Technology and Cultural Comparative Advantage

John HookerApril 2006

A New Economic Order?

The world economy seems to be moving toward a new equilibrium, based on cultural comparative advantage.

Moving away from Western economic hegemony.Successful countries draw on their cultural strengths.

• Japanese quality• Indian information technology• Korean manufacturing efficiency • Chinese entrepreneurship & relationship-based

business• Western technology

A New Economic Order?

What is the Western comparative advantage in the new order?

Perhaps technological innovation.It is rooted in the Western cultural system.

Caveats

I am using an alternative paradigm for economic explanation.

Based on cultural anthropology• Franz Boas, Edward Hall, Marvin Harris, Ruth Benedict,

Geert Hofstede, et al.

Cultural factors are fundamental rather than externalities.Culture provides the social infrastructure that makes commerce and industry possible.

• Not a rejection of standard economics, but an alternative point of view.

Caveats

Cultural analysis does not stereotype individuals.

Every culture contains the full range of personality types.

• But they fit into the system differently.

Cultures are like ecosystems.• They are systems.• They can coexist on the same planet.• Diversity is good.

But cultures create meaning.• They require interpretation (à la Clifford Geertz).

Caveats

Beware of Western universalism.The Western view of culture:

• Everyone is basically the same inside.• Culture is all about food, language, customs, dress.• There is one rational way to live and one path of

development.– Democracy, human rights, individualism, capitalism

are for everyone.

• Most non-Western countries are “less developed.”

Caveats

Culture is really about fundamental, unacknowledged assumptions.

The West universalizes because its cultural system requires it.

Caveats

I make no judgment about which cultures are “better.”

But I insist they are radically different.

Example: Japanese Quality

Continuous improvement.Group-oriented, rather than requiring individual reward.Long time horizon.No need for cause-and-effect manipulation.Maintain group harmony by honoring everyone’s ideas.Nemawashi.Kanban systems minimize rework, maximize flexibility.Lean manufacturing, reduced setup times.

Example: Japanese Quality

Just-in-time inventory managementOutgrowth of keiretsu (formerly zaibatsu).Old-boy networks, trust relationships.Keidanren.

Example: Japanese Quality

Case study: fuzzy controlInitially rejected by Western engineers as unprincipled.West misunderstood Japanese acceptance of fuzzy logic.

• Not because it is “feminine” or “Buddhist” logic.

Real reason: Western-style scientific modeling of nature is unnecessary to support Japanese culture.Also: Fuzzy rule bases are ideal collaborative projects.

Example: Indian IT

Pantheism vs. secularismNo need to maintain & manipulate nature.

Coping mechanisms:Inner discipline

• Get control of one’s mind rather than the environment.• Modern form: study, intellectual discipline, academic

competition.

Networking.• Efficient way to absorb technical knowledge.

A verbal culture.• Well suited to academic discourse, information age.

Example: Indian IT

Case study: software developmentNo need for the technology, but well suited to create it.Create an orderly world of the mind, rather than an orderly world externally.

Indians see themselves as WesternizingThere is a common reliance on rationality.But Indians are leveraging their own cultural traits.

Example: Korean Manufacturing

Initially an imitation of Japanese zaibatsu.Park Chung Hee helped create the chaebol (1960s, 1970s).

• Samsung, LG, Hyundai, SK Group, Daewoo

Cozy relationship between leading industrial families and the governmentAllowed Korea to build major private corporations in a relationship-based culture.Emphasis on manufacturing for export.

• Korea manufactured itself out of the Asian financial crisis.

Example: Korean Manufacturing

Unique organizational characteristicsLoyalty to the boss.

• Paternal relationship.

Highly disciplined, hierarchical groups.• Organized by age.

Highly competitive, masculine culture.• Strong national solidarity.

Focus on loyalty to team.• Bottom line and short-term profitability are secondary.

Example: Chinese Entrepreneurship

Entrepreneurship is a cultural trait of coastal Chinese.

Particularly, speakers of Yuè (Cantonese), Mĭn (Fujianese), and Wú (Shanghaiese) dialects.Uncertainty tolerant culture.Self esteem tied to wealth and status.

• “To be rich is glorious” (Deng Xiaoping).

Masculine culture, competitive.

Example: Chinese Entrepreneurship

Relationship-based business.Guānxì is a time-tested mechanism.World’s largest economy for 8 of last 10 centuries, soon to be again.Chinese and other Asian businesses are making inroads into South America, Africa, Middle East.These countries are more comfortable with Chinese relationship-based business style than Western rule-based transparency.

Western Technology

Two rootsDisenchantment of nature (cf. Max Weber).

• Opened the way to manipulation of a secular world.

Greek rationality.• Human beings are rational, autonomous individuals.• Reality is intelligible (even mathematical).

The result: science-based technology.Cope with uncertainty by controlling and ordering the external, secular world.

• Family, community, internal self-discipline less important.

Western Technology

Technology is easily transferred to other countries.

Does the West have a comparative advantage here?Technological innovation may be less transferable.

Technological Innovation

Cultural rootsReasoning from first principles.

• The universe is intelligible.

Individualism.• Individuals have the right to rethink everything.

Universalism of rules.• Laws of science, morals.• Autonomous individuals can be governed only by laws,

not persons.• Laws must be self-evident, inherently logical.• They are therefore universal and can be discovered by

any individual.

Technological Innovation

Massive cultural/educational investmentStudents asked to rethink the field, see things for themselves.

• Geometrical proofs, science experiments.• Most students hate this.• Only a few will catch on.

Individual expression valued.• Concept of plagiarism.• Makes society hard to govern.

Payoff: new ideas for technological coping mechanism.

Technological Innovation

Arguments that technological innovation is transferable:

Only a few need be involved.Subculture of Westernized elites in many countries.

Technological Innovation

Arguments that technological innovation will remain a Western comparative advantage:

World is not Westernizing.• Information technology actually reinforces regional

differences.• West overestimates Westernization trend because it

universalizes.• Non-West overestimates Westernization to emphasize

its “development.”

Ideas bubble up from below.

Technological Innovation

A problem with relying on technological innovation:

Protection of intellectual property rights.• Enforcement already difficult.• Despite recent strengthening of IP rights, overall

historical trend is away from commoditization.• Growing influence of the “South.”

– WTO is nominally democratic.– U.S. domination of WTO may weaken (e.g. “group

of 20” at Cancun meeting).– Liberalization of TRIPS agreement at Doha meeting.

Other Candidates for Western Cultural Comparative Advantage

EntrepreneurshipNot uniquely Western, but it helps.

TransparencyResults in very efficient commerce, but requires stable institutions.May remain a Western peculiarity.

• Relationship-based business may prevail in an unstable world.

• Information technology facilitates it.• Western transparency-based finance already shaky as a

global system.