Culture and Prosperity: Why Some Nations Are Rich But Most Remain Poor

by John Kay

Book Overview

Why are some countries rich and others poor? Why does a farmer in Sweden have a higher standard of living than a farmer in South Africa? Why does a schoolteacher in Switzerland earn more than one in Chicago?According to leading economic theorist John Kay, economic markets are key to the wealth or poverty of the world's nations. In Culture and Prosperity, Kay explores why market economies outperform socialist or...

• Format: Paperback
• Language: English
• ISBN: 0060587067
• ISBN13: 9780060587062
• Release Date: May 2005
• Publisher: Harper Business
• Length: 432 Pages
• Weight: 1.15 lbs.
• Dimensions: 1.1" x 5.5" x 8.0"

Customer Reviews

The purpose of an economic system is to enhance the welfare of the households that live in it

This formidable book is a frontal attack on the so-called US business model (market fundamentalism). John Kay explains brilliantly that markets are embedded in a social, political and cultural context and that they cannot function outside that context. US business model In this model, markets should be left free. Self-regarding, unrestrained, pure greed individualism should be considered as the principal determinant of economic behavior. State intervention should be limited to the protection of property-rights and the enforcement of contracts. Income taxes should only cover these functions (low taxation). Critique It is a model without any ethics or any mores. Pure greed leads to chaos. Unchallenged private property-rights lead to monopolies. Free markets are rigged by imperfect information. Self-interested individuals mostly fail to co-operate with each-other. Innovation and knowledge are generated outside markets. Countries who adopted this model are among the poorest on our planet. Why are countries rich and other poor? The main reason is to be found in the internal economic organization of the countries themselves. Countries need `institutions' of agriculture, of employment (division of labour) and of limited liability (corporations). These institutions can exploit competitive and comparative advantages (specializations), facilitate trade and exchange gains and promote innovation. The differences in economic institutions determine the availability of resources, education, capital and skills in each country. Why central planning fails? The reasons for its failure are bad coordination, no response to a changing environment, little feedback from the working place and nearly no accountability. A planning bureaucracy stifles innovation. Market organization Convexity (the property that a collection of items also contains an average of those items) can generate a spontaneous order in an economic system, a perfectly competitive co-ordinated and efficient equilibrium between supply and demand, conducted by self-regarding agents. Markets and individuals do not function perfectly Markets don't function perfectly because of imperfect information and technical co-ordination problems. Information is mostly asymmetric because only the seller knows what he sells. Exchanges between individuals can be rigged. For individuals, there is a conflict between social (happiness) and economic values. More, people adapt to their honest or corrupt environment. In developed countries, people are members of teams which are organized in institutions in order to pool risks (social security) and knowledge (education). What role for government? We need a representative democracy, because a participative one is too expensive. The State has to be managed by legitimate authorities which use pluralist and disciplined processes. As John Rawls explains in his book `A Theory of Justice, redistribution is necessary and provides a just and efficient outcome. Corporations have

An Inconvenient Truth

Every year, around about the time of the G8 summit, we're bombarded by dozens of well-intentioned pleas from celebrities and... well, people who listen to them, for the powerful nations of the world to make things better in the poor nations of the world. The assumption is that given enough dollars of aid, we could make the lives of those in the third world better. It's a noble goal, and possibly attainable in small, temporary measures, but ultimately has proven to be untenable. Why is that? The root of the issue lies deeper than access to resources, which is the thrust of most aid. Financial aid is a band-aid on a leaking dam. The problem lies in the culture of the society. Kay tackles the problem with the studied eye of an economist, and illustrates how economics, being an artifact of human behavior, is defined by the culture in question. The concepts of markets, rational actors, prices, and demand are formalized observations of the way in which people interact with each other to produce the means of survival (and beyond). One of the major determinants of individual economic behavior are the rules and rewards of the system. When economic liberties aren't guaranteed (through corruption, extortion, weak law enforcement, excessive taxation), the resulting disincentive hampers the growth of the economy. Accordingly, in most of the impoverished nations of the world, the government is found to be corrupt on multiple levels. Fair government alone doesn't guarantee a prosperous economy either. While it is a requirement for a prosperous nation, prosperity still requires the initiative of the populace, a nebulous concept that stems from the values and ideals of the culture involved. Aside from the weighty consideration of poverty, Kay also drops a lot of little nuggets about more quotidian economic concepts, such as why fair trade coffee is more of a benefit to the retailer than the farmer, why generic foods are given lackluster labels, and numerous other backstories on the rationale behind retailing and pricing. Overall, a very fun book which, though not entirely capable of answering the claim of its title, does as good a job as possible.

worth the money

As I read his column in the FT regularly I did have some idea as to the general direction this book would take. The main point that Mr Kay makes, and one that can be found in all his other writings, is that consumers are not always rational. He believes that a large number of people act adaptively but not rationaly - due to the political issues/corruption of particular countries and firms. (GE is one of his favorite - i.e. the group think, as well as the civil service in mandarin times). Mr Kay also pokes holes in the efficient market hypothesis rather well - another characteristic that makes him popular in the FT - although not quite a popular as Mr Plender. While I rate the book as five stars, there are a few issues with this book that detract from the overall experience. The flower market as a perfect example of a competitive market gets tiring but the really annoying feature is the use of fictional individuals (Heidi the Swiss, Sven, etc). I realize this makes things easier to point out differences between countries but it does get tiresome after awhile. If you are already into micro/macroeconomics this really does not cover anything new - it's just presented in a good format that makes a convincing case to the 'lay man'. Good read.

The mystery of prosperity

The title and the cover design of this book are extremely attractive. So are the introductory chapters that start with the description of the hypothesis based on the title. This evokes further interest and the soon we find ourselves reading topics that are a rare combination of economics, literature and culture. There are examples of people in different continents whose income levels in dollar terms vary astronomically. Those who live in poor countries earn less despite good academic qualifications while even a not so educated farm worker in a rich country like Sweden is paid handsomely. The book attempts to solve this mystery. There are only nineteen countries with a combined population of about 1 billion that are "rich". These countries spring back to prosperity within a short time even when they are flattened by bombs - Germany and Japan for example. It is interesting to note that these nineteen countries have many similarities - statistically atleast - in terms of economic policy, honesty of people, climate, etc. Switzerland tops this list. These "rich" countries are not dependent on their natural resources and have significant trade in value added products and services between them. The rest of the world is just not able to catch up. ( Even the oil kingdoms do not appear in the list of rich in terms of per capita GDP). The book goes on to explain that it is disciplined pluralism with a combination of economic, social and political institutions that is responsible for such success. Let us then look at the "poor". Pakistan for example has nuclear weapons capability, but a weak public health care system. Can a nation boast of technology when people die from disease ?. This discussion goes on. The next logical step for poor countries would be to exactly replicate the policies of the rich as a quick and sure road to prosperity. Here the author feels that the process needs to evolve over long periods and cannot be transplanted. This is perhaps a very controversial view and can generate a healthy debate. There are several chapters meant to explain the concepts stated in the hypothesis on prosperity. The bulk of these are devoted to economics while politics and social systems do appear with some icing of art and literature. One might be tempted to visit France and also develop an interest in paintings, Van Gogh, to be specific. I found every chapter very interesting particularly in the style and simplicity of explaining complex economic issues without the aid of mathematical tools - free markets, perfect competition, economic rent, consumer surplus, central planning, monopolies, and a host of other key topics of economics and wealth generation. Economics is treated as a subject of allocating scarce resources among competing ends. Nobel laureates in economics are quoted liberally adding to the richness of the discussion. The glossary of economic terms provides a good reference. Having enjoyed the reading on various economic concepts and

Entertaining Look at the Limits of Free Market Economics

I am quite accustomed to having scholars in other fields point out the follies of most economic theories. Seldom have I seen the questioning sword come from an economist. The novelty was quite rewarding. As Culture and Prosperity suggests, economics has a limited ability to predict and explain human behavior. Many other fields do better. One problem is that much economic analysis assumes what does not exist: everyone considers only economic factors in their decisions; perfect information exists; circumstances are in a stable state; and so forth. Many economists proudly proclaim that it doesn't matter whether or not their work predicts anything accurately or not. All that matters is that the math is correct. In Culture and Prosperity, the nominal topic is explaining why people in some countries enjoy more prosperity than those in other countries. Actually, that subject takes up less than a quarter of the book. So if that's your main interest, you may find this book to be a little overkill. To answer the question posed in the topic, you take a brief tour through the history of economic thought from Adam Smith through to the latest theorists and Nobel Prize winners in economics. If you find all of that more than you want to know, just pick up the argument in part five after reading the opening examples. One of Professor Kay's strengths is that he uses interesting human examples to make his points. He also avoids math for those who find that challenging. Further, he minimizes the use of jargon. It's an unusually clear argument. Essentially, he concludes that the driving forces in developing prosperity are division of labor (harking back to Adam Smith), more effective organizations (teams can do more than individuals), having individuals and companies make many decisions rather than relying on central planning (pluralism), and creating scarce talents that have value to many others (seeking economic rents). It also helps to have a culture that favors honesty, an interest in being productive, and other social values that are constructive. Many other items play some role. But his basic points are important for governments: Give up on planning your economies -- seek to facilitate the conditions that lead to prosperity instead; Don't assume that the American way to prosperity can be dropped down into any country without the other characteristics of American society (the reasons why Russia has done poorly). Professor Kay also has some valuable things to say about the problems for America with the American Business Model (greed is overtaking effectiveness for leaders) and the future of economics (economists need to rejoin the real world). If you are an economist, you will probably find this book to be very elementary. If you took a single economics course, you will find this book approachable and an entertaining way to catch up on what's happened in the field since you studied it. If you have never taken economics, this book