Economics and culture

From Poverty to Prosperity includes a lengthy interview with Edmund Phelps, winner of the 2006 Nobel prize in economics. I found this part to be particularly interesting:

Arnold Kling and Nick Schulz: In your Nobel talk you said, "Various attributes of a country's economic culture serve to animate entrepreneurs and more broadly to encourage them by offering a willing work force and a receptive market place for their innovations." This notion of economic culture is interesting, since it may mean different things to different people. Could you discuss with a little more specificity what you mean by this culture, its characteristics, how we identify it, and so forth?

Edmund Phelps: A couple of years ago I would have said that it means a yen for novelty, tolerance for uncertainty, and a kind of acceptance -- maybe even delight -- in ambiguity, in not being quite able to figure it all out but taking action anyway. What did Keynes call it? "Animal spirits."

A few years ago I was thinking along those lines, but then in the spring of 2006 I got the idea that I had to throw some cultural variables into the right hand side of the regression equations that I sometimes fool around with in my efforts to try to predict productivity, unemployment, job satisfaction, and other indicators of economic performance. I was able to line up a couple of very sharp research assistants from Eastern Europe, and I asked them to rummage around for the data.

They found some data from the University of Michigan, world values surveys. And I didn't, by any means, find everything I wanted. But there were a couple of intriguing things there that I hadn't imagined could be found. The respondents were asked questions about their willingness to exert leadership, their willingness to accept followership and taking orders, how they feel about competition for their job, how they feel about change, and, when they are looking for a job, how important is it to have a job that's interesting.

So we threw in these variables which calculated average values for each country, the percentage of respondents who expressed themselves strongly on these issues. Sometimes there was a reason to think that something would affect productivity but not, say, unemployment. And sometimes there was a reason to think that one of the cultural attitudes would affect unemployment but not productivity. So we threw in these [variables] -- I think one of them was workplace attitudes -- and lo and behold, almost every one of them made a significant difference in explaining some performance variable. I came away with a general impression that differences across countries with respect to certain well-defined institutions were not as important as the prevailing differences in economic culture.

My sense is that the role of culture is an interesting and relatively unexplored topic in explaining economic growth. Rules which are not conducive to growth can be changed, and institutions can be developed, but how does one change culture?