Unintended Consequences: The Impact of Factor Endowments, Culture, and Politics on Long-run Economic Performance

Published by EH.NET (December 1999)

Deepak Lal, Unintended Consequences: The Impact of Factor Endowments,

Culture, and Politics on Long-run Economic Performance. Cambridge, MA: MIT

Press, 1998. x + 287 pp. $45.00 (cloth), ISBN: 0-262-12210-3.

Reviewed for EH.NET by Carolyn Tuttle, Department of Economics, Northwestern

University.

The book makes a significant contribution to the development literature by

exploring the interaction of factor endowments, culture and politics in

explaining when and why intensive growth occurred in the West. The

interdisciplinary approach and historical analysis challenges the economist to

look beyond the material (those related to ways of making a living)

determinants of growth to the cosmological (those related to understanding the

world around us) determinants of growth. Lal examines the great civilizations

to discern whether the developmental, cultural and political differences can be

explained by material beliefs alone or also require cosmological beliefs. He

concurs with many other economic historians that materialist forces (a

hospitable climate for merchants and commerce;

recognition of private property rights by the state and

the applications of the “inquisitive Greek Spirit”) lead to the European

miracle. He departs from most development economists, however, when he places

religion at the center of the early success and recent social decay of the

West.

Although the content

of the book is extremely valuable, it is not for the faint hearted. A book that

explores the role of economic, cultural and political factors on the long run

economic growth of the West and “the Rest” from the dawn of ancient

civilizations to contemporary

day is a massive endeavor. To accomplish such a lofty feat, Lal must carefully

select and develop the kernels of insight that contribute to his explanation

for economic development while ignoring or condensing other material that may

offer alternate explanations for economic prosperity.

Thus, some readers may be frustrated because there is no discussion about the

differences in human capital, the role of education or technological innovation

in economic growth while others will be encouraged because the discussion about

the conflict between religion and secularism as well as individualism and

communalism contributes new answers to the age-old question of “What stimulates

and what hinders economic growth in a society?” In an attempt to cover so much

history, the book is extremely dense and the early chapters can leave the

reader with a disorganized array of insights into the past as he “gallops

through human history.”

Fortunately, the confusion subsides and the story becomes cohesive as Lal

ingeniously weaves together the role of religion, social psychology,

political theory and economics in long run economic growth in the second half

of the book. The effort the reader puts forth in sifting through a plethora of

information on the cultural, political, social and economic fabric of the Near

East, the Middle East and the Far East are rewarded with Lal’s provocative

conclusion that several nonwestern countries have the social basis for

modernizing without westernizing, citing Japan as a case in point.

The economic historian will appreciate the discussion of the role of religion

in cosmological beliefs and how religion affected intensive growth in several

countries. Lal contrasts the “religion of anxiety in the West”

with the “religions of tranquility of the

East” and demonstrates the role they have in establishing a value system which

restrains the destructive instincts of the individual in order to maintain

social order. The analysis is a complex one, however, because some “shame

based” societies like India

,

China and Islam have not experienced Promethean growth while others, like

Japan, have. At the same time, the West, with its “guilt-based” society has

successfully experienced Promethean growth although the death of God

(announced by Nietzsche is 1881) has left a “moral abyss” in the West which

has lead to a selfish society that worships wealth and casts aside family

values, care for the elderly and respect for human life. Politicians have

stepped in to fill this void and created the “welfare state” which takes on

the insurance and charitable functions of the family to care for the elderly,

the poor and the helpless. As Lal clarifies the economic and cultural

consequences of the welfare state, the economist must pause at the exploding

deficits, divorce rates, illegitimacy rates and rising number of single-parent

families that define the “successful” western countries. This deterioration of

the social fabric will not occur, however, in the “shame based” societies

because the Death of God cannot undermine

their belief and values. Thus, Lal concludes that countries like Japan can

enjoy the benefits of western materialism without suffering from its social

consequences.

Another very interesting theme which runs throughout the book is the role of

individualism in promoting intensive growth. Lal carefully develops the two

opposing tendencies of man’s character-individualism and communalism.

The economic historian will find the development of this theme valuable because

it integrates the theories of several disciplines (economics,

anthropology, social psychology, and sociology ) in such a way to expose the

consequences of the tensions of an individual’s civilized character between

individual competitive survival strategies and group cooperative coexistence

tendencies. Lal concludes that the western family system promoted

individualism by allowing individuals to choose their marriage partners and

establish separate households early which eventually lead to great material

prosperity. Here again he points out that

one of the social determinants of growth had also become a determinant of

societal deterioration. The economist is on familiar ground in this discussion

of the benefits and costs of individualism as espoused by Adam Smith.

Individualism not only lead to

great material prosperity in the West but by its very egocentric nature

undermined the cement that holds these prosperous societies together-the

family. Lal hints at the possibility that the communal societies like India,

China, Islam and Japan which are family-oriented societies may choose laissez

faire to drive their economic system while not choosing democracy to drive

their political system. Hence,

a revelation to many libertarians that there is no necessary connection between

economic and political individualism. More importantly, Lal’s discussion

reveals there is a development path different from the one forged by the West

which attains economic prosperity without sacrificing a constructive set of

norms and values that promote social stability.

The

book has something for everyone and would appeal to a wide range of readers.

The interdisciplinary approach of this book will interest and intrigue the

inquisitive minds of economists, sociologists, political philosophers,

historians and social psychologists concerned with economic growth and

development. Economists will especially enjoy the discussion of four formal

models (the Boserup model, the model of the predatory state,

the dual preference model and Domar’s model of a labor-scarce economy) in the

appendix which capture the essence of Lal’s main arguments. Economic historians

will find this book to be a provocative addition to their bookshelf because it

integrates the evolutionary concerns of the hard scientist with the

humanitarian issues of the social psychologist and arrives at a conclusion

familiar to the dismal scientist (the economist).

Deepak Lal is the James S. Coleman Professor of International Development

Studies at the University of California, Los Angeles.

Carolyn Tuttle is a Full Professor in the Department of Economics and Business

at Lake Forest College. Currently, she is a Visiting Professor at Northwestern

University in the Economics Department. Her book, Hard at Work in Factories

and Mines: The Economics of Child Labor During the Industrial Revolution,

was recently published by Westview Press.