April, 2003

Fred Whittans on (Steve) Pejovich's 'Understanding the Transaction Costs of Transition: It's the Culture Stupid'

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Is it possible that some of the recent rapidly growing countries started with an egalitarian, collectivist culture, yet have made a successful legal transition to capitalism, but nevertheless they still maintain a culture supportive of egalitarian values? If true, then other aspects of culture or other influences and their impact on development need further examination. Professor Pejovich describes culture as " a synthesis of the community's traditions, customs, moral values, religious beliefs, and all other norms of behavior that have passed the test of time and bind the generations." Their role is to act as "constraints on human interactions." Some interpret culture to mean how one understands how the world works, how one perceives opportunities, and how one perceives the fairness of desired outcomes. Those definitions are related to our mental constructs and are consequently different from informal rules that govern behavior. The mental constructs, of course, affect the acceptance of informal and formal rules and hence affect behavior, but it is an indirect route, not direct. Is it culture, is it ideology, mental models, and expectations, is it something else, or do all contribute to a rationale for the interaction thesis? What difference does it make? The importance lies in what we should do about it. What are the practical implications? We know there is opposition to liberalizing the economy but what is the root cause for that opposition? We need to understand the root cause for the problem before we can identify solutions.