Economic Ideas, Policy and National Culture: A comparison of three market economies
Humans have to take decisions while not entirely knowing the consequences. The world is complex and people’s cognitive capabilities are limited so that they cannot consider a broad range of possibilities. Consequently, people use frames and heuristics, and look at the reactions of others to make up their minds. Often these heuristics and preferences are similar among a group of people. The mental models common to a group of people are called mental frames or world views. National culture is the mental model which is assumed to be common among inhabitants of a country (nation).
In our curriculum in economics, we take these views on economic behavior into account. Courses such as behavioral economics and behavioral finance focus on the actual behavior of individuals. The Master course Culture and Institutions focuses on the relations between dominant preferences within a country, legal institutions and the behavior of individuals and groups. Our program stands out in that it focuses more on these behavioral approaches than many other programs in economics. In this manner, we hope to obtain a better view on people’s and groups’ actual behavior and thus be better equipped to explain and predict this behavior.
How sophisticated these approaches may be, they still see academics as the outsiders, the impartial observers. However, economists are human beings and thus subject to the same biases as other people. Consequently, economic ideas are influenced by the same factors as the ideas of other people: politicians and ordinary people. This idea of a common trend in the belief systems of academic economists, politicians and lay people forms the theme of the book “Economic Ideas, Policy and National Culture: A comparison of three market economies”. This book compares the ideas of economists about a market economy, the preferences of lay people and the policies in the United States of America, Germany and France.
The United States of America represent the free market economy. Adherents of the free market see competition as a manner by which individuals can be liberated. People are judged according to their ability to perform a certain task and are no longer chained by their race or ethnicity. The population at large is very individualistic and policies are aimed at enhancing competition. When in the 1930s a deep recession hit the economy, rules had to be implemented in order to prevent “ruinous competition”. But still these rules were seen as a way to save fair competition. The fact that competition can lead to a high degree of inequality in income and wealth is accepted as a fact of life. Inequality is only considered a problem if it becomes very high.
Ordoliberalism is the dominant economic theory in post war Germany. Its development starts in 1933 as Hitler raised to power and is a reaction on the centralized and unfree economy under the Nazi regime. It shares with the free market economists, the priority attached to individual freedom and prosperity. The market and competition are seen as a structure for restricting the power of the government and of large firms. German people respect the needs of the individual but are less individualistic than Americans. Very important is the relatively high score on Uncertainty Avoidance and the attitude to reduce uncertainty by adhering to rules. Policies are pro-market but restrict competition more than those in the United States.
Before World War II, France was more a free market than many other countries. After this war a very centralized system was founded in which elected officials, in particular the President, play a dominant role. Economic engineers developed models representing free markets. The results of their analyses were used to provide advice for setting prices by government agencies as if a free market would be in place. The dominant position of a few reflects the high degree of acceptance for differences in power and wealth among the population.
The book’s main message is that within a nation one view dominates the ideas of academics, lay people and politicians. This view determines the the interpretation of recent events by the majority of the agents concerned.
Note: The book “Economic Ideas, Policy and National Culture: A comparison of three market economies” edited by Eelke de Jong will be published by Routledge. It contains contribution by Ivan Boldyrev, Iwan Bos, Rosolino A. Candela, Roland Fritz, Nils Goldschmidt, Annemiek Schilpzand and Eelke de Jong. The research is financed by the Templeton World Charity Foundation.
Once a month there will be published an article written by one of our teachers economics at the Radboud University. We really appreciate the contribution of the economics department a lot. This month we may thank Eelke de Jong, professor of International Economics, for his article about a the book 'Economic Ideas, Policy and National Culture: A comparison of three market economies'.