Cultural species and institutional change in China.

Author:Herrmann-Pillath, Carsten

The State of the (Economic) Art: Reviving Culture without Cultural Analysis

Culture is back in economics, with seminal contributions originating in different subdisciplines such as the new institutional economics, applied game theory, and international trade. (1) Its neglect was mainly the result of a narrow focus on constraints and rational choice in the basic behavioral theory underlying economics and of the difficulties in merging established empirical methods in economics with approaches which are peculiar to the cultural sciences. This state of economics was not changed by strong impulses from other disciplines, given the fact that the issue of culture had become highly contentious even in one of the core disciplines of the cultural sciences, anthropology (cf. Brumann 1999).

Once we take a closer look at the use of culture in exemplary cases of economics, we quickly hit upon a major methodological issue: This is the possible redundancy of culture in relation to other analytical terms developed in the pertinent literature. For example, in Douglass North's (1990, 2005) analytical framework culture appears together with informal constraints, ideology, and mental models. Although culture seems to be somehow related to a larger whole consisting of these parts, in the end the term is conflated with some of these more specific terms. In particular, culture is frequently related to informal constraints or informal institutions in general, so that the basic structure of standard economic methodology can be maintained. That is, the introduction of culture does not entail an essential modification of the rational choice paradigm but simply ends up as its amendment by adding another kind of constraint on the choice set, such as "informal constraints." In a similar vein, cognitive concepts of culture introduce the term frames to understand behavioral variations in similar settings of choice without implying fundamental changes of the decision theoretic paradigm. (2) In all these examples, there is no additional methodological advantage of using the concept of culture, since the causally relevant phenomena have been already identified with the more specific terms such as informal institutions. The impression arises that culture is just a convenient shorthand expression for various more fundamental categories.

What all these uses of culture have in common is its treatment as an external and exogenous force impacting on individual behavior which can be further analyzed into constituent units. In this sense, culture is also related to a particular class of evolutionary models in the social sciences, such as those formalized in evolutionary game theory. In these models the idea of rational choice is eschewed, and a substitute in terms of rule-governed behavior is defined. For example, in a given population certain randomly emerging behavioral patterns might be reinforced by selection and retention, such that different populations might diverge considerably, even though no member of the population ever chose to behave differently. However, this kind of evolutionary modeling has the assumption in common with the rational choice models that the results of the process are entirely determined by their consequences in terms of a certain pay-off function, that is, there is a deterministic (though stochastic) relation between the environment and individual performance without any active role of culture proper. Paradoxically, the renunciation of rational choice simultaneously closes the view on culture as a creative force in human life. And, again, culture appears to be a mere shorthand expression without any clear meaning beyond the more specific causal hypotheses. (3)

Two ideas are totally missing in these uses of culture which play a very important role in the institutionalist tradition of economics on both sides of the Atlantic. First, the concept of culture is not related to a consistent and coherent whole of a manifold of constituent phenomena which plays an autonomous causal role for action, and, second, there is no explicit analysis of the process of interpretation and individual creativity underlying cultural action. (4) However, although these ideas are very important in the theoretical considerations of many institutionalists, there are still very few fully fledged empirical analyses based on these ideas in economics.

In this paper, I want to sketch a modern institutionalist approach to culture and apply this to one of the most remarkable events in recent economic history, namely, the imminent rise of China to a world economic power. China is an interesting case because, with regard to East Asia in general, cultural explanations of observed economic performance have always been popular. However, very often these explanations simply rest on a "Confucianism" hypothesis or some constructs of "Japaneseness," "Chineseness," and so forth, which just extrapolate historical ideal types into the present. In most cases, such generalizations do not survive under historical and anthropological criticism. (5) Still, even critical observers would agree that there is such a thing as a cultural difference between East and West.

In sum, economic research currently has arrived at a situation where culture remains only a default category. We do have many examples where people's behavior is different across times and places, even after taking most environmental constraints and boundaries to rationality into consideration. The unexplained is just named culture. (6) I think that we can achieve more. We need an explicitly cultural approach toward economic issues, which means that we need to adopt an independent methodological approach which is based on the cultural sciences and which relates economics back to the humanities and arts, the so-called Geisteswissenschaften. We need not only a revival of culture but also a "cultural turn" in economics (cf. Lackner and Werner 1999).

The Network Approach to Culture

Rule Atomism versus Rule Holism in Cultural Analysis

We have already noted the fact that most recent economic uses of culture refer to single informal institutions, norms, or mental models. This is the atomistic and external approach to culture, which has a long tradition in anthropology. Culture would be reduced to a set of "traits" which can be mixed and remixed through historical trajectories of cultural change. In economics, these traits might be particular rules of thumb in strategic interaction or particular frames in specific settings of choice. One approach to explain the direction of change is to assume an interaction with the environment, such that certain traits spread among a population and are reinforced by their beneficial effects on behavior and its effects. Thus, the atomistic and external concept of culture is closely related to evolutionary and consequentialist explanations of culture. (7)

Let us briefly stay with this approach. Its main advantage is that culture is analyzed into constituent parts which can be more easily observed and identified. Frequently, atomistic thinking therefore approaches the methodology of the natural sciences. (8) I propose to lump all the pertinent theories together under the heading of "rule atomism." Rules can be institutions, cognitive schemes, social norms, and so on. Rules remain external to behavior as they simply operate as constraints of choice. Consequently, their impact can be identified by comparing individuals and populations across similar contexts of choice, as it happens in experimental economics. Of course, if these contexts vary in a way that is not fully observable to the economist, the empirical argument becomes much more difficult to make, so that the laboratory becomes the preferred setting where a natural science methodology can be pursued. Thus, rule atomism is strongly dependent on clear and simple causal mechanisms which allow relating of rules, environment, and results in an unequivocal way. The individual does not play an independent role as a creative agent, and individuals are assumed to be identical in all relevant aspects, such that differences in behavior in same environments can be unequivocally related to differences in particular rules.

In its most sophisticated and most recent form, rule atomism posits a close relation between institutions and cognitive models, so that the causality between institutions and observed behavior manifests higher degrees of freedom (e.g., Mantzavinos 2001). That means the same institutions in similar environments can still lead to different behavioral performance if cognitive models differ across individuals. Cognitive models are themselves hypotheses of the "if-then" type and open the view toward rule holism, in which the interpretation of rules in the context of other rules moves to the center of attention. However, the cognitivist approach to institutions remains atomistic as long as the cognitive models themselves are assumed to be subject to a process of selection according to certain consequences, which is the approach by the Popperian brand of evolutionary epistemology. (9)

Rule atomism has met with serious criticism from cultural theorists of many sorts, because it does not take human cultural creativity into account and because it neglects the interaction between rules. Indeed, many uses of culture refer to an integrated whole both in the sense of identifying a certain collective of actors, a population, which is a carrier of culture, and in the sense of identifying a coherent set of cultural traits which has properties that cannot be reduced to the single constituent traits. Accordingly, the extreme opposite of rule atomism is rule holism. In radical versions of rule holism the individuals seem to vanish completely behind the cultural whole, as is evident even from popular ideas of a "Japanese culture" of which the individuals seem to be just Platonic shadows. This anti-individualist stance of extreme...

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