In which a campaign gaffe turns into an interesting debate on economic development

The New York Times’ Peter Baker wrote a pretty shrewd article pointing out that for all the differences in rhetoric, the actual foreign policy content of Barack Obama and Mitt Romney look pretty damn similar. 

Of course, even if the policies would be similar, the execution and rhetoric matter.  While I didn’t think Romney’s "disconcerting" line about the Olympics was all that bad in context, it wasn’t a good day for his campaign.  And while the Jerusalem leg of his trip seemed to please the Israelis, Romney still managed to stir up a hornets nest of trouble: 

Mitt Romney told Jewish donors Monday that their culture is part of what has allowed them to be more economically successful than the Palestinians, outraging Palestinian leaders who suggested his comments were racist and out of touch with the realities of the Middle East. Romney’s campaign later said his remarks were mischaracterized.

"As you come here and you see the GDP per capita, for instance, in Israel which is about $21,000, and compare that with the GDP per capita just across the areas managed by the Palestinian Authority, which is more like $10,000 per capita, you notice such a dramatically stark difference in economic vitality," the Republican presidential candidate told about 40 wealthy donors who ate breakfast at the luxurious King David Hotel.

Romney said some economic histories have theorized that "culture makes all the difference."

"And as I come here and I look out over this city and consider the accomplishments of the people of this nation, I recognize the power of at least culture and a few other things," Romney said, citing an innovative business climate, the Jewish history of thriving in difficult circumstances and the "hand of providence." He said similar disparity exists between neighboring countries, like Mexico and the United States.

The CIA World Factbook has a rather different assessment of what ails the Palestinian economy: 

Despite the Palestinian Authority’s (PA) largely successful implementation of economic and security reforms and the easing of some movement and access restrictions by the Israeli Government in 2010, Israeli closure policies continue to disrupt labor and trade flows, industrial capacity, and basic commerce, eroding the productive capacity of the West Bank economy.

So, Israel/Palestine is not a great example.  And let’s also stipulate that it’s not… diplomatic  to say that a foreign jurisdiction’s development has been poor because of their culture.  And let’s skip over Romney’s bad data and the public fallout and  the White House glee and get to the really geeky question:  is Romney right more generally?  As Ashley Parker points out, Romney has made this "culture" argument before:

In the speech, Mr. Romney mentioned books that had influenced his thinking about nations — particularly “The Wealth and Poverty of Nations,” by David S. Landes, which, he said, argues that culture is the defining factor in determining the success of a society….

The argument comparing Israeli and Palestinian vitality is one Mr. Romney has made previously — in speeches and in his book “No Apology” — and one that he has used to explain economic disparities between other countries, as well.

Indeed, in No Apology, Romney uses the same David Landes quote from page 516 of Wealth and Poverty of Nations — "culture makes all the difference" — three separate times.  I wish, however, that Romney had read onto page 517:

On the other hand, culture does not stand alone.  Economic analysis cherishes the illusion that one good reason should be enough, but the determinants of complex processes are invariably plural and interrelated.  Monocausal explanations will not work.  The same values thwarted by "bad government" at home can find opportunity elsewhere. 

It’s that last sentence that suggests where Romney might be off base.  As Daron Acemoglu and James Robinson have argued recently in Why Nations Fail, it’s not culture that matters as much as political institutions.  From p. 57: 

Is the culture hypothesis useful for understanding world inequality?  Yes and no. Yes in the sense that social norms, which are related to culture, matter and can be hard to change, and they also sometimes support institutional differences, this book’s explanation for world inequality. But mostly no, because those aspectys of culture often emphasized — religion, national ethics, African or Latin values — are just not important for understanding how we got here and why the inequalities in the world persist…. they are mostly an outcome of institutions, not an independent cause (emphasis added).

The kind of gaps in economc output that Romney likes to stress are of so recent a vintage that institutions are the more likely driver of what’s going on than culture.  One can’t assert, for example, that culture explains why South Korea is outperforming North Korea or why West Germany was more prosperous than East Germany.  Acemoglu and Robinson don’t get the final word on this — this remains an unsettled question —  but their hypothesis is of a more recent vintage than Landes. 

So no, I don’t think Romney is right — but it’s still an open debate.  That said, if this is what he actually believes, then there would be some profound implications for development policy if he was elected president.  Chaging political and economic institutions is hard work — but it is doable through policy.  Changing culture is next to impossible — they change, but at a glacial pace.  So when Romney says he thinks culture is the key, it’s another way of saying that he doesn’t think the United States, World Bank or any policy tool out there is really going to promote economic growth in the least developed world. 

That said, I will give Mitt Romney credit — his political gaffes — as opposed to those of his staff — generate some damn fine debates. 

What do you think?