In the last two decades, Asia has grown rapidly, Latin America has registered spotty progress, and Africa has gone downhill fast. These differences cannot easily be explained in economic or political terms since the three continents faced the same global conditions and received the same sort of advice and loans from the World Bank and IMF. Part of the answer lies in cultural differences.
We are critical of the economic performance of India and its South Asian neighbours. Yet every country in South Asia has been growing at 4 to 6 per cent annually for over a decade, much faster than Latin America or Africa. Why do even relative failures in Asia fare well by global standards?
The biggest puzzle relates to South America. This continent was colonised by Europeans who killed and took over the land of local Indians just as in North America. Till early this century, many European migrants saw better prospects in going to South America than North. But then North America pulled ahead while the South stagnated. Argentina, which used to be the second richest country in the world, retrogressed.
WEBER’S THEORY: Max Weber had a cultural explanation for this. He said North America benefited from the Protestant work ethic, while South America ‘was plagued by the feudal outlook of landed Catholics. North America was settled by fiercely individualistic Protestants who forged the first democracy, and whose thrifty habits led them to success in commerce and industry. By contrast South America was dominated by the ‘hacienda’ culture of aristocratic landowning families who (like all feudatories) looked down on the trading classes, and regarded displays of pomp and splendour as appropriate for their status, not penny-pinching to raise savings and investing.
There must surely be other explanations (many non-cultural) for South America’s relative failure, but Weber’s analysis has a ring of deep truth.
Many people ascribe the success of East Asia to its Confucian ethic, and there must be something in this. However, this theory does not explain why non-Confucian (and sometimes Islamic) countries like Indonesia, Malaysia and Thailand are growing as fast as the East Asians, or why South Asia outperforms other continents.
SAVINGS RATES: I would like to offer a small contribution to this debate. The savings rates in the three continents are very different. Asian countries today have the highest savings rates in the world (often 20 to 40 per cent) while Africans have the lowest (often below 10 per cent) and the Latinos fall in between. Why?
In feudal times, all countries had low savings rates the ruling classes taxed or confiscated all they could from the peasant and trading classes, which therefore could not profit much by investing their savings. But modem institutions this century changed property rights, and suddenly those who saved and invested could reap great rewards. This yielded the greatest change in ancient civilisations having millions in settled agriculture. In these areas the oppressed peasantry had learned for centuries that resources were scarce, and that bad times (drought, illness, war) were always round the corner, and so scrimping and saving permeated all social and economic behavior.
Unlike settled agriculturists facing land scarcity, tribals saw forest land as an infinite resource. Ownership has no meaning when a resource is so abundant, so tribals practised shifting ‘jhum’ cultivation, farming a jungle clearing for a few years till the soil lost its fertility and then moving on to a fresh jungle patch. They had no incentive to work hard to produce surpluses for sale, since they had virtually no trade with other communities. For the same reason they had no incentive to save or invest. In such a society, profit maximisation was meaningless, and instead the culture aimed at minimising work.
CHEAP LABOUR: Exasperated plantation owners from Assam to Malaya and East Africa to Trinidad found that local tribals simply refused to do a decent day’s work, and so had to import the exploited, hard-working peasantry of ancient civilisations. India, China, Java and Vietnam were major sources of indentured labour, and would surely have replaced black slaves in America if only transport costs from Asia had been as low as from Africa.
At the risk of excessive simplification, I would say that Africa’s low savings rate and lack of entrepreneurship reflects its tribal culture, while Asia’s high savings and aggressive entrepreneurship flows from the culture of the exploited peasantry of ancient civilisations. Note that tribal areas in India (and other parts of Asia) also lack savings and entrepreneurship.
I am not overfond of cultural explanations, which can degenerate into racism, and can never represent more than part of the overall picture. Kipling thought the white race was the most efficient and culturally advanced. Yet today many view Japan, Korea and Singapore as more efficient and culturally attuned to economic success than Europe. So theories of culture must be used sparingly. Still, they do suggest a danger in the IMF and World Bank having a single formula to solve the problem of all continents.