Culture and Prosperity: the Truth about Markets--Why Some Nations Are Rich but Most Remain Poor.

• Author: Wight, Jonathan B.
• Position: Book - Book Review

Culture and Prosperity: The Truth about Markets--Why Some Nations Are Rich but Most Remain Poor

By John Kay. New York: HarperBusiness, 2004. Pp. xii. 420. $25.95.

John Kay's latest book offers an absorbing romp through the history of economic thought in the 20th century. Kay attempts to explain the complex reality of a modern market system rather than resorting to simplistic theorizing about it. Gone are perfectly rational traders, perfectly competitive markets, incentive compatibilities, low transaction costs, informational symmetries, and no externalities. Kay highlights problems and problem solving as the ubiquitous and historical strata through which markets in the West evolved.

Business and society respond adaptively (rather than rationally) to deal with impediments, according to Kay. "Path dependency" then generates a set of institutions, policies, and cultural norms that become "embedded" with markets to manage problems, but--and this is the critical point--these institutions, policies, and cultural norms cannot easily be replicated or imposed elsewhere. Hence, if we wish to understand why Norway is rich and Nigeria is poor, the bottom line is "Rich states are the product of--literally--centuries of coevolution of civil society, politics, and economic institutions. [This is] a coevolution that we only partially understand and cannot transplant" (p. 355).

A survey of rich societies today reveals a wide range of regulations, policies, institutions, and social conventions that work adequately to solve information, rationality, externality, public good, and trust problems. In the United States these mechanisms take different forms than in other highly productive economies like Norway or Switzerland. In Kay's view there is no simple "grand narrative" that can explain the diversity of successful models of capitalism. Because of adaptive behaviors and path dependencies, there is no "one" correct way. Attempting to construct an ahistorical and acultural account of economic development in which the only institution that matters is "private property" is more than foolish--it is hazardous to the success of markets. Not surprisingly, this book is dedicated to those for whom "a partial understanding of complex reality is better than the reassurance of false universal explanations" (p. 355).

The standard neoclassical model--purely rational, materialistic, atomistic actors maximizing utility and profit within free markets--is in Kay's view a...