Culture and Economic Growth

Until recently, not much emphasis has been placed on culture as a possible determinant of economic behaviour. It is important to understand how culture is embedded in a nation and the manner in which it influences economic behaviour. This allows us to understand the way culture influences our decisions and the impact of those decisions. For example, Trinidadians have an appetite for car loans, but we do not produce cars, therefore our individual desires for motor vehicles mean that we must find the foreign exchange to purchase them. This places unnatural pressures on our demand for foreign currency and may even result in a depreciation of the dollar. Another example can be the lack of emphasis on productivity, especially in public sector institutions, which is evidenced by promotions based on longevity in the job as opposed to the quality of output. The result is no motivation to be productive as there is nothing to be gained from it.

Our economic and social behaviour is driven by our cultural practices. A good example is always the comparison with Singapore.

In the 1960s, we both had similar economic structures, history, and institutions. Initially, Singapore’s per capita income was as low as US$2,161 and its infrastructure was very poor. The economy was poorly diversified and poorly integrated globally. Capital was scarce, and there was hardly any direct foreign investment (FDI). In contrast, Trinidad and Tobago had the highest per capita income in the English-speaking Caribbean at US$4,370. Early that century, it had started producing oil and natural gas commercially, and this attracted multinational corporations, significant FDI, technology and skills.

The comparison then gets a bit unflattering for Trinidad and Tobago.

In his book The Underachieving Society: Development Strategy and Policy in Trinidad and Tobago 1958-2008, Terrence Farrell states that “there was little technology transfer, innovation or research and development occurring in any industry in Trinidad and Tobago,” whereas innovation played a role in Singapore’s development.

Regarding productivity and labour, Singapore established a tripartite wage negotiation system to facilitate stability in wage bargaining and deter labour militancy. In 1971, Singapore also established the Manpower and Training Unit to provide industrial training. This did not occur in Trinidad and Tobago. According to Farrell, the Industrial Stabilisation Act of 1965 “had become a dead letter, until replaced in 1972 by the Industrial Relations Act”. Nevertheless, a tripartite committee was appointed in 1968 to deliberate on the feasibility of an incomes policy, but “its recommendations were never implemented and the subject of wage restraint was dropped” until 1974. In addition, the government also facilitated “low-level, low productivity employment in the civil service, the local government bodies, and statutory corporations and later in state enterprises”.

This led to increased expenditure on wages and salaries and “less of government expenditure was available to be directed to capital expenditure on social overhead capital and infrastructure that could promote external economies and increase productivity”.

Recognising that their development programmes had failed to meaningfully improve employment and seeking to counteract the social disruptions of the time, the government abandoned fiscal restraint which resulted in a near six-fold increase in inflation: from 2.5 percent in 1970 to 14.8 percent in 1973.

Beside deficiencies and mistakes in policy, Farrell also identified culture as a factor that could have contributed to that nation’s underperformance.

At one time, economists felt that sufficient capital, especially through national savings, might catapult nations into a flight path of economic growth. A growing number of authors seem to agree that economic growth will take more than an infusion of investment capital, more than an import of the latest technology, even more than dependable political and economic institutions; there is the need for cultivation of a set of attitudes and values, including ironically, discipline, production and tolerance, before a country is fertile for economic development. To see any real improvement in our current economic circumstances, we must ensure that the economic behaviour of companies and individuals result in economic prosperity.