Stereotyping

Last week I was searching a citation for a paper I'm writing (hope my co-author reads this to see that I'm working!), and by accident I opened this link, with a very interesting introduction to a book that talks about how economic development is affected by cultural characteristics of a particular country.

It shows that a country's stereotype varies a lot over time (e.g. the Germans were perceived  by the British as being "indolent and dull" in the 19th century) and begins with this very interesting anecdote. Read it until the end and tell me if you weren't surprised with the ending:

"Having toured lots of factories in a developing country, an Australian management consultant told the government officials who had invited him: “My impression as to your cheap labour was soon disillusioned when I saw your people at work. No doubt they are lowly paid, but the return is equally so; to see your men at work made me feel that you are a very satisfied easygoing race who reckon time is no object. When I spoke to some managers they informed me that it was impossible to change the habits of national heritage.” 

This Australian consultant was understandably worried that the workers of the country he was visiting did not have the right work ethic. In fact, he was being rather polite. He could have been blunt and just called them lazy. No wonder the country was poor – not dirt poor but with an income level that was less than a quarter of Australia’s. 

For their part, the country’s managers agreed with the Australian but were smart enough to understand that the “habits of national heritage”, or culture, cannot be changed easily, if at all. As the 19th-century German economist-cum-sociologist Max Weber opined in his seminal work, The Protestant Work Ethic and the Spirit of Capitalism, there are some cultures like Protestantism that are simply better suited to economic development than others.
 

The country in question, however, was Japan in 1915. It doesn’t feel quite right that someone from Australia (a nation known today for its ability to have a good time) could call the Japanese lazy. But this is how most Westerners saw Japan a century ago."

Blaming Liberalization IS NOT Cool

The current crisis has been partially blamed on the deregulation of financial markets over the past 10-15 years. The argument goes that this enabled evil bankers to sell mortgages to people with no chance of paying them back, nasty derivatives that were sold to dumb investors with no idea about what they were buying, etc. etc.

Since my undergrad, I'm a firm believer that governments should intervene as little as possible in private transactions, creating a level playing field for all everyone involved. The current crisis has showed, alas again, that individual excesses can lead to huge systemic risks.

People often mistake deregulation with BAD implementation of deregulation, specially when it is done without proper incentives and institutions to prevent people from gaming the system afterwards. (Note for future-post: Basel II might cause trouble in the future for the same reason).

This reminds me of a similar argument that I often see in the press about the failure of the "neoliberal / Washington Consensus" reforms to improve Latin American countries during the 90s.

You cannot have first-class markets if you do not also develop first-class institutions...