"Culture makes all the difference," Mitt Romney told an intimate gathering of Israeli businessmen at Jerusalem's posh King David Hotel. "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."
The U.S. Republican presidential hopeful, whose own net worth is estimated at roughly $250 million, went on to compare Israelis' economically comfortable existence with the more straitened circumstances in Palestinian areas. The comment predictably drew the ire of Palestinian leaders, with one senior official deriding it as "racist."
Despite the controversy, Romney then doubled down on his argument in a short op-ed for the National Review, asking, "But what exactly accounts for prosperity if not culture?"
Unfortunately for Romney, the answer is: quite a lot. True, his cultural explanation for why Israel is richer than Palestine has sparked an important debate that rarely occurs in the parochial, U.S.-centric world of American presidential elections. And given the important role the United States plays in global affairs, a presidential candidate's views about why the United States is more economically successful than most parts of the world are an important indicator of how he would approach the job.
Unfortunately, Romney's views are seriously out of sync with those of the great mass of social scientists. For one, as his more extended argument in the National Review illustrates, he confuses "culture" with institutions. By culture, social scientists mean people's values and beliefs. Romney refers to Americans' "work ethic," which is cultural, but he also claims that political and economic freedoms are the real keys to economic success. But political and economic freedom are not guaranteed by (or even related to) culture but by institutions, such as the U.S. Constitution or its system of property rights. Romney did cite Harvard University historian David Landes, who did indeed argue that values and beliefs are crucial for economic development, as providing the intellectual origins of his views -- but his focus on institutions is much more in line with our book Why Nations Fail than with Landes. Indeed, the facts on the ground in the Middle East illustrate the power not of culture, but of institutions.
It is true, of course, that living standards are much higher in Israel than in Gaza or the West Bank -- the gap is even wider, in fact, than Romney claimed. Israelis have much higher levels of educational attainment and better technology, and they benefit from much better provision of public services -- for example, roads, health care, and water -- than their Palestinian neighbors. There is also no denying that there are important cultural differences between Palestinians and Israelis: For instance, the former are primarily Muslims, while the latter are primarily Jewish.
But is there any cause-and-effect relationship between these cultural realities and differences in prosperity? The evidence suggests not. In fact, as economists Maristella Botticini and Zvi Eckstein point out in their recent book, The Chosen Few: How Education Shaped Jewish History, the origins of the high human-capital levels of Jews are in the historical adoption of educational institutions in Jewish society that induced people to become highly educated. This decision then led Jews to have a comparative advantage in trade and commerce -- specializations that have served them well in the modern world. This is where the roots of Israel's current prosperity lie, because these highly educated people migrated there, bringing their institutions with them. There was no cultural proclivity that led Jews to introduce or sustain these rules forcing Jews to educate their children. Rather, they emerged out of a political struggle between the Pharisees and the Sadducees to control Jewish society.
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