Chapter 12 Culture and Economic Performance

Culture, defined as shared values and beliefs, can influence the performance of an economy in many ways. The culture of a group, whether national, regional or ethnic, may be regarded as a particular type of intangible public good. The chapter summarizes and critiques a positive theory of inter-cultural competition. According to this theory, culture is created by leaders, who specialize in the production of culture, and is shared by their followers. Leaders compete for followers in order to increase the rents that they can extract from their groups. Whilst some of these rents may be pecuniary, most are non-pecuniary, such as the enjoyment of pursuing a public project which glorifies the leader and their group. There are four main dimensions of culture which influence performance, and there are trade-offs between them which are governed by the environment of the social group. The positive theory is useful in interpreting historical evidence on the rise and decline of societies, institutions, and organizations of various kinds.