Wealthier nation? Because of a more individualistic culture, new research explains

In a recent article (Culture, Institutions and the wealth of nations – Gorodnichenko and Roland, 2017), two professors of Berkeley show how individualistic cultures can have a positive impact on the wealth of a nation because of higher social status rewards associated with innovation.

Indeed, it is commonly understood that the key element for economic growth and productivity enhancements is technological advancement. In their paper, authors argue that individualist culture plays a key role in stimulating innovations and, hence, in explaining long-run economic growth.

They describe individualism as “a cultural trait that emphasizes personal freedom and achievement. It therefore awards social status to personal accomplishments such as important discoveries, innovations, great artistic or humanitarian achievements, and all actions that make an individual stand out”.

In opposition to individualism there is collectivism. Collectivism “emphasizes the embeddedness of individuals in a larger group. It encourages conformity to a group and loyalty to and respect for one’s superiors, and it discourages individuals from dissenting and standing out”.

Therefore, in authors’ view individualism should promotes innovation more, but collectivism should have an advantage in coordinating production processes and in various forms of collective action. Despite this underlined trade-off, the two academics argue that individualism has a dynamic effect (i.e. it continuously pushes to discover and innovate to stand out from the crowd) in terms of innovation, whereas collectivism has a static effect. It follows that, in the long run, one should observe “a distribution of income differences with more individualist ‘‘leaders’’ being richer since they are a few steps ahead of collectivist ‘‘laggards”“.

According to their results, an increase in individualism equivalently to the difference from the “individualism score” of Venezuela to that of Greece (or from that of Brazil to Luxembourg) leads to a 66% increase in the level of income.

There is also another result that is quite intriguing. According to their theory, authors predict that people from more individualistic cultures should work in research oriented occupations, which require independent thinking, more frequently than persons raised in more collectivist cultures. Using U.S. Census data, they find that people from more individualistic cultures are more likely to become scientists and researchers.

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References

-"Culture, institutions, and the wealth of nations", Gorodnichenko, Y., Roland, G., The review of economics and statistics, 2017;

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