We live in a world where the ability of societies to generate economic growth has arguably become a national security issue. While serious analysts don’t believe that poverty directly causes terrorism or that rapid growth is stabilizing, everyone seems to agree that the higher forms of political life, like liberalism and democracy, are hard to sustain without some minimal level of wealth. Francis Fukuyama recently met with eminent historian, economist and author David Landes to discuss these subjects for The American Interest.AI: Over the years, few scholars have devoted as much attention as you have to the question of why some societies get rich and others do not. So let’s start with perhaps the hardest aspect of the question: culture and economic development. You and I were at a conference ten years ago sponsored by Lawrence Harrison and Samuel Huntington that produced the book Culture Matters (2001). You contributed a chapter entitled “Culture Makes Almost All the Difference”, but not everyone accepted the premise embodied in your title. Jeffrey Sachs, another of the conference participants, said something to the effect that “after we’ve run all our econometric regressions, it turns out that culture washes out completely, that it’s just a residual category, and isn’t all that important.” Sachs, of course, has helped lead the charge in recent years, along with Jared Diamond, to return economics to a materialist perspective in which diseases, location in the tropics, natural geography, access to waterways and so on explain why some nations are poor and others are rich. Obviously you disagree, but I wonder what you make of this approach. David Landes: Well, personalities aside—Jeff was my student a long time ago—I think it is true that geography and climate make a difference. It’s no accident that so much of Africa has done poorly. It’s no accident that insofar as enterprise and entrepreneurs count, they prefer areas where they’ll be more comfortable. So yes, climate still matters today. Money matters, too, so people have traveled to where they think they’ll make money, sometimes despite climate. And this, in turn, is often a function of geography: where the raw materials are, for example, and where the rivers and ports are to transport the raw materials out. One can understand why countries that leave much to be desired institutionally in terms of good government, rule of law and so on can still do well because they’re sitting on resources others want to buy.
So getting lucky isn’t about culture, but staying lucky often is. When a society, or the controlling parts of a society, is sitting on wealth-making resources, a country can be pretty rich as long as the resources remain. But when the resources are used up and any investments from them exhausted, that country often reverts. Culture, then, is not all that matters, but it is likely to make the most long-lasting difference. That is because culture forms character. It specifies both how members of a society make and take their places in society and how they relate to outsiders.Indeed, those societies that have done best, as a result of their cultural strengths, have often been able to attract talented and motivated immigrants. They have been able to train young people from generation to generation so that, in the long run, the society advances socially and economically. Culture matters enormously. I think it really does ultimately make almost all the difference. One kind of regression analysis may minimize the effects of culture in the short run, but a wiser analysis may minimize the effects of all the other factors except culture in the long run. AI: Isn’t it possible that physical geography still matters in terms of where institutions can be established? One of the most quoted articles of the past decade is the essay by James A. Robinson, Daron Acemoglu and Simon Johnson about the colonial origins of institutions.1 Basically, they argue that wherever the Europeans settled, they created institutions; wherever the disease burden prevented European settlement, they exploited the area’s resources but didn’t leave an institutional legacy behind. The colonial experience aside, might it not be true more generally that where a growth-prone culture develops depends to some degree on physical geography? David Landes: There’s no question that physical geography can make an enormous difference, but again, it’s rarely a lasting difference. I once looked at differences in performance within the West: why some Western countries had done so much better than others. It was clear that at one point, countries in the Mediterranean area and southern Europe did better: Italy and especially Venice, Catalonia and what later became Spain, and Portugal. Yet in the longer run, success and wealth passed northward, first to the United Provinces, then Britain and eventually Scandinavia. It was in looking at cases within the West that I decided that culture counted more in the long haul than other factors. Later I came to understand that the same is true for other parts of the world. Those areas doing best today are either outposts of the West or places with cultures that promote performance on their own particular terms, like Japan. And of course, culture is not static. Perhaps more important, the same basic underlying culture is never so simple that it can give rise to only one kind of political structure. China lost ground over 300–400 years because the arrogance and sense of superiority within its imperial structure led its leaders to feel that China didn’t need anything from anywhere else. That attitude led to China’s humiliation at the hands of outsiders, and that humiliation has rekindled China’s respect for knowledge, from whatever source. Today they are again training their children to perform in the light of that knowledge, and they are again prospering. Culture can also help explain aspects of the Middle East’s many problems. The Muslim empires at one point constituted some of the world’s leading civilizations, but a defensive expression of cultural arrogance has now become a severe handicap to learning. And the nature of the Muslim religion as it currently exists in most Islamic countries severely diminishes the potential contribution of half the population, the women. This bias also diminishes the potential contribution of the men, because it leads the men to believe that their maleness is in itself a claim to superiority. The emphasis on machismo, with its corresponding preference for what are seen as male attributes—the ability to do violence, to fight, to retain personal dignity at all costs—all of that reduces the demands the culture makes on male education and economic performance. That, in turn, also has wider effects. If an entrepreneur wanted to invest money in a long-term project, something beyond just resource extraction, he would probably not put any money in the Middle East, but instead put it into China or maybe Japan. It would pay to invest there because those societies know how to learn from their own experience and from the experience of others. AI: Isn’t it possible, though, that too much focus on culture can sometimes be misleading? About a hundred years ago, people had just the opposite view of Asia. China was the poorest country in the world. It had this teeming population, always at the brink of a Malthusian crisis. As you know, Max Weber argued in a book about Confucianism and Daoism that the Chinese emphasis on the family led to a corrupting nepotism so profound that it would prevent the Chinese from developing modern economic institutions. The argument, in essence, was that Chinese culture was hostile to modern capitalism. Yet now everyone has pivoted to think that China’s culture actually supports modern growth. David Landes: Chinese culture was hostile to modern capitalism for a long time, but, as I said, culture is not static. Looking at Chinese performance in the previous centuries, Weber and others like him were right to see failure, especially given the heights China had reached in earlier centuries. I also think Weber would have been open to seeing China’s awakening for what it is. Over time, all things change. Just for the Chinese to look at Japan in the 19th century and again after World War II was a kind of lesson. They’ve looked, too, to lessons from expatriate Chinese entrepreneurs, like those in Singapore. They realized that they had to make a special effort to catch up, and they’ve gone far toward doing that. Once again, the contrast with the Muslim world is instructive. When I look at the world of Islam I see people who by and large have chosen to interpret decline in precisely the opposite way. They reached great heights in and for a long while after the time of Muhammad, but they lost ground in part not because they abandoned the religion, but because they abandoned the cultural virtues of toleration and respect for knowledge that had placed them in a leading position. Some Muslims of the salafi persuasion want to restore, they say, the values of olden times, but they seem not to know what those values actually were. Many Muslims, including tradition-minded people, are aware of this and are beginning to speak up, but it can be dangerous to do that in a society that feels it has an obligation to punish and suppress supposedly deviant or disrespectful thought and behavior. These societies are in real trouble if those with authority, or with a kind of social veto power, think that Islam at its height went out of its way to suppress deviant thought. Of course, just the reverse was true in the greatest Muslim cultures of the past. AI: Let’s talk about the United States in terms of cultural change. Your books feature some remarkable portraits of individuals you identify as embodiments of the Protestant work ethic, like Andrew Carnegie and John D. Rockefeller. But the famous story about how Rockefeller owned only one suit, which he wore until it got shiny and his wife told him to buy a new one, is one you wouldn’t hear about today’s CEOs. They seem not to have those ascetic, Protestant characteristics. They are better known for exactly the opposite. David Landes: We should remind ourselves that even in the days of alleged abstemiousness, there were more people who threw money away than people who saved—or in the case of families, made their fortune in one generation and lost it soon thereafter. Not all rich people from the first Gilded Age were ascetics. It seems to me that the real difference between then and now, insofar as there is a difference, has more to do with a sense of social responsibility. Many of today’s CEOs spend a lot of time figuring out how to spend their money on themselves. The Rockefellers and the Carnegies spent a lot of time creating and managing philanthropic foundations to put their wealth to good work. Not all did then, however, and many wealthy people are philanthropists now, too. I wouldn’t want to exaggerate the changes. AI: I’m still curious about the connection between the Protestant ethic and why America has done so well. If in general the Protestant work ethic has diminished among American elites, and possibly the broader population as a whole—certainly we’re no longer a white, Anglo-Saxon, Protestant-dominated society anymore—is that something you think will hurt America’s economic performance in the long run? And if not, might that mean the Protestant work ethic wasn’t so important to begin with? Maybe you can be a self-indulgent Silicon Valley entrepreneur with your arcade games and play rooms, taking time off to meditate in the middle of the day, and still create a fabulous amount of wealth just because you’re smart and have the right kind of economic environment. Maybe culture and work ethics have nothing to do with it. David Landes: But will that self-indulgent entrepreneur you have described create a positive legacy, a dynasty? Culture matters most when you stand back and look at the larger historical picture. Families that made it a point to turn wealth into a dynasty are rare, and for good reason: It’s very difficult. The greatest enemy of success, after all, is success. The greatest enemy of wealth is too much wealth. My book Dynasties (2006) emphasized that some families learned how to impart certain successful values and habits to their children and grandchildren. Most families, like the Barings and the Morgans, had both kinds of descendants: those who were enterprising and made money alongside descendants who were dissipaters and spent money, or used money for worthy but non-business purposes. There are not many families with people so virtuous or wise that every subsequent generation keeps getting richer. AI: That reminds me of an experience I once had. An association called the Family Firm Institute, an organization catering to well-to-do family firms, invited me to speak at one of their annual conventions after I wrote Trust (1995). I was struck by the fact that half the panels concerned psychological counseling for the second and third generations of these rich entrepreneurs—how to deal with the psychological burdens of not living up to your parents’ expectations, of inheriting money and wasting it, issues like that which, fortunately or unfortunately, my own children will not have to worry about. But it made me think that maybe it’s not such a great thing to grow up as the heir of an industrial dynasty, because the psychological pressures on the children must be enormous. David Landes: Yes, they are enormous. That’s why you see dynasties where children don’t talk to their parents at all. There’s a film we’ve all seen called Pretty Woman, which is essentially the Cinderella story, and in it the so-called hero, played by Richard Gere, doesn’t even speak to his father for the last few years of his life. He learns of his father’s death from the newspaper obituary. But that theme is much older than Hollywood. Some think this is an aspect of modern capitalism. Not at all. You can see it in the Medici family, for example, and they go back to the 14th century, even a bit earlier. AI: You wrote an essay many years ago about French family firms.2 You observed that in France there was a tendency to keep money in the family rather than to go corporate and invite outside shareholders. In the United States, typically you found a company, you get rich, and then already by the second generation you’ve gone public and a professional hierarchy manages the company. Is this a cultural difference, or maybe just a quirk of tax policy? Does the social pressure to keep the fortune within the family in places like France and China, and among the wealthier Arab families, have consequences for the development of capitalism in those societies? David Landes: The successful American family enterprise, as you pointed out, is of course tempted to go public because usually that’s the best way to realize the full business potential of the enterprise. You’re selling to people who feel that it still has a long way to go and have the energy to take it there. Those who avoid sharing ownership do limit themselves, and yes, such behavior will over time tend to make the economy less dynamic. But there are legal arrangements that have been invented to make it possible to sell and keep family control at the same time. The great Swedish dynasty, the Wallenberg family, owns controlling shares in many major Swedish enterprises. They have worked things out so that there’s voting stock and non-voting stock, such that a modest share will ensure control. They’ve been able to this and still sell a large part of their holdings, in the process gaining influential new allies who provide political support. That’s one of the most important aspects of modern capitalism: It can enable a family to retain influence and even control, yet not be seen as exploitative. This is a very tricky business and has been especially important for certain minority groups, like the Jews, who could be resented terribly if they did too well. I haven’t talked yet about the special Japanese techniques. One of the problems family firms have had as modern techniques have developed is that of attracting top technical experts to enable them to compete successfully. This meant that they would have important people involved in the business who wouldn’t be owners, but who might want to be owners and resented the privileged few who were—if not in the first generation, then in their ability to pass the business to their heirs, their heirs’ heirs, and so on. So the Japanese invented this device of business adoption. You get the necessary expert to marry your daughter, or sometimes adopt him as a son even without marriage. It’s an amazing device, and I know of no other country that has done this successfully. AI: That’s right. You can’t really do that in Chinese culture. David Landes: So you see what culture makes possible, yes? AI: Let’s go back to the French for a moment. Why do the French often seem to be unable to think in rational economic ways? They have had a persistent problem with unemployment, and, until recently anyway, they have thought the solution was to go to a 35-hour work week simply by mandating that you can’t show up for those extra five hours of work. It’s as if they haven’t taken Economics 101, the most basic course in price theory. David Landes: In this particular case I think it has to do with the fact that the shortcomings of a 35-hour week are in large part compensated for by government subsidies for health care and so on. This problem would probably not exist in the United States, because people would say, “I have to work longer because I need the extra money.” In the far more statist French system, to some extent they already have the extra money in the form of institutionalized goods and services. Efforts have been made recently to try to get away from the 35-hour limit. They haven’t done well so far, but we’ll see what happens. AI: But it’s such an uneconomic way of thinking, as if there were some fixed amount of work to be done. It assumes zero elasticity in the supply and demand for labor, so the only way someone else can get a job is if I give up some of my working hours. Who else has taught, let alone acted on, this kind of economic thinking in the past 200 years? David Landes: They feel that they compensate for something less than pure economic rationality through creativity and originality in the design and invention of products, in making the kind of products a certain number of people will want. They may be grossly overpriced because they cost so much to make and are made inefficiently. But there are people from all over the world who fly to France just to buy these outrageously priced products. Style, it seems, makes many people woozier than wine. For every irrational producer, there seems to be an irrational consumer. This is something many Americans do not like to think about. AI: Let our last topic, please, be about the subject of my personal favorite among your books, Revolution in Time (1983), which also speaks about outrageously priced products. You can get a tourbillon, multiple-complication Patek Phillippe watch, and you can pay hundreds of thousands of dollars for it. But Revolution in Time came out of a personal affection you have had for clockworks, not out of a fascination with irrational pricing, right? Could you talk about how that happened? David Landes: It happened by accident. Over the course of my living in France, and going to various places with my beloved, who seeks out auctions like bees seek out nectar, I came to see these objects and, when the occasion seemed right, to acquire them. In the process I came to know people similarly interested, and, of course, if you study the history of technology, you must learn something about how these objects are made. One of the things I learned is that someone who can make a small, mechanical timepiece can, in effect, make anything—or at least can conceive of any other mechanical object. It’s a skill that is conceptually transferable, so it made a big difference to Western achievement going back to early modern times. The Chinese, by the way, did not learn this skill and reap its wider rewards. To do so they would have had to send their people to study abroad, and that they would not do. AI: In Revolution in Time, you tell a remarkable story about a Chinese man who invented a clepsydra, a gigantic water clock, in the 13th century. He taught his son how to make it, but no one was interested. When the son died, the knowledge was lost. It was a remarkable failure to take advantage of a technological advance. David Landes: Chinese history from that time is full of such stories. The Chinese in those days did invent some extraordinary things, but unlike what happened in the West, where there was competition of the sort that didn’t exist in Imperial China, the Chinese often ended up abandoning and forgetting these objects. Today there are specialists in the history of China who want to prove that the Chinese were so much more advanced at an earlier stage than the West, but they don’t seem to realize that the better they document this point, the more serious a challenge they pose to Chinese performance: What kind of people invents remarkable things only to let them go unused? In any case, I got interested in this sort of thing because it was clear to me early on that the clock and the watch were among the most important technological inventions in global history, the kind of thing that made it possible for Europe to catch and pass earlier, more advanced civilizations. This was not only because people wanted or needed to know the time; you could just as soon rely on some kind of arbitrary time. It was because the structure of machines generally was contained in the works of a clock. More than that, clockwork illustrated not just mechanical achievement but, as I point out in the book, conceptual, metaphorical achievement, too—in this case in the form of the dynamic complex equilibrium. It made a huge difference to knowledge and understanding. You see, even the contemplation of a man-made object can affect how a culture develops, and help determine which will become wealthy. It is not a simple thing.1Acemoglu, Robinson and Johnson, “The Colonial Origins of Comparative Development: An Empirical Investigation”, American Economic Review (December 2001).
2Landes, “French Entrepreneurship and Industrial Growth in the Nineteenth Century”, Journal of Economic History (May 1949).