Culture and its relation to Per Capita Income

Do you question how important culture is to our daily lives? Well many do. In reality however culture is at play moulding the world around us every minute of every day; sometimes in ways we don't understand. New research by Romain Wacziarg suggests country’s income per capita is actually closely related to the its culture.

In an article in the Economic Times, journalist Dibeyendu Ganguly tells the story of Romain Wacziarg. Wacziarg moved to India as a little baby when his father was sent to the country to work for the French consulate in Mumbai. At age six, Wacziarg was sent to France for his education. After he quit his job for the French embassy to work for the Banque Nationale de Paris in Delhi, Wacziarg’s father founded the Neemrana chain of hotels. Wacziarg himself commenced his PhD at Harvard University in 1992 and now teaches at the Anderson School of Management at UCLA. He teaches ‘The Business Environment in India,’ which requires him to visit the country with his students every year.

‘My academic interests are definitely related to my upbringing in India. The question that motivates my scholarship is to understand how we can get countries to develop faster and in a way, that is inclusive.’ In 1998, he began to study a topic that highly interested economists: why does the income per capita differ so greatly between countries? And why haven’t these differences changed over time?

Wacziarg argues that it is very well possible that in the year 1000, China and India were richer than Europe. This changed when the Industrial Revolution started. According to Wacziarg, ‘Countries that were ethnically and culturally closer to England, the birthplace of the Industrial Revolution, tended to adopt the means of production of an industrial society sooner than others. Ultimately, most countries started to industrialise, but when they did so depended on their cultural distance to Northwestern Europe. This was true within Europe as well.’

Wacziarg is an ‘Overseas Citizen of India,’ which means he can tackle sensitive subjects more easily than outsiders. He has, for example, investigated the relation between India’s low capita per income and its culture without being controversial. However, his research paper doesn’t assess the quality of Indian culture: Wacziarg’s research only focuses on quantity. In this respect, he differs greatly from the Harvard guru Jared Diamon, who linked economic dominance to geography as well in his ‘Guns, Germs, and Steel: The Fates of Human Societies.’ Using data on cultural differences-language, religion and many others from the years 1500, 1700, 1820, 1870, 1913 and 1960, Wacziarg tried to prove that income differences are influenced by human characteristics that are passed on from generation to generation. These characteristics erect barriers that inhibit the equal distribution of innovations.  

Wacziarg states that ‘The pattern holds not only for current worldwide data but also for estimates of income per capita and genetic distance since 1500.’ The results of his research do make sense in a way, but are a little disturbing: it is one thing to know genetic distance accounts for the differences in the per capita income, but another to figure out how this can be changed.

According to Wacziarg, countries can counteract the effects of genetic distance by actively seeking to bring down the previously mentioned barriers. Japan has long been very successful in this practice, and China and India’s efforts in globalization have enabled them to achieve success in this field as well. ‘ Wacziarg: ‘These things are not insurmountable. Significant reductions in income disparities could be obtained by encouraging policies that reduce barriers, including efforts to translate and adapt technological as well as institutional innovations into different traditions and to foster cross-cultural exchanges.’

Wacziarg always commences his course by asking his students how long, given their average rates of GDP growth, they think it will take for India’s capita per income to equal that of America. The correct answer is 90 years in which India’s per capita has to double three times. Wacziarg says the US is ‘a moving target. If it manages to pull off a series of innovations that revives its growth rate, the differential will increase.’

Wacziarg’s faher isn’t really affected by India’s low capita per income and the low rate at which the country is progressing. However, many Indians are: ‘To my Dad, everything that's happening in India seems great. But for the poor, it's a different story. Poverty has reduced in India but inequalities have increased. The only silver lining to the cloud is globalization. If that proceeds apace, the story ends on a positive note.’