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Why Europe and the West? Why Not China?
David S. Landes
In the history of technological development, why didn't other regions keep up with Europe? This is an important question, as one learns almost as much from failure as from success. The one civilization that was in a position to match and even anticipate the European achievement was China. China had two chances: first, to generate a continuing, self-sustaining process of scientific and technological advance on the basis of its indigenous traditions and achievements; and second, to learn from European science and technology once the foreign "barbarians" entered the Chinese domain in the sixteenth century. China failed both times. What explains the first failure? I stress the role of the market: the fact that enterprise was free in Europe while China lacked a free market and institutionalized property rights; that in Europe innovation worked and paid, while the Chinese state was always stepping in to interfere with private enterprise. As for the second failure, China's cultural triumphalism combined with petty downward tyranny made it a singularly bad learner.
Does Culture Affect Economic Outcomes?
Luigi Guiso, Paola Sapienza and Luigi Zingales
Until recently, economists have been reluctant to rely on culture as a possible determinant of economic phenomena. Much of this reluctance stems from the very notion of culture: it is so broad and the channels through which it can enter the economic discourse so ubiquitous (and vague) that it is difficult to design testable, refutable hypotheses. In recent years, however, better techniques and more data have made it possible to identify systematic differences in people's preferences and beliefs and to relate them to various measures of cultural legacy. These developments suggest an approach to introducing culturally-based explanations into economics that can be tested and may substantially enrich our understanding of economic phenomena. This paper summarizes this approach and its achievements so far, and outlines directions for future research.
Religion and Economy
Rachel M. McCleary and Robert J. Barro
Religion has a two-way interaction with political economy. With religion viewed as a dependent variable, a central question is how economic development and political institutions affect religious participation and beliefs. With religion viewed as an independent variable, a key issue is how religiosity affects individual characteristics, such as work ethic, honesty, and thrift, and thereby influences economic performance. In this paper, we sketch previous studies of this two-way interaction but focus on our ongoing quantitative research with international data.
The Role of Family in Family Firms
Marianne Bertrand and Antoinette Schoar
History is replete with examples of spectacular ascents of family businesses. Yet there are also numerous accounts of family businesses brought down by bitter feuds among family members, disappointed expectations between generations, and tragic sagas of later generations unable to manage their wealth. A large fraction of businesses throughout the world are organized around families. Why are family firms so prevalent? What are the implications of family control for the governance, financing and overall performance of these businesses?
Purple America
Stephen Ansolabehere, Jonathan Rodden and James M. Snyder Jr.
America, we are told, is a nation divided. The cartographers who draw up the maps of U.S. election results have branded a new division in American politics: Republican red versus Democratic blue. What is the source of this division? Most observers point not to the bread-and-butter economic issues of the New Deal alignment but to a "culture war." In this paper, we draw on data from three decades of survey research to see how the electorate divides along economic and moral issues. While showing that moral values are not irrelevant, the survey data roundly reject the basic claims of the culture war thesis: that voters are polarized over moral issues, and this division maps onto important demographic categories like religious affiliation; that moral issues have more salience or weight in the minds of voters than economic issues; and that this division accounts for red and blue cartography (because red-state voters are moral conservatives who vote on moral issues without regard for their economic interests or preferences.) We put issue cleavages and electoral maps into historical perspective and demonstrate that over the course of the twentieth century there has been a noteworthy political convergence between the states. Compared to the past, the political geography of the United States today is purple.
Myths and Realities of American Political Geography
Edward L. Glaeser and Bryce A. Ward
The division of America into red states and blue states misleadingly suggests that states are split into two camps, but along most dimensions, like political orientation, states are on a continuum. By historical standards, the number of swing states is not particularly low, and America's cultural divisions are not increasing. But despite the flaws of the red state/blue state framework, it does contain two profound truths. First, the heterogeneity of beliefs and attitudes across the United States is enormous and has always been so. Second, political divisions are becoming increasingly religious and cultural. The rise of religious politics is not without precedent, but rather returns us to the pre-New Deal norm. Religious political divisions are so common because religious groups provide politicians the opportunity to send targeted messages that excite their base.
People Flows in Globalization
Richard B. Freeman
The policy debate over globalization in the past decade has largely bypassed the international mobility of labor. Restrict trade and cries of protectionism resound. Suggest linking labor standards to trade and it's protectionism in disguise. Limit capital flows and the International Monetary Fund is on your back. But restrict people flows? That's just an accepted exercise of national sovereignty! During the last few decades, when most countries reduced barriers to trade in goods and services and liberalized financial capital markets, most also sought to limit immigration. In this essay, I examine what we know about the causes and consequences of immigration. I argue that people flows are fundamental to creating a global economy and that the interplay among immigration, capital and trade is essential to understanding the way globalization affects economies. I consider ways to reduce barriers to immigration that could improve the well-being of workers around the world.
Price Changes in the Euro Area and the United States: Some Facts from Individual Consumer Price Data
Emmanuel Dhyne, Luis J. Alvarez, Herve Le Bihan, Giovanni Veronese, Daniel Dias, Johannes Hoffmann, Nicole Jonker, Patrick Lunnemann, Fabio Rumler and Jouko Vilmunen
Prices of goods and services do not adjust immediately in response to changing demand and supply conditions. This paper characterizes the average frequency and size of price changes in the euro area and its member countries, investigates the determinants of the probability of price changes, and compares the evidence for the euro area with available U.S. results. The facts documented in this paper are based on evidence from individual price data recorded at the store level in all euro area countries except Ireland and Greece: that is in datasets covering Austria, Belgium, Finland, France, Germany, Italy, Luxembourg, the Netherlands, Portugal, and Spain, which together account for around 97 percent of euro area GDP. The data used are the monthly price records underlying the computation of national Consumer Price Indices and Harmonized Consumer Price Indices. These data cover a large number of products selected on the basis of extensive Household Budget Surveys.
Assassinations: Evaluating the Effectiveness of an Israeli Counterterrorism Policy Using Stock Market Data
Asaf Zussman and Noam Zussman
Since the outbreak of the Intifada in September 2000, the Israeli government has extensively employed a policy of assassinating members of Palestinian terrorist organizations. Theoretically, the net effect of an assassination on future terrorism is indeterminate because it embodies two conflicting effects: the assassination of a terrorist hurts his organization's capabilities, but may increase the motivation for future attacks. Our indirect, empirical evaluation of the effectiveness of assassinations for Isreali counterterrorism is based on Israeli stock market reactions to news of such operations. We rely on the fact that terrorism has had significant adverse effects on the Israeli economy and claim that the stock market should react positively to news about effective counterterrorism measures but negatively to news about counterproductive ones. We find that the market does not react to assassinations of low-ranked members of Palestinian terrorist organizations. The market does react strongly, however, to the assassinations of senior leaders of terrorist organizations: it declines following assassinations targeting senior political leaders but rises following assassinations of senior military leaders. To the extent that these reactions reflect expectations regarding future levels of terrorism they imply that the market perceives the first type of assassinations as counterproductive, but the second as an effective measure in combating terrorism.
Markets: The Fulton Fish Market
Kathryn Graddy
The Fulton Fish Market was a colorful part of the New York City landscape that operated on Fulton Street in Manhattan for over 150 years. In 2005 the market moved from the South Street Seaport in lower Manhattan to Hunts Point in the South Bronx. The Fulton Fish Market--now called The New Fulton Fish Market--is one of the world's largest fish markets, second in size only to Tsukiji, the famous fish market in Tokyo. To economists, it may seem that a large centralized market with well-informed buyers and sellers should also be a very competitive market. But fish is a highly differentiated product. Buyers often wish to examine fish themselves, or have their agents do so. The centralized market performs an important function in matching fish to buyers. The high level of product differentiation and the institutional structure in the Fulton fish market can lead to patterns of behavior that suggest imperfect competition and a segmented market. At times in the past, the repeated nature of price setting and extensive knowledge of the sellers may have created the basis for tacit collusion and allowed the dealers to gather economic rents by exploiting the different elasticities and buying patterns. Additional economic rents resulted from subsidies. Before reforms in 1995, lax regulation of the market provided fertile ground for organized crime.
History Lessons: The Birth of Impersonal Exchange: The Community Responsibility System and Impartial Justice
Avner Greif
This paper describes the premodern European institution that supported impersonal exchange, in which a merchant's decision to exchange is independent either of expectations of future exchange with the same partner or of knowledge of that partner's past conduct or the ability to report misconduct to future trading partners. Economists know surprisingly little about how institutions evolved to support impersonal exchange. The standard story asserts that in the early stages of market development, exchange tends to be personal and is supported by reputation; then, after an economy becomes sufficiently large, society establishes centralized and impartial courts that, by the threat of coercively imposed sanctions, enable widespread impersonal exchange. But during the late medieval period, there was no centralized legal system capable of effectively supporting impersonal exchange among merchants from different localities; and, although local courts existed throughout Europe, they were not impartial dispensers of justice but were attentive to local interests and were controlled by the local elite. This paper describes how a particular institution, the "community responsibility system," nevertheless enabled European merchants to commit to keep their contractual obligations in impersonal exchange from the late medieval to the modern period.
Recommendations for Further Reading
Timothy Taylor
Notes