Cultural Capital and Regional Labour Productivity Growth


The role of culture in economics becomes more and more important. Economic growth is long explained by Solow’s argument of capital accumulation, i.e. physical and human capital. More recently, ‘social capital’ and institutions act as additional explanatory factors (Hall and Jones, 1999). However, economists agree that there is still a large part to be further explained. That is, the so-called residual in economic growth models is still a challenge for economic researchers over the world. A recent wave of literature argues that cultural capital may be an important explanatory factor (Chartrand, (1990), Klamer (2002, 2003)). The common thought is that cultural heritage, a nice ‘green’ environment to live in, great literature, museums, theatre etc. in a region enhance the knowledge and innovative power of the working population, which lead to productivity improvements. As a result, economic growth takes place. Florida (2002) goes even further and argues that a large ‘creative class’ is the main source of regional growth.

Cultural capital is measured by local government cultural expenditures and the potential of culture measures the spatial effect.

Cultural economics is a relatively young field of research. As a result, cultural economists do not agree on fundamental questions like ‘what is culture’ and ‘what is the exact effect of culture on growth’. In addition, cultural economists find it hard to measure culture and to derive an empirical model that explains the nexus between culture and productivity growth.
However, there are some authors who have done a great effort in bundling the different views of cultural economics through time (Chartrand (1990), Dieckmann (1996), and Fukuyama (2001)). Klamer’s focuses explicitly on the theoretical value of culture and the role of culture in economics (2002, 2003). 
History of Cultural Economic Thought
Many cultural economists agree that culture is a neglected field in the history of economic thought (Boulding (1972), Meisel (1974), and Chartrand (1990)). According to Chartrand (1990) this is mainly due to Bentam (1748-1832), since he introduced the standard that culture, custom, and tradition are irrational factors that should be neglected in economic analysis. He believed in ‘radical egalitarianism’; a world where the happiness of all individuals is the same and is based on the holdings of money, i.e. the more money an individual has, the happier he is. From the mid to late-19th century, the irrelevance of culture in economic analysis was reinforced by mainstream economics, who adapted the same ideas regarding the role of culture.

Chartrand (ibid) and Fukuyama (2001) agree that institutional economists in the late 18th and early 19th century didn’t neglect the link between culture and economic growth. Chartrand (ibid, p.4) clearly describes the difference between mainstream and institutional economists in that period: “….Institutionalism is characterized by cultural, historical and legal relativism, inductive method and general systems analysis. On the other hand, mainstream economics is characterized by positivism, deductive method and mechanistic systems analysis”. The opposing views with respect to role of culture in economic thinking remained a problem in the 20th century.

Today, neoclassical economists still neglect the importance of culture, i.e. they make the simplifying assumption that human beings are rational utility-maximizing individuals. Growth is based on capital and labour accumulation. Their arguments against the use of culture in economic analysis are intuitive. That is, they argue that cultural factors are, methodologically, very difficult to measure and that empirical evidence is weak. However, a counterargument against their theory is that they fail to explain the so-called ‘Solow residual’, i.e. it has been shown that it is impossible to explain economic growth by economic factors only (Dieckmann, 1996).

In the mid-eighties of the 20th century, endogenous growth theory has been introduced (Barro and Sala-i-Martin, 1995). As Dieckmann (1996) argues, endogenous growth models are based on imperfect competition and they explicitly include human capital accumulation, R&D expenditures and other determinants that are related to culture. Hence, in this new way of economic thinking, culture is more and more treated as an additional explanatory factor. Moreover, new institutional economists in the late 20th century showed their renewed interest in culture. According to Fukuyama (2001) institutional economists nowadays seek to give rational, maximizing accounts of the origins of institutions, but as a group they are much more aware of the importance of history, culture, tradition, and other so-called ‘path dependent’ factors in shaping economic behaviour.

In short, being invisible for centuries, cultural economics finally receives some attention in modern economic thinking. However, a lot remains to be explained; what is culture exactly, how can we assess culture, what is the evidence regarding the relation between culture and productivity growth, and how can we explain the relation?
The Value of Culture
According to Klamer (ibid), cultural value can be analyzed by four different lines of inquiry. In the first interpretation, ‘value’ refers to ‘economic value’ and ‘culture’ to ‘high culture’. Topics that fall under this interpretation are, for example, the economics of cultural heritage and the economic impact of government subsidies on cultural goods. Second, value can also refer to value in a social and cultural sense. A monument or museum often generates national pride and cultural identity. Social values play a role in arguments that favour the subsidization of cultural goods, since they improve the integration of minorities, have educational values, and are good for personal development (Klamer, 2003). A third interpretation is that culture has anthropological meaning. That is, culture leads to the shared values, stories and aspirations that distinguish one group of people from another (a community, an organization, a region). The economic value of culture then implies the economic contribution of these shared values. This interpretation is analogous to Weber’s work (1930). He argued that a particular culture may improve economic performance or hinder it. The final interpretation combines all previous interpretations. That is, culture may stand for both the arts and culture in the anthropological sense, and value for economic value as well as social and cultural values.

Klamer (2003) explains the link between the four interpretations as follows: “Whereas the common justification of cultural policy evokes the economic value of culture (think of the income generated, the increase in tourism and the attraction for new businesses in town) or social values (educations, inclusion of minorities, low thresholds for people with a low income), culture can also be said to have value in and of itself. It could even be argued that all economic activity serves the enhancement of cultural ‘capital’ of a community, such as a town, or a country” (Klamer (2003), Ch. 59).

According to Chartrand (1990), cultural economics can be defined as the study of the evolutionary influence of cultural differences on economic thought and behaviour. That is, economic behaviour varies because of a changing cultural context. The economics of culture, on the other hand, can be defined as the study of the allocation of scarce resources within the cultural sector. Objective laws apply to economic behaviour regardless of cultural differences, i.e. a positivist approach. My study is a cultural economics study since I focus on the influence of cultural differences on economic performance, i.e. labour productivity growth.
Assessing Culture
Klamer doesn’t explain how we can make his ideas operational, i.e. assessing different cultures. Fortunately, Hofstede’s (1978) work does explain how to assess culture. His framework for assessing culture in a society (country, region, or organization) consists of four dimensions. The first is power distance. It relates to the degree of inequality in power between people in a particular society. Power is the potential to determine the behaviour of other persons. The higher the power distance, the more inequality in power between people, i.e. the more hierarchy in decision making. The second is individualism. This dimension focuses on the degree to which a society reinforces individual or collective achievement and interpersonal relationships.

Individuality and individual rights are important for cultures based on individualism and the ties between individuals, i.e. family relationships are important for cultures based on collectivism. Masculinity is the third dimension. It refers to the inequality between genders in a society. It relates to the degree of a society to reinforce or not the traditional masculine culture of assertiveness, ambition, and the accumulation of wealth and material possessions. Relationships and the quality of social life correspond to a low degree of masculinity. The fourth is uncertainty avoidance. This dimension concerns the level of acceptance for uncertainty within a society. Cultures that score high in uncertainty avoidance prefer a rule-orientated society that follows well defined and established laws, regulations and controls.

Culture and Productivity Growth
Again, cultural economists do not agree on the exact relation between the two. Due to measurement
problems and data limitations, empirical evidence scarce. As a result, cultural economists mainly focus on a theoretical foundation.
One of these authors is Chartrand (1990). He argues that culture influences productivity growth via technological change. Technological change is widely accepted as being an important factor influencing growth. In general, technological change is achieved by creating new ideas, innovations, inventive organization structures, and developments in advertising techniques. Chartrand (ibid) argues that cultural capital leads to technological change, since cultural experience of the labour force leads to the creation of new ideas and innovations. This theory seems rather unconvincing at first sight, but it comes close to reality. Look for example at the multinationals nowadays; they are looking for new, creative employees constantly. That is, workers who have a personality, who are diverse, and who have refreshing and new ideas. Hence, Chartrand’s work deserves attention.
Unfortunately, his theory is not based on any empirical evidence, which makes it rather subjective. He only shows the positive relation between rapid urbanization, technological change and a higher level of education on the one hand, and an increase of expenditure on cultural consumption goods on the other. Nonetheless, he stresses the importance of data requirements; he shows that there are a lot of opportunities when more cultural data becomes available.

Fukuyama (2001) also provides a theoretical explanation for the nexus between culture and productivity growth. He notes that cultural factors affect economic behaviour generally in four ways. The first is the impact of culture on organization and production. Firms around the globe have different hierarchical structures, norms, production processes etcetera (Hofstede, 1978). Some ‘organization cultures’ do better than others and make more profit. The second is the role of culture in consumption behaviour and work ethic. Different classes of societies, like rich and poor, have different cultural habits and different consumption patterns. Income and cultural expenditures are thought to correlate positively. The third is the ability of culture to create and manage institutions. Many economists agree that institutions are important determinants of the economic performance of countries. Culture in its broad sense affects the ability of societies to create and manage institutions. The fourth is the impact of culture on social networks. The impact cultural values have on networks of social relations is the basis of social capital. Social capital consists of norms and values shared among a group of people that promote cooperation and confidence among them. Hence, it refers to the flow of information in an economy. Information indeed becomes more and more important in today’s world, notice the current credit crisis. A lot of miscommunication and imperfect information lies at the basis of the crisis. Nevertheless, the concept of social capital has been criticized for being a rather vague concept and the lack of a clear measurement method.
The analyses of Chartrand and Fukuyama have one thing in common: culture affects productivity growth indirectly. It implicates that the effect of cultural capital on growth is difficult to disentangle from other factors of influence, like institutions and social networks.

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~ by ketekbasahminggir on September 25, 2012.

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