Sunday, July 17, 2011

Culture or Governance?

Michael Spence, the Nobel laureate who chaired the Commission on Growth and Development, has suggested that if one created a graph characterizing developing nations in which one axis was a continuum from authoritarian to democratic government and the other axis was a measure of economic growth, there would be no correlation visible. Strong and weak economies are found with both authoritarian and democratic governments.

Spence suggests that, while one might conclude from such analysis that government is not responsible for economic progress, he would tend to conclude that specific functions of government are complementary to the economic foundations of growth, but different forms of government adequately achieve these functions. Thus control of corruption, rule of law, and promotion of long term growth might be the characteristics of government performance that economists might best monitor. Different forms of government might be able to achieve similar outcomes in these important dimensions and thus be comparably supportive of economic progress.

A century ago it was widely thought that Argentina, Australia, and Canada were comparably likely to progress economically. Now the Argentine GDP per capita is $14,700, that of Australia is $41,000 and that of Canada is $39,400. Following Spence one might suggest that the difference is related to the failure of the Argentine government, as compared to those of Australia and Canada to provide the necessary government functions for economic growth. I would note that Argentina, like Australia and Canada was resource rich, with a temperate climate and a population dominated by European immigrants. I wonder, however, whether the Anglo-Saxon culture of Australia and Canada did not provide either a better basis for governance and/or for economic growth than the Latin culture of Argentina.

Chile might also be compared with Argentina as another resource rich, temperate, European immigrant dominated society with a Hispanic culture and a history of military governance at key periods. Its per capita GDP is $15,400, roughly the same as that of Argentina.

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