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Tuesday, June 1, 2004

WHAT EXPLAINS ECONOMIC DEVELOPMENT? 2nd of a 8-Part Mini-Series

This is the 2nd in a 8-article mini-series on economic development --- the mini-series itself part of a wider series, weeks old now, on the democratic prospects of the Arab countries.

To follow the argument here, you need to have read the 1st article in the mini-series. The current article even starts with Part Three --- the first two parts, plus some introductory comments, set out in that initial article. A 3rd article will then summarize what we've learned about the conditions essential for sustained long-term economic development --- institutional, cultural, and policy-oriented --- in four sets of simple propositions, each carefully clarified. Since those four summary propositions continue the overall argument, that 3rd article will begin with Part Four.

And the 4th article? It will look at the way in which convergence catch-up growth favors developing countries compared to the growth rates of the rich leader countries . . . at any rate, if developing countries are able to implement the necessary institutional and policy changes that go along with successfully sustained long-term economic growth.

These terms need to be clarified --- obviously. So too does the specific thrust of the argument unfolded here, a continuation of the major points set out and analyzed in the first article. And hence some . . .


INTRODUCTORY COMMENTS

The Economic Advantages of Backwardness And Convergence Theory

The original work in this area, pioneered by a former professor of the buggy prof himself back in the 1950s and early 1960s--- Alexander Gerschenkron --- even explicitly used the term "the advantages of backwardness". See this link for a good review of Gerschenkron's key book. Gershenkron's thesis overlapped with a related theoretical approach to development, convergence or catch-up growth --- the main pioneers here two prominent scholars in the 1950s, Robert Solow (a Nobel-prize winner) and Moses Abramovitz of Stanford.

The third article in this series, remember, will deal with convergence theory and catch-up growth at length.

 

New Growth Theory

Abramovitz went on to help fashion an alternative to the Solow standard Neo-Classical growth-model, developed originally in the mid-1950s. The Solow model focused on the growth of capital and labor inputs ---later augmented to take into account improved human capital --- as the determinants of long-term economic growth, plus technological progress. (Economic growth, note, really means not just the growth of a country's GDP, but even more of its per capita income.) Over the long-haul in the model, technological progress --- whether radically new innovations like cars or computers or airplanes or improvements in the production process of existing products (along with their diffusion in the innovating country and transfers to other countries) --- is the big driving force of dynamic growth.

Solow stressed this from the outset. He justifiably won a Nobel prize for his pathbreaking work.

In his model, however, there's a major explanatory drawback: technology is treated as an exogenous variable, operating on economic growth from outside the Solow mathematical model itself. Technological innovation, to explain this briefly, keeps the growth rate of a national economy from invariably slowing down and heading ultimately for a stationary state --- the slow-down caused, Solow stressed, by the growing impact of diminishing returns as capital accumulation within a national economy piles up and up with a given set of technologies. What this means, in plainer English, is that when an economy, say the Soviet Union in the Stalinist era, doubles the number of steel plants from one to two, then steel output itself might double; by the time you create the 11th plant in the steel industry using the same technology, the 11th plant might cost as much as the 2nd did, but steel output itself might barely grow. Such is the inevitable force of diminishing returns.

If, then, an economy's per capita income growth rate doesn't fall off and head towards zero, the stationary state, it's because of technological innovation. Enter the model's drawback: technology's salvaging impact here isn't itself explained. Treated as an exogenous variable outside the formal multi-variable regression model, rather than appearing as an explicit independent explanatory variable that interacts with capital and labor inputs to explain fully economic growth, technological innovation in the Solow model remains mysterious. Its benign impact, if it occurs and saves an economy from landing in a stationary state of growth as capital accumulation goes on, is like Manna from Heaven . . . a blissful gift that remains as mysterious as Heaven's blessings.

The model that Abramovitz worked out in the 1950s --- to which he returned three decades later ---- foreshadowed what has become known as "New Growth Theory."

In contrast to the still very influential Solow growth model --- particularly when it is augmented with human capital improvements --- New Growth Theory endogenizes technological change as an explicit independent variable in its formal mathematical model. In this way, technological innovation itself is then something New Growth theorists seek to explain; and that effort invariably leads them to examine the institutions of a country --- not just those in its economy, mind you, but within its much wider socio-political systems. Paul Romer of Stanford was the first to formalize the theory in mathematical terms, back in the mid-1980s. (See the easily followed interview with Romer that appeared in 1999: it's very good on New Growth Theory vs. the Solow Neo-Classical Model.)

 

Beyond New Growth Theory: Institutions and Culture as Wider Influences
on Long-Term Economic Growth


Even then, despite these new theoretical developments in growth theory, the impact of institutions and culture on technological progress and economic growth remains fairly shadowy even in New Growth Theory.

Enter explicit theoretical work that focuses on institutions.

Their pivotal influence in either fostering or hindering long-term economic growth --- not just economic and financial ones, but legal and political and administrative --- has been explained most effectively by Douglass North of Washington University in St. Louis, himself a Nobel Prize winner. Increasingly influential the last decade, North's work is reflected in the articles or books by Dani Rodrik and William Easterly that appear on the political science 121 syllabus and were discussed at length in the previous article. For that matter, they are discussed again in this second article in the series.

A wider ranging variant --- a country's "social capability" ---- was also worked out by Moses Abramovitz to explain successful or failed long-term economic development: institutions and culture, including attitudes toward change and risk-taking across each country of the world. Although it's used a fair amount in developmental work, the Abramovitz concept was never as rigorously defined as the more narrow, but carefully applied institutional work of Douglass North and his followers over large historical epochs and across different civilizations --- above all, in order to explain why parts of West Europe pioneered the big breakthroughs in long-term economic development and industrialization --- and so it has generally lacked North's growing impact.

 

So Where Are We?

Well, in the buggy argument that follows, the role of institutions --- clarified in detail --- comes close to the North view as a jump-off point . . . only to range more ambitiously by stressing the cultural influences on long-term economic development. In that sense, the argument here draws on the wider views of social capability and culture of the Abramovitz sort. Note that this isn't an idiosyncratic view. Even the World Bank and the influential work of William Easterly --- see the previous buggy article where Easterly figures prominently in the argument there --- now recognize that institutions and culture are important here. The same is true of Rodrik, even if he introduces culture and social capability as explanatory concepts indirectly, referring to the need to adapt institutional changes to "specific national conditions" within each country.

Note quickly: the words in quote here are the buggy prof's, not Rodrik's --- not that they distort his views. On the contrary, he refers several times to the need to adapt institutional and policy changes to "local opportunities and constraints" within each country. As Rodrik also notes --- a further concession to cultural and social influences --- institutional innovations and new policy-packages that a country's policymakers have to introduce to sustain short-term economic dynamism over the long-run do not travel well. They have to be carefully tailored to each country's wider context --- which is obviously a reference to the social, political, and cultural condition in that country.

 

The Current Article's Aim

In summary, then, the argument here in this 3rd article seeks to clarify the changes and innovations in a country's culture as well as its institutions and its economic policies that are needed to sustain short-term spurts in economic growth over the long haul, transforming any such spurts into successful long-term development that converges on the levels of productivity and per capita income of rich leader countries. Don't worry: all these terms --- institutions, culture as part of them, and policies --- will be clarified as the argument unfolds. Remember too: the institutions in question aren't confined to the economy of a country; they encompass the legal, political, administrative, and educational systems no less.

Remember something else: the reason the analysis begins with Part Three now is that the overall argument was left hanging fire exactly at the end of Part Two, it and part one both set out at length in the initial article.

 

PART THREE:
INSTITUTIONS AND RULES-OF-THE-GAME FOR DOMESTIC LIFE WITHIN A COUNTRY CLARIFIED --- SOCIAL, ECONOMIC, AND POLITICAL --- ITS CULTURE INCLUDED


So Far, So Good: But Something's Missing In Our Analysis of Development So Far

Namely? In all these analyses of successful long-term development --- whether those of the rich Japanese, Europeans, and English-speaking peoples, or the newly rich in East Asia or Israel, and those elsewhere likely to join them in three or four more decades--- something crucial to such developmental outcomes has been absent up to now: the role of national cultures. And for the influence of culture on long-term economic development to be spelled out, it's necessary to clarify both its meaning and the related concept of institutions

 

1. Introduction: Culture and Institutions.

Note: none of the writers on the political science 121 syllabus go into the need for cultural adjustments of the sort emphasized in our lectures, yet national cultures are impossible to separate from the ways in which institutions --- political, economic, or social --- actually operate in practice. We'll explain this in a moment. For now, simply note in passing that cultural influences in economic development is a difficult challenge for economists, and for a pair of reasons: first, most economists tend to think in terms of incentive systems that overwhelm cultural influences --- crudely put, incentive systems mean the costs and benefits of doing something (eg, working hard will occur if it pays off in rising income) --- and second, culture is a concept that's hard to codify, quantitatively, for use in statistical equations, the latter essential to rigorous economic work these days.

Still, in the ps. 121 lectures, we've dealt directly with cultural influences on development over the long-haul. In particular, we've emphasized the need as countries develop to adapt their inherited belief-and-value systems (transmitted culture through socialization) in these ways:

a much wider radius of trust, and less cynicism, than exists in most developing countries

more spontaneous cooperation across wide sectors of the citizenry,

a hard-work ethos among the well-to-do and powerful: in most developing countries --- East Asia with its Confucian heritage something of an exception --- the wealthy and influential aren't hard-working and lead lives of luxury and conspicuous consumption,

social and economic advancement based on merit and accomplishment, not family and wider clientele connections --- rife again in most developing countries

and ultimately a vigorous civil society of voluntary associations and professions in charge of their own criteria.
 

2) Culture Clarified: It's Part-and-Parcel of Institutions

This is a major point, which quickly prompts a question: What specifically do we mean by institutions? Essentially, in shorthand terms, four related things:

1. Formal Rules: This means 1) constitutions, 2) legal statutes, and 3) governmental regulations. All these pertain directly to the legal and political systems. They have authoritative power.

But note a 4th) set of formal rules originating outside these two institutional network in the private sectors of society. In particular, business firms, trade unions, and voluntary institutions like self-governing professional associations are also authorized to formulate sets of formal rules for their employees or members. For business firms that's probably self-evident. In modern industrial societies that are democratic, professional assocations in law, medicine, accounting, architecture, university teaching, education, and the like are no less important when it comes to setting down rules and codes of behavior for their members. You can't practice medicine without obtaining an M.D. degree and then serving a year or two as an intern and then as resident in a hospital setting for another one to three years, all depending on the specialty.



2. Organizations: These are the specific organizations that operate according to sets of rules within their domain. Think of presidents or prime ministers, cabinets, legislatures, civil service, political parties, the courts, police, business corporations, financial institutions, the military, universities, professional associations, cause groups, interest groups, and so on.

3. Formal Enforcement Mechanisms: The punishments for violating legal statutes or governmental regulations can include criminal indictments. Obviously. But then business firms can lay off or fire their employees for poor performance. Similarly, professional associations like the AMA or the Bar Associations in each state can punish their professional members in numerous ways, right down to the removal of a professional licence to practice the profession.

4. Informal Rules : These refer to widely internalized moral codes and social norms, part of a country's wider cultural life, that seek to channel individual and group behavior in habitual and hence predictable ways.


Note something right off. Whereas formal rules seek to encourage behavior that is socially desirable, the actual moral codes and social norms that guide specific action by individuals and groups within a country may lead to highly undesirable results: e.g., corruption, fraud, exploitation, incompetence, and the like. Hence the significance of culture for economic development: it can either encourage it over the long-term or hinder it.

This is a key point, to which we'll return in a moment or two. Meanwhile, shift your attention to the next set of clarifying remarks . . .

 

3) Can Economic Institutions Be Isolated From Other Institutions?

The answer is no. True, the main concerns in development are with economic institutions, but as Rodrik and Easterly both note, the wider legal and political institutional context shape corporations, banks, stock and bond markets, and brokerage houses, labor markets, trade unions, or nationalized industries --- and a host of government bureaucracies, environmental, the Federal Reserve or Central Bank (independent of government here), the Treasury etc --- in profound ways.

The same is true of informal rules and culture (widely shared moral and social norms and their concrete practices).



 

4) Back To Culture:

Note that the reference to informal rules --- internalized moral codes and social norms --- opens up any economic analysis of institutions to cultural influences. These influences can be profound in any society, creating a big gap between formal rules --- say, legal statutes and regulations that prohibit corruption and nepotism and make it punishable by court --- and how actual internalized moral understandings and social norms lead political leaders, top bureaucrats, and business and financial elites to behave. Or for that matter, the average person in any country too.

A key point emerges here that needs to be stressed: some gap almost always exists in any society between what formal rules require and how people actually behave in regard to them.

That gap is a variable. It is narrow in the richest countries; greater in the less affluent Mediterranean countries in the EU than in the wealthier Northern Europeans; greater still in developing countries . . . though with marked variation among them.

 

The Gap Illustrated:

Even in tiny Scandinavia, with long-standing democracy and social cohesion that includes a strong Protestant emphasis on individual responsibility among small, ethnically unified populations, high taxes have created a fairly large amount of tax evasion. This shows up in calculations of the underground economy's size, about 15% of GDP --- not much lower than in Latin Europe, and about double in the US where taxes are much lower (an Austrian team of economists calculates the size using a variety of cross-checking techniques.)

Still, in almost all developing countries, corruption and nepotism are rife, a way of life.

In, say, the Arab countries, much of Tropical Africa and Latin America, and Russia and China, politicians are in power in no small part to enrich themselves and their families --- maybe even family-clans and certainly privileged elite clientele-networks based on mutual services (think of a Mafioso network if you want) --- and the same is true of those who run bureaucracies and the police. In Arab countries, for instance, scarcely anyone in a position of important authority, even in the health services, will be there because of sheer accomplishments in a professional sense --- rather, because of family or network connections (sometimes in a ruling party). Tax evasion will be rife on the part of anybody who can get away with it. Transparency and accountability are minimal, whether the system is formally democratic or not . . . though the better electoral democracies in Latin America (Mexico today) also have ever freer media and cause groups.

 

5) Culture Clarified in Concrete Ways

(i.) What Causes A Large Gap Between Formal Rules and Actual Social Behavior
Within Developing Countries?


A pivotal question, no? The answer: whenever a big gap of this sort exists between formal rules and actual political and social behavior --- say, laws against corruption and nepotism and yet rampant forms of it in the society and polity --- the causes most likely lie in internalized moral codes and social norms that encourage such disobedience and flouting of formal rules, the legal system included..

Such distorted moral codes and social norms, in turn, reflect long-standing cultural beliefs and norms of behavior that shape how people as individuals and in groups interact with one another, economically and politically or in wider social ways (do you bow to your superior etc?). It's hard to see how any society could develop --- modernize, industrialize, become wealthy --- with such cultural hinderances . . . which will become embedded, remember, in the institutional framework of a society no matter what formal rules stipulate.

 

(ii.) But Wait! What Do We Mean By Culture In General Terms?

Clearly, then, as far as economic development goes, cultures vary across countries in core matters. In some countries, they promote long-term economic development. In lots of others, they hinder it. We're mostly interested, of course, in the dysfunctional impact of cultural hinderances, but before we generalize about them --- roughly speaking, four or five core cultural variables are the most relevant in every society for economic development --- a trio of clarifying remarks prompt themselves first.



First, what do we mean by culture in general?

Well, in shorthand, this: a cultural configuration for a group, even hundreds of millions within a nation-state like Japan or the US or China --- all fairly cohesive, despite a fair amount of multi-ethnic heritages in the US over the centuries --- refers to a complex of inherited beliefs and values transmitted from generation to generation by a process of socialization, starting in infancy with the learning of a language, authority patterns within a family, and gender relations. Several other socializing institutions besides the family come quickly into play: pre-schools, schools, peer-groups, churches, local communities, and of course --- for good or bad --- the mass media these days, which can also cause conflicts with traditional beliefs and values purveyed by these other institutions.

Secondly, there may also be sub-cultures within a society. In any complex society, when you get down to it, they're probably inevitable.

As a third clarifying remark, ponder a by-product of sub-cultures within any society --- at any rate, if the sub-cultures within any country diverge markedly from those which the majority of the population is socialized into. In particular, whenever radical gaps of this sort arise, the degree of social cohesion within any country is very likely to be threatened, a danger fraught with strident, cleavage-ridden fall-out for political cooperation and stability.

Or for a rule of law.

Consider the evidence. In the Arab world, most of Tropical Africa, much of Latin America, and parts of Asia, such cleavages have traditionally arisen around ethnic or racial groups, religious groups, tribal groups, large family-clans, or even at times around big gaps in class structure . . . all this even if, at the same time, they also share some common beliefs and values: say, attitudes among men of all ethnic or class groups toward women. Or among all men and women, irrespective of their ethnic or class background, as to who or who not you can trust and cooperate effectively with.

The main political upshot? Easy enough to specify: dictatorship --- absolute monarchy, despotism, or class or ethnic-based oligarchical forms (domestic or alien) --- has historically prevailed, not a rule-of-law, accountability of leaders, and democracy. In such conflict-ridden societies, it's hard to see how that would have been possible.

 

Or, shifting your attention, consider the European Union.

As several buggy articles have argued, the EU countries today now face the emergence of a new, increasingly large immigrant Muslim population, more and more alienated from the larger secular societies around them --- and full of anger and resentment and growing support for radical Islamist movements. This Islamist upsurge entails, of course, a far different kind of community-sanctioned set of cultural beliefs, values, and social norms, not just emotionally charged, but directly at odds with the secular culture of increasingly post-modern Europeans.

Note the irony here.

The emergence of a radically divergent Islamist sub-culture is happening only a few decades after the EU Continental countries had finally managed, after 150 years of violent social and political strife, to integrate their working classes, overcome the age-old ideological conflict between industrial capitalism and socialism (or, on the right, corporatist fascisms), develop a welfare state with considerable regulation as the integrating force, and of course solidify all these impressive developments with fully institutionalized democracy in the Latin countries, Austria, and Germany. Until then, the aftermath of WWII, all these European countries had been prone to to extremist ideological conflicts and kinetic social strife, and for that matter clerical and anti-clercial struggles.

Now new strife is rearing up, this time from immigrant communities rapidly growing in number whose members have been increasingly rejecting the larger culture and social arrangments that West European populations had finally managed to establish in the post-WWII as pre-conditions of their political harmony. Thanks to those arrangements, West Europe since 1945, has experienced an unusual period of social stability and prosperity, all mirrored, over time, in a complex of impressive achievements: a marked decline in ideological conflict, a sharp fall-off in militant nationalism, and a welfare-and-regulatory form of capitalism that finally overcame the age-old struggle between socialist and capitalist champions . . . not to forget impressive regional cooperation in the EU and through NATO.



 

(iii.) The Key Beliefs and Values In Every Culture For Development

Back now to the key beliefs and related values that are critical to long-term economic development --- either helping or hindering it. Keep in mind that cultures range more widely in their beliefs and values than this. They also deal with the mysterious, the true, the beautiful --- and not just the efficacious, the realm most relevant to the economy and for that matter the political system.

That said, the community-sanctioned beliefs (and values) that count the most across nearly 200 countries these days here seem to be about five in number:

1.Beliefs about human nature and whether it's basically good or bad. If the latter internalized outlook prevails, cynicism is likely to prevail in the larger society . . . with further ramifying consequences for cooperation on a large scale.

2. Beliefs related to this about whether you can trust others: More specifically, is the "radius of trust" in a society confined to small family-clans, wider clientele networks (Mafioso gangs cover both), privileged social classes, and ethnic and racial groups. Or alternatively, do most citizens believe that you can trust other citizens in cooperative relations and within organizations where you work: corporations, banks, universities, hospitals, bureaucracies, political parties, the media etc.

Note what ensues, given this significant difference about trust across various societies:

If beliefs about human nature are skewed towards strong pessimism and trust is fragmented along family, class, and ethnic/racial lines, then almost inevitably there will be lots of cynicism among the citizenry. Profound problems for a society's economic vigor and political life can ensue.

In particular, corruption will likely be rife, nepotism too; clientele networks, maybe even family-based at the core, will dominate promotions to positions of authority and prestige and power; and tax evasion will probably be rampant too. (No effective tax system, no effective social security system can be instituted by governments even if leaders want this.) Equally harmful, lots of people in positions of power may not be there because advancement is a matter of mutual back-scratching services, not actual performance and accomplishments of a professional sort.

Something else too: People lower in the hierarchies of corporations, bureaucracies, universities, hospitals, the media, banks etc. might even wonder what the point of hard work and education happens to be if, all things considered, it won't pay off in clear promotion and advancement up to the top. Rather, family and clientele connections are what count.

In a cultural configuration widely shared by the 300 million Arab peoples, there's a saying that brings out the cognitive and emotionally charged obstacles to effective trust across family and tribal clans, never mind reglious lines: "My cousin and I against the stranger. My brother and I against my cousin."


3. Beliefs that then follow about the degree of spontaneous cooperation within a society:

All in all, the easier it is for wider numbers of people to cooperate for common ends that are socially desirable, the less a society needs to rely on formal legal enforcement and formal rewards and sanctions (pay, promotions, layoffs, firing, criminal action) to achieve common ends.

True, the more developed and complex a society, the more it will need formal rules: even business corporations or universities or bureaucracies have to keep refining the rules (regulations) involving their members' behavior: think here of rules regarding discrimination, sexual behavior, affirmative action, honest reporting of finances, need to file reports, supervisory assessments of your performance, or environmental statements regarding the economic performance of their corporation and jobs etc. Or think of the need, uncovered in the recent corporate scandals of the late 1990s and into this decade, for even more effective formal legal checks, organizations, and monitoring to ensure honest auditing and transparency in the financial and corporate sectors.

Still, if people cooperate largely only because it pays off directly in rewards --- or leads to quick punishment --- cooperation won't easily be achieved.

Even good managers in the business and bureaucratic rewards know how much morale and identification with the organization's goals count.


4. Beliefs about the desirability of a hard-work ethos, especially among the powerful and well-to-do. Probably, as a general thing, poor people have to work hard in most societies to get by, though that can vary too across societies.

Still, societies can be classified according to whether the prestigious, influential, and well-to-do have internalized a strong work-ethos or, oppositely, tend to denigrate or evade hard work, rely on family connections and clientele networks, and engage in luxuries and other forms of conspicuous consumption. In the latter case, a general rentier mentality will pervade the upper classes and those aspiring to advance into it through the right family- and clientele networks.

Not only will this tend to set the tone for the rest of society, it will increase cynicism among the citizenry, skew the understanding of achievement and education and hard work in harmful ways, and almost certainly hold back economic innovation and vigor.


5. Beliefs about the desirability of change.

  • Do people have a fatalistic view about the world --- God's Will, nothing to be done. Or, less stringently but still a damper on economic dynamism and flexibility --- witness Japan and most of the Continental EU countries the last 15 years or so as global capitalism has shifted equilibrium in radical ways --- do they know change is inevitable, but are noticeably pessimistic and anxious about.


  • Or do they seem flexible and willing to work for change, especially if it promises to overcome problems and challenges and lead to improved conditions?


 

6) What Follows? The Political and Cultural Sides of Rich Countries

(i.) Except for the tiny city state of Singapore (4 million Chinese), all the rich countries in the world --- whether in Europe, Asia, or among the English-speaking countries --- are solid liberal democracies. They all have generally effective institutions --- political, legal, economic, administrative, and educational; they all operate with a fair to good degree of transparency and accountability; they all are subject to a clear rule of law; and they all do a decent job of protecting human rights.

More to the point, despite their continued differences, they also share a greal deal of culture in common --- particularly in regard to these five pivotal beliefs and related values. In particular, they all reflect

A large degree of mutual trust and spontaneous cooperation that will generate what we call a vigorous civil society: lots of voluntary, non-governmental controlled organizations and groups --- from neighborhood associations to big business lobbies or trade unions to cause groups like civil rights ones or feminist groups or environmental ones, independent and largely self-governing professions (medical, legal, etc), an energetic free press, grass-roots political party organizations and so on.

 

(ii.) Another way of putting this is that rich countries are all liberal democracies, and liberal democracies of highly institutionalized sort --- about 30-35 only in the world, as opposed to several dozen more that are electoral democracies only --- are generally characterized by these common cultural influences:

1) A solid rule of law, spontaneously complied with, by the leaders and almost all the population in them.

2) A considerable amount of transparency and accountability in the political, administrative, and business worlds.

There are always challenges here: auditing scandals, other forms of financial finnagling in the corporate or banking and brokerage sectors, efforts by politicians to cover their behinds, and bureaucrats who have ways of evading responsibilities for their decisions. We have discovered this in the US, not least in the financial and corporate worlds by the end of the long boom of the 1990s.

3) Low levels of corruption, nepotism, and tax evasion, comparatively speaking. \

Note the stress on comparative here. In the Latin European countries, forms of bribery and corruption have to be expected to occur. Japan has been buffeted by its own political and adminsitrative scandals. Germany, whose people prided themselves on strict honesty, has experienced repeated scandals, especially political and more recently economic; the president of the country recently had to resign when he was caught taking money for a pleasure trip. And even in Scandinavia, high taxes have stimulated large-scale tax evasion and a big underground economy, roughly twice that of the US as a percentage of official GDP --- roughly 15% in Sweden, Denmark, and Finland (and England) compared to about 8% in the US.

4) Finally, a good deal of trust across large numbers of the citizenry --- a wide radius of trust as opposed to very narrow family-based, clan-based, class-based forms --- will also likely exist.


All these are pretty good indicators that there is a narrow gap between formal rules --- constitutions, laws, regulations --- and the actual social norms and behavior of millions or hundreds of millions of citizens.