Culture, Trade And Economic Development (To Be Published In The Upcoming Journal Of Transformations, Volume 4, 2015)

By Chandrashekar (Chandra) Tamirisa, (On Twitter) @c_tamirisa

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That geography is the crux of globalization is a fact of history. It is self-evident if not altogether obvious. The role of international trade within the framework of neoclassical economics across economic geography has been recognized as a seminal piece of work. However, the dynamics of how this happens has not yet been explored because the analysis of the reality of the dynamics of the historical process is constrained by the paradigmatic ideologies of the respective epochs of history driven by (resource seeking) and cultural expansionism of societies with high levels of technology. These ideologies themselves are market frictions that prevent the realization of the full gains from international trade. Further, innovation would be depressed because of rent-seeking within cultures and in dominant cultural paradigms because agents do not receive commensurate rewards and would be discouraged from innovation and this has implications for welfare gains both with and without international trade.

In the theory of increasing returns to scale where the ratio of factor inputs to outputs is less than 1 and lock-in effects cause these returns because of new technologies, increasing returns can produce monopolistic and oligopolistic behaviors, and hence imperfect competition. I contend that this is true only within technological paradigms. When there are paradigm shifts caused by scientific revolutions, increasing returns are the norm before diminishing returns set in in a perfect market, but not monopolistic or oligopolistic behaviors or imperfect markets, because perfect markets are created by paradigmatic structural breaks unless governments create distortions through behaviors that are counter to market clearing mechanisms. Economic history is a testament to this fact. Therefore, technical change can be endogenized through appropriate market structures as represented by (5) above.

Because cultural expansionism is human nature, some may argue that the welfare losses due to cultural and the ensuing political frictions are a necessary evil of the historical process. The point of this paper is that this need not be so, not merely normatively but because this has been the way of history as a positive process.

This article, therefore, attempts to reformulate economic science by explicitly including the word “culture” in the title of the paper, for whatever has come before in trade theory since David Ricardo is about trade, economic growth and development, culture being implicit to Anglo-Saxon economics.

The New Production Function

I begin the thesis with the generic mathematical representation of the production function:

[1] Y = F(K, L, C)

Where, C stands for culture and is explicitly represented as a mobile factor of production. Elsewhere, I argue that the production function can be completely collapsed into:

[2] Y = F(L)

Where both physical capital and cultural capital can be represented as some functions of L as follows:

[3] K = ∅(L) and C = φ (L)

with no political implications intended, or

[4] Y = F(L, ∅(L), φ (L))

Or, (4) can be rewritten conventionally as:

Y = A F(L, ∅(L), φ (L)), where A is the level of technology, and A is itself a function of L and therefore can be written as a variable taken inside the function, rather than as a constant outside:

Let A = χ(L).

[5] Y = F(L, χ(L), ∅(L), φ (L))

Note, that all terms are functions of L as in (2), but only elucidated. Only such a representation of the production function can successfully endogenize technical change, for the bias thus far since Solow-Swann has been to treat technical change as exogenous, thereby leading to the treatment of technology as a given level (or constant) outside the production function. All other forms of the production function which treat human capital separately in this framework are irrelevant and so are frameworks of identity economics such as those proposed by George Akerlof and Rachel Kranton, and Amartya Sen.

Further, I postulate that culture itself is the technology of social organization and, therefore, is an integral part of the level of technology of any society. This postulate, however, renders (4) unwieldy for the purposes of analyzing it in the context of neoclassical economic theory which treats economic agents as rational and utility maximizing in a framework of dynamic general equilibrium of demand and supply over time. Therefore, in the context of this paper, it is important to consider culture as an explicit factor of production because without such an explicit representation a clear understanding of economic history, growth (economic output Y) and hence development is not feasible. Also, it must be noted that when culture is implicit, economics becomes political, and this is the motivation of the paper because the drive for resources and cultural expansionism is the essence of history.

The inadequacy of the lens of identity and culture as a factor of production within the framework of international trade

Globalization is not new. It is human history. Technical advances in the understanding of the human genome have proven this assertion beyond a reasonable doubt. The source of identity is migration. Migration and agricultural settlements have produced civilization. Migration has produced genetic mutations as well as memetic mutations, and hence cultures. Therefore, identity is a flux just as culture is or identity is a consequence of cultural change. Identity and cultural stasis, a natural inertia, thus becomes an economic friction. Now, given this fact of history, let us consider why culture, when considered explicitly as a factor of production in the framework of international trade, can increase welfare.

Let us take two cultures C1 and C2 and a rational utility maximizing economic agent A. Further, let us take the various cultural attributes for each culture: C1(i = 1 to n) and C2(i = 1 to n). The attributes, in the analysis of culture, are of the same type but different variety in C1 and C2 (the qualitative analysis is from a class handout on International Relations by Johan Galtung in 1993), for example, each culture is characterized by attributes such as food, music, dance, art, fashion, and literature. A has the choice to pick and choose from C1(i = 1 to n) and C2(i = 1 to n). The time varying choice set (where stasis is a member of the choice set) then becomes A’s culture and hence identity over time.

The innovation of this paper is the observation that A can choose. And that this choice is not a normative geopolitical objective, but the very essence of history, varying only in degrees of resistance to such choices or in degrees of cultural violence. In choosing, A produces cultures that are marketable, hence, culture becomes a monetizable factor of production, revealing the market for cultures. Though cultural violence is typically defined as limiting individual autonomy within a culture, that that autonomy itself can lead to the choice set makes resistance to cultural choices by a society cultural violence as much as persecution of cultural non-compliance. Therefore, the lower the cultural violence, the greater are the welfare gains and hence economic development and happiness. The natural collective subconscious of the homo sapiens and hence homo economicus is thus a market for cultures which are continuously in production and which in turn produce monetizable markets.

Introducing culture as an explicit factor of production into the production function, therefore, is the alternative model of economic development and, hence, growth.


About Chandrashekar (Chandra) Tamirisa
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