in their transition to a market, and tentatively to suggest that the causal influence of the cultural system on the economic system appears stronger than the reverse effect. I also, however, present some contrary evidence, so that this crucial question on causality still remains open. The organization of the analysis is straightforward. The first steps are defining several key terms such as "culture," explaining the key statistical technique of cluster analysis, and briefly discussing the relevant data sources. Then I present data to show the strong correlation between cultural and economic systems. Finally, three aspects of the causality question receive attention: the degree to which cultural systems change over time; the extent to which East and West Germany in 1990 (shortly after the fall of the Berlin Wall) had similar cultural systems; and the difficulties of former communist countries in adopting "Western" institutions in their transition to a market economy. An appendix briefly summarizes alternative explanations of why nations have a particular economic system rather than another. II Cluster Analysis, Economic Systems, and Cultural Systems: Definitions and Data A. Cluster Analysis Cluster analysis is a pattern-recognition technique used to discover which values of variables appear together in multidimensional space. (1) In this study, I start with a multidimensional space, with each dimension corresponding to a single cultural characteristic (in the case of the analysis of values) or single economic institution (in the case of the analysis of economic systems). According to its characteristics, each country is placed as a point in this space; the program then tries to group those countries whose points are closest to each other, given a prespecified number of clusters. This involves minimizing the distance between countries in a given cluster, which is another way of saying that the total sample variance explained by the clusters themselves is maximized. …