It’s the Culture, Stupid

Why did the US economy, which in the 1980s seemed likely to be overtaken those of Japan and Europe, suddenly accelerate in the 1990s and leave others far behind? Forget the usual economic explanations. The main reason is cultural.

The USA is the only country able to move from a white majority to a non-white one with equanimity. So it alone has the cultural confidence to choose the best and brightest in the world, regardless of race or color, to head everything from its biggest corporations to start-ups in Silicon valley. But for this, US productivity would not have risen far above that of its rivals.

The spectacular rise of Asians in the infotech sector took place just as the knowledge economy boomed, and this is not pure co-incidence. Most countries including India worry that a flood of immigrants could threaten their cultural identity. The USA is a big exception. In his State of the Union Message last year, President Clinton declared that California would have a non-white majority in 10 years, and the whole USA in 50 years. In any other country, such predictions would be made in horrified tones. But President Clinton saw the change as a source of strength, and took pride in the cultural diversity it represented.

Not all Americans share this view. The US has its fair share of racists. Yet there is no popular animus against the demographic change, and hence no political movement to stem it. Now, the US did not always favor cultural diversity. Not long ago, many states had Jim Crow laws. Earlier this century, the US had laws discouraging the immigration of non-Caucasians. Before that it violated treaties with American Indian tribes.

But today, even though colour remains a vexed topic, it does not dominate the immigration debate. Pluralism has grown sufficiently for the country to move without conflict towards a non-white majority. This reflects cultural confidence and openness of an amazing magnitude, and is a major reason for the USA’s current economic success. The country recorded a scorching GDP growth rate of 7.3 percent in the last quarter of 1999, and has averaged over 4 per cent in recent years. No doubt it has slowed down this year, along with the global economy, but it remains the econmic superpower of the world.

What is the US able to do that Japan and Europe cannot? Most explanations offered are economic or technical. Economists ascribe success to the new knowledge economy, America’s innovation and flexibility, its fast-rising productivity. Really? The US has always been a knowledge leader, always been highly innovative, and yet it looked like being overtaken in the 1970s and 1980s. Much is said today about US leadership in information technology, pharmaceuticals and entertainment. But the country has always been world leader in computers (both hardware and software) and telecommunications. Merck, Pfizer and Warner have long been among the world’s top drug manufacturers. Hollywood movies and TV programs have long dominated global entertainment. Yet the USA suffered relative decline in the 1970s and 1980s.

What, then, changed in the 1990s? I would like to offer a cultural explanation. Till the 1990s, US society had a glass ceiling for non-whites in top corporate positions. Indians and Chinese could rise fast in R and D departments or in hospitals and colleges, but the top corporate positions remained manned overwhelmingly by whites. So did new start-ups. That glass ceiling has finally dissolved in the 1990s. People of all races have risen to the top.

Nasser is no longer just the name of a former Egyptian President, it is the name of the head of Ford. The CEO of the biggest airline in the world, United Airlines, is Rono Dutta. US Air is headed by Rakesh Gangwal. The head of the biggest management consulting agency, Mckinsey, is Rajat Gupta. Half the new start-ups in Silicon Valley are run by Indians and Chinese.

This would be impossible in Europe. It would also have been impossible in the USA earlier this century. It is a reality today. This immense cultural achievement has sparked economic success. It has also enabled the USA to take in its stride a demographic shift to a non-white majority. No other country comes even close. So I expect the USA to widen its lead at the top of the economic league.

The USA has virtually doubled the number of skilled immigrants it allows to enter on H-1B visas to 200,000. The quota may not be filled in the cuirrent economic slowdown, but what matters is the cultural willingness to absorb foreigners. To compete, German Chancellor Schroeder had proposed giving 30,000 visas to foreign professionals to revive his country’s flagging software industry. Immediately, the Christian Democrats protested that this would give preference to Indian professionals over Germans. There is no comparable political protest in the USA. That cultural gap between the two countries has translated into an economic gap.

Allow me to relate a story I first heard in 1988 of a Japanese and American discussing the future. The Japanese said his country had caught up with the US in one field after another, and was destined to go ahead. He predicted that Korea, Singapore and several other Asian countries would also overtake the US. The American grinned and said, “Not a chanceour Asians will always beat your Asians.”

What do you think?