Does Modernization Require Westernization?

• Author: LAL, DEEPAK

For the purposes of this essay, three types of liberty need to be distinguished: political, civil, and economic. Although it has become common, especially in America, to conflate the three, F. A. Hayek, among others, clearly distinguished them. As a development economist I am particularly concerned with the roles of these distinct types of liberty in promoting economic development.

For economic performance, economic and civil liberty are important because they underwrite the sanctity of private property. Moreover, the rule of law is fundamental in upholding both, as Hayek argued so eloquently in The Constitution of Liberty. But various political forms--including democracy, oligarchy, and autocracy--are compatible with maintaining the rule of law, as the example of Hong Kong attests. Indeed, hereditary monarchy, not democracy, delivered the Industrial Revolution. As the triumph of the market over central planning has demonstrated, economic liberty is essential for prosperity; but political liberty as embodied in majoritarian democracy is not--a point on which I concur with David Hume, Alexis de Tocqueville, and Hayek.

As defined by Hayek in The Constitution of Liberty, liberty or freedom is "that condition of men in which coercion of some by others is reduced as much as is possible in society" (11). This conception of individual liberty is closely related to the notion of individualism, a distinctly Western concept to which most other civilizations have not subscribed. But growing individualism, along with other elements of what the historian of Chinese science Joseph Needham called "a packet of change," was responsible for the "European miracle" of modern economic growth.

To promote in the rest of the world the material prosperity that this miracle has brought to the West, does the unique Western value system also need to be transferred, and if so, how? As a venerable debate in development studies has framed the question: Does modernization require Westernization? Hayek clearly seemed to think it did. He maintained that the market economy requires cultural underpinnings in the form of a set of "modern" values based on individualism (see the epilogue of his Law Legislation and Liberty). He even argued that a form of cultural evolution had, in an unplanned way, led from a Stone Age culture with its sense of communal bonds to a modern culture with respect for abstract rules, such as the rule of law, and a "detachment from communal, co-operative ends" (168). For him the process of cultural evolution involved forms of "group selection"--an idea currently scorned by sociobiologists--with the more successful cultural practices "winning out." In this view it would seem that, even though the culture of liberty arose in the West, because of its success it should naturally spread across the world. A similar implicit belief underlies the current Western moral crusade around the world, in which a combination of the market and good governance (a euphemism for democracy) is increasingly offered as a panacea for poverty and war.

In my view, matters are not so simple. It was not some process of cultural evolution a la Hayek but contingent events linked to the actions of the medieval Western Christian Church that led to the rise of the West. Although individualism was an essential aspect of the West's subsequent trajectory, it is not essential--or inevitable, as Hayek's cultural evolutionary view would suggest--for the "Rest" to adopt this particular Western value in order to reproduce the West's economic success. As I argue in support of the foregoing positions, I will also discuss related issues involved in continuing debates about whether democracy is necessary for development, about the role of so-called Asian values in the success of East Asia, and about whether "Asian" values--or, more specifically, Confucianism--are compatible with "human rights."

Culture and Social Equilibria

The role of culture remains at the center of these debates, but culture remains a murky concept. I have found particularly useful a definition adopted by ecologists (Colinvaux 1983). They emphasize that, unlike other animals, the human one is unique because its intelligence gives it the ability to change its environment by learning. It does not have to mutate into a new species to adapt to the changed environment. It learns new ways of surviving in the new environment and then fixes those ways by social customs. These form the culture of the relevant group and are transmitted to new members (mainly children) who then do not have to invent the "new" ways de novo for themselves.

This conception of culture fits in well with the economists' notion of equilibrium. Frank Hahn (1973) describes an equilibrium state as one in which self-seeking agents learn nothing new, so that their behavior is routinized. It represents an adaptation by agents to the economic environment in which the economy "generates messages which do not cause agents to change the theories which they hold or the policies which they pursue" (59). Such routinized behavior closely resembles the ecologists' notion of social custom, which creates a particular human niche. In this view, the equilibrium will be disturbed if the environment changes, and therefore in the subsequent process of adjustment the human agents will have to abandon their past theories, which come to be systematically falsified. To survive, they must learn to adapt to their new environment through a process of trial and error. There will then arise a new social equilibrium: a state of society and economy in which "agents have adapted themselves to their economic environment and where their expectations in the widest sense are in the proper meaning not falsified" (61).

This equilibrium need not be unique or optimal, given the environmental parameters. But once a particular socioeconomic order is established and proves to be an adequate adaptation to the new environment, it is likely to be stable, because the human agents have no reason to alter it in any fundamental manner unless and until the environmental parameters change. Nor is this social order likely to be the result of a deliberate rationalist plan. We have known since Adam Smith's time that an unplanned but coherent and seemingly planned social system can emerge from the independent actions of many individuals pursuing their different ends, and in that system the final outcomes can differ greatly from those intended.

It is useful to distinguish two major sorts of beliefs about the environment: the material and the cosmological beliefs of a particular culture. The former relate to ways of making a living and encompass beliefs about the material world, particularly about the economy. The latter are related to understanding mankind's place in the world; they determine how people view the purpose and meaning of their lives and their relationship to others. There is considerable cross-cultural evidence that material beliefs are more malleable than cosmological ones. Material beliefs can change rapidly with changes in the material environment. There is greater hysteresis of cosmological beliefs, that is, of ideas about how, in Plato's words, "one should live." Moreover, the cross-cultural evidence shows that these worldviews correlate more closely with language groups (and thus with cultural origins) than with environments (Hallpike 1986).

The distinction between material and cosmological beliefs is important for economic performance because it translates into two distinct types of transactions costs that are important in explaining not only market failure but also government or bureaucratic failure (Lal 1997). Broadly speaking, transactions costs can be usefully categorized as those associated with making exchanges and those associated with policing opportunistic behavior by economic agents. The former relate to the costs of finding potential trading partners and determining their supply-demand offers, the latter to enforcing the execution of promises and agreements. These two aspects of transactions need to be kept distinct. The economic historian Douglass C. North and the industrial organization theorist Oliver Williamson have evoked transactions costs to explain various institutional arrangements relevant for economic performance. These analysts are concerned primarily with the cost of opportunistic behavior, which for North is associated with the more anonymous, nonrepeated transactions that accompany the widening of the market and, for Williamson, with the asymmetric information of principals and agents, a situation that allows crucial characteristics of the agent relevant for measuring performance to be concealed from the principal.

To appreciate the relevance of the distinction in beliefs and the related kinds of transactions costs for economic performance, it is useful to briefly delineate the broad changes of material and cosmological beliefs since the Stone Age in Eurasia.

Changing Material and Cosmological Beliefs

Evolutionary anthropologists and psychologists maintain that human nature was set during the period of evolution ending with the Stone Age. Since then the time lapse has been insufficient for any further evolution. This human nature appears darker than Rousseau's characterizations of it and brighter than those of Hobbes. It is closer to Hume's view that "there is some benevolence, however small ... some particle of the dove kneaded into our frame, along with the elements of the wolf and serpent" (Hume [1750] 1975, 271). Even in the hunter-gatherer Stone Age environment the supremely egotistical human animal would have found some form of what evolutionary biologists term "reciprocal altruism" to be useful. Cooperation with one's fellows in various hunter-gatherer tasks yields benefits for the selfish human that can be further increased if he can cheat and be a free-rider. In the repeated interactions between the selfish humans...