Tim Kane listens to a talk by Paul Romer, and muses,
Romer forces us to accept that rules are very difficult to change. Nations in particular, even when its leaders recognize the need for rules to change, have difficulty making them happen.
Here in America, there is tremendous acrimony about new legislation of almost any kind. Witness the current fight in the U.S. Congress over health care reform. So why do we imagine it would be trivial for another country to change its laws, let alone norms, customs, cultures? So the real challenge for development practitioners is how to make rule-changing easier.
If rules are hard to change, there may be a good reason for that. Rules may reflect the values that are embedded in a culture. People may resist the imposition of new rules that conflict with their values.
One of the unresolved issues in From Poverty to Prosperity concerns the relative importance of formal institutions and established culture. Can changes in formal institutions overcome established culture?
The case for established culture resisting changes to formal institutions can be made with respect to nation-building. If all we need to do to "fix" underdeveloped countries is revamp their formal institutions, then we should be able to go into a place like Iraq and turn it into a well-functioning country. However, it appears that established culture makes it difficult to turn Iraq into America simply by imposing American style rules.
On the other hand, the case for formal institutions overcoming culture can be made using side-by-side comparisons of Communist and non-Communist countries. Look at how much more economic growth took place in West Germany than in East Germany, or in South Korea relative to North Korea.
My view is that culture dominates. The case of Communism is exceptional. Communism shows that you can set up a system of rules that overcomes cultural tendencies. But the process of overcoming culture requires mass murder and a totalitarian system.
Fortunately, in America we live in a culture where many people still value individual responsibility. I have friends who are very left wing in terms of political opinions, but they consistently express personal values that reflect individual responsibility. They complain about people who make bad personal choices. All of the cultural signals that they send are conservative, even though they vote liberal. If the Democratic Party is having a hard time changing the rules to reflect collectivist ideology, in part that is because in our hearts very few of us are collectivists.