Culture, freedom and economic growth: do cultural values explain economic growth?

There have been numerous studies in recent years attempting to explain why some countries, such as Taiwan, Hong Kong, South Korea and Singapore, have experienced high levels of economic growth over the past two decades, while other countries' economies have experienced low or even negative real growth. In particular, one stream of research has sought to link economic growth to cultural variables (Hofstede, 1980; Hofstede & Bond, 1988; Franke, Hofstede, & Bond, 1991), suggesting that a nation's cultural values can explain its economic success, or lack of it. While some statistically significant correlations have been found, authors have failed to establish a direct causal link between a nation's culture and its rate of economic growth. Furthermore, the collapse of several east Asian economies in late 1997 has undermined the presumption that national culture has a direct influence on economic growth.

Hofstede and his colleagues have identified five dimensions of national culture: Uncertainty Avoidance, Power Distance, Individualism/Collectivism, Masculinity/Femininity, and Confucian Dynamism. Furthermore, Hofstede and colleagues have taken an uncompromising position that "differences in cultural values, rather than in material and structural conditions, are ultimate determinants of human organization and behavior, and thus of economic growth" (Franke et al., 1991, p. 166). This view has been rejected by, among others, Yeh and Lawrence (1995) and Fang (1998), who argue that the study by Franke and colleagues is flawed conceptually and methodologically. First, the study is conceptually flawed in at least three areas:

1. It treats Confucian Dynamism and Individualism/Collectivism as two separate dimensions of culture, although there is evidence that the two dimensions are related.

2. The two poles of the Confucian Dynamism dimension - a positive pole reflecting future-oriented Confucian values such as "thrift" and "perseverance", and a negative pole reflecting past- and present-oriented Confucian values, such as "saving face" and "respect for tradition" - is in conflict with the Chinese principle of dualism, Ying and Yang:

The Chinese believe Ying and Yang exist in everything, or everything embraces Ying and Yang. Confucian values are no exceptions; each Confucian value has its bright and dark side. Furthermore, those values on either pole of Hofstede's fifth dimension are essentially intertwined and do not contrast to one another (Fang, 1998, p. 14).

3. Cultural dimensions are themselves corrrelated with and confounded by economic factors which can account for economic growth, such as the relationship in eastern Asian countries between Confucian Dynamism and savings rates.

A second criticism of the study is that it is methodologically flawed since it fails to include other economic factors which affect economic growth - such as an outward-oriented trade policy and market-oriented reforms.

While we broadly accept these criticisms of the Franke et al. study, the purpose of this paper is not to resurrect old arguments but to move the debate forward. As Yeh and Lawrence suggest, for a link to be established between national culture and economic growth, there are at least two prerequisites. First, the conceptualization and measurement of culture need to be improved, to avoid the inclusion of cultural dimensions which are conceptually and empirically related. Second, a framework needs to be developed which includes economic factors that: (1) help explain economic growth; (2) account for differing structural, international and historical developments within national economies; and (3) can be shown to be linked to national culture. Two recent studies, taken together, appear to address these issues: the cultural dimensions of values (Schwartz, 1994), and the Economic Freedom Report (Gwartney, Lawson, & Block, 1996). In this paper, therefore, we seek to reexamine the relationship between national culture and economic growth in the light of these new studies and, using data from both studies, we investigate the link between culture, economic freedom, and economic growth. The paper is organized as follows: Section 1 describes Schwartz's cultural dimensions of values and explains their relationship to Hofstede's dimensions of culture; Section 2 discusses the relationship between cultural values and economic growth and discusses the concept of economic freedom and its relationship to economic growth; Section 3 develops and test a model linking culture, economic freedom, and economic growth, and in Section 4 we present our findings and their implications; Section 5 discusses some of the limitations of our study and make suggestions for future research.

THE CULTURAL DIMENSIONS OF VALUES

Schwartz's work (1992, 1994) has paralleled that of Hofstede in attempting to develop an exhaustive set of etic dimensions of culture, first at the individual level (1992) and later at the cultural level (1994). Schwartz defines human values as "desirable goals, varying in importance, that serve as a guiding principle in people's lives "(1994, p. 88). Using fifty-six specific human values, Schwartz first generated ten motivationally distinct types of individual values (see Table 1) which were organized on two bi-polar dimensions, such that each dimension contrasted two or more of the ten types.

 
Table 1 
 
Individual-Level Value Types 
 
Power:            Social status and prestige, control or dominance 
                  over people and resources. 
 
Achievement:      Personal success through demonstrating competence 
                  according to social standards. 
 
Hedonism:         Pleasure and sensuous gratification for oneself. 
 
Stimulation:      Excitement, novelty, and challenge in life. 
 
Self-Direction:   Independent thought and action - choosing, 
                  creating, exploring. 
 
Universalism:     Understanding, appreciation, tolerance, and 
                  protection for the welfare of people and for 
                  nature. 
 
Benevolence:      Preservation and enhancement of the welfare of 
                  people with whom one is in frequent personal 
                  contact. 
 
Tradition:        Respect for, commitment to, and acceptance of the 
                  customs and ideas that traditional culture or 
                  religion impose on the self. 
 
Conformity:       Restraint of actions, inclinations, and impulses 
                  likely to upset or harm others and to violate 
                  social expectations or norms. 
 
Security:         Safety, harmony, and stability of society, of 
                  relationships, and of self. 
 
Source: Schwartz (1994, p. 89). 

For example, one dimension contrasted 'Openness to Change' and 'Conservatism.' Openness to Change combined two types of individual values - Self-Direction and Stimulation - while Conservatism combined three types of individual values - Conformity, Tradition, and Security. Thus, individuals can be allocated a position on each bipolar dimension on the basis of their scores on five human values.

In order to develop dimensions at the cultural level, where the nation-state is used as a proxy for national culture, Schwartz used a smaller subset of fortyfive specific values for which he was able to establish conceptual and semantic equivalence across twenty nations. Basing his study on the earlier culture-level work of Hofstede (1980), Kluckhohn and Strodtbeck (1961), and Rokeach (1973), and extrapolating from his 1992 study of individual-level values, Schwartz hypothesized six types of values at the cultural level and the relationships among them, expressed as two culture-level dimensions:

 
Autonomy       versus      Conservatism 
 
Hierarchy      versus      Egalitarian Commitment 
& Mastery                  & Harmony with Nature 

Data gathered from forty-one cultural groups supported the hypothesized value types and the two culture-level dimensions. Two distinct types of Autonomy emerged from the empirical data: (1) Intellectual Autonomy, expressed in the values "curious," "broadminded," "creative," which closely reflected the individual value Self-Direction; and (2) Affective Autonomy, expressed in values such as "enjoying life" and "seeking pleasure," which more closely reflected the individual values Hedonism and Stimulation.

It is important to note that, for Schwartz, these are universal cultural values. There is no single equivalent to Hofstede's Individualism/Collectivism dimension, or to Confucian Dynamism, and there is an important distinction between Schwartz's dimensions and those of Hofstede and his colleagues in the treatment of the individual within society. Schwartz's Autonomy/Conservatism dimension focuses on the extent to which a society views the individual as either autonomous or embedded within the group. Autonomy indicates a society in which the independence of individual thought, feeling, and action is valued; in contrast, Conservatism indicates a society in which harmony and propriety are valued in both interpersonal relations and individual/group relations. In this respect, Autonomy/Conservatism approximates Hofstede's Individualism/Collectivism dichotomy but defines the individual/group contrast more sharply by focusing on the role of the individual within society rather than on the contrast of individual goals versus group goals, which constituted the items used to measure Hofstede's dimension (Hofstede, 1980). It is Schwartz's second cultural dimension which focuses on individual versus group goals. This second dimension contrasts Mastery and Hierarchy with Egalitarian Commitment and Harmony with Nature; it focuses more on whose interests within a society take precedence: those of the individual or those of the group. The Mastery and Hierarchy values imply the pursuit of individual goals. Mastery, which embraces the values "independent," "ambitious," "successful," and "choosing one's own goals," emphasizes mastery over the social environment through independent action. It is similar to Kluckhohn and Strodtbeck's (1961) man-nature orientation, and is also related to Hofstede's Masculinity dimension (Schwartz, 1994). Hierarchy reflects the values "social power," "wealth," and "authority," and emphasizes the legitimacy of social roles and resource allocation; it differs from Conservatism in that it is concerned with the use of power to promote individual versus group interests. Taken together as one pole on the culture-level dimension, Mastery and Hierarchy reflect a concern for individual self-enhancement through the pursuit of individual goals.

In contrast, group goals are reflected by the Egalitarian Commitment and Harmony with Nature value types. Egalitarian Commitment, which embraces values such as "equality," …