Economic Development Requires a State of Mind

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WASHINGTON – Let’s start with a basic notion: economic development is a new phenomenon in human history. This makes it difficult to understand it; let alone produce it at will. Furthermore, intellectual biases based on the fundamental rationality of the human being that would make him naturally predisposed to maximize economic advantage, contributed to intellectual confusion as to what really causes and or makes development possible.

Let us not forget that for tens of thousands of years humans lived on earth pretty much like the other creatures. They came into the world. They were engaged in looking for and finding food. They devised ways to fend off predators, sometimes successfully sometimes not. They reproduced when possible, often fell prey of disease, and usually they died young because of hunger, disease or violence visited upon them by predators or other humans. For tens of thousands of years there was no such thing as development as we understand it today.

 Growth is New

Both the notion and the reality of “economic growth” –especially the fast paced economic growth that has been more the norm, rather than the exception, in the western world in the last fifty years– are new. Although for many Westerners “growth” seems to have become self-evident as a reality and thus achievable as a goal, it should be emphasized that this phenomenon represents a “revolutionary” shift vis-à-vis anything that mankind had known until relatively recent times. The only known “reality” that both shaped and conditioned the worldview of millions for tens of thousands of years was that the only possible result of human activity is (at best) to reproduce what already exists.

The idea that it is indeed both desirable and possible to improve material conditions through human planning, the invention of new tools and methods whose outcome should be to increase the quantity, the variety and the quality of what is available, is new. The idea that one can devise and then apply new techniques and tools to activities such as handicrafts or manufacturing that would augment both total output and its quality; or that it is possible to improve upon the techniques related to the old ones (agriculture and animal husbandry) is new.

Indeed, the very notion that through human ingenuity and applied creativity it is possible to systematically produce and create something “more” than what already exists, if looked at against the backdrop of the long history of mankind, is truly “revolutionary”. But how did all this happen, and why? And, by the same token, given the reality of development somewhere, how can we bring it elsewhere, where it has not occurred yet?

As such a crucial transformation did not occur as a clear, discreet experience, we have the consequent difficulty to spell out the ingredients, the dynamics and the environment that gave life in past instances –and that can give life today– to economic development or progress.

For the longest time, most theories were shaped by an assumption of a dominant rational trait within the human psyche that would lead humans to actions aimed at maximizing utility. But empirical evidence shows that this is not true; at least not all the time. In fact, not even most of the time. What is true instead is that notions that are conducive to development can be learnt. However, the fact that they can be learnt does not mean that they will be easily embraced, as soon as people are exposed to them. For such an assimilation to take place, a significant transformation of the human psyche was and is a necessary precondition. First and foremost a transformation that allows the psyche to begin to conceive, in the abstract, something that does not yet exist in the material, tangible reality, for development is about building an idea, not yet in the here and now.

However, because the role of the psychological, “intangible” psychological factors necessary to trigger an approach consistent with development were overlooked and thus not properly considered, the students of economics concentrated a disproportionate amount of attention on the tangible and material factors, the building blocks of development, attributing thus economic development to a change in material circumstances. This is a bit like saying that in order to be a great painter, an individual does indeed need canvass, various paints and brushes. Of course, he does. But the availability of these tools do not guarantee success as a painter. 

This narrow approach has created distortions that have had a significant impact in shaping policies aimed at fostering growth in developed but especially in underdeveloped countries. By overemphasizing the need to improve material circumstances, (this is of course a necessary condition), we have somehow lost the point that the main agent of change is the human psyche. For it is the psyche that provides the sense of need, the orientation and the direction of sustained intellectual energies that can be mobilized materially toward this or that pursuit.

Economic Development: A Recent Revolution

Just to emphasize how new all this is, let us remember that, although they may be common place now (at least in the western or westernized world), until three hundred years ago, concepts, ideas, theories about “economic development” just did not exist. Until the inception of the industrial revolution in Great Britain during the XVIII Century, with the exception of the ruling elites that had secured for themselves positions of power and privilege in different societies, for most people, life had been following patterns focused on survival that had existed for millennia.

Furthermore, economic development did not start with a “bang”. Its inception in the early XVIII century, while setting in motion a process with incredible long-term consequences, was barely noticed by most. Indeed, another two hundred years had to go by for an industrial revolution based on new technologies and capitalistic enterprises to expand from its initial base in Great Britain and to reach a significant momentum in Western Europe and North America. It took that long for this transformation to produce at least some truly benign economic effects for significantly large numbers of people living in those parts of the world, in terms of improved quality of living. Throughout this time, the phenomenon was studied and analyzed. Regardless as to the wildly diverging theories, at least all this new attention created and spread awareness about the existence of “growth” and about a range of new ideas and concepts based on the premise that humans, through economic activities, can change for the better individual as well as societal circumstances.

Still, even at the dawn of the XX century, when industrialization was in full swing in Europe and North America, relatively few benefited from it. Only a small number of people were involved in and mastered the complexities of entrepreneurial activities that, as experience has proven, are a necessary foundation for widespread, sustained economic growth. One century after the successful harnessing of steam, and after the use of electricity had become common and after the development of the internal combustion engine –all of which allowed the beginning of modern, large-scale industry and manufacturing –the majority of the people in the industrial countries were not significantly affected by these epochal changes.

Likewise, after the telegraph, the telephone and the radio had already found large industrial and commercial applications and had thus become part of the broadly used technology, this progress barely touched or altogether eluded the majorities in the most technologically advanced and economically better off countries.

In truth, at the beginning of the age of the assembly line and mass production not much had changed in the daily lives of most ordinary people living in the western world. After almost a century of furious technological innovation that had revolutionized quantity and quality of industrial output as well as the structure of many economic activities and business relations, at the dawn of the twentieth century the majority of the people in Western Europe and North America continued to live in the old way.

Most of them were still farmers residing in rural communities, following a rhythm of life that was not too distant from what had been known and practiced for centuries. With the notable exception of the few new capitalists and of the emerging urban middle classes, most people still lived in simple –totally inadequate by today’s standards– dwellings with no electricity, no running water, no adequate heating and no sewage systems. For many, the quality of life was poor and often appalling. Infant mortality was high, while many died prematurely because of influenza, tuberculosis, pneumonia, typhoid and other diseases –in the same way as it had been for centuries. People had some awareness that technology was changing the world around them. But most of them, aside from benefiting marginally, if at all, from these changes, were absolutely ignorant as to the dynamics of the process, let alone have a way to participate in it as protagonists.

If this was the picture in the so-called modern and advanced world until not too long ago, it is no wonder that “development” and “economic growth” both as concepts and as realities, (notwithstanding further and broader economic progress), took many more decades to reach beyond the traditional western world.

No wander that, even today, while westerners are engaged in debates about a “Third Industrial Revolution” caused by “the information revolution ” that has created a “knowledge-based economy”, both the ideas and the processes needed to engineer “growth” –any kind of growth– have yet to reach and touch the day to day lives of hundreds of millions of people on this planet, from rural India to rural Africa. And this is indeed the issue that we are confronted with: how to best try and make development the norm where it is not. Untold failures attest to the difficulty of this endeavor.

When the West was undergoing its industrial revolution, only very few in the rest of the world could have a pale idea of this unfolding process, its dynamics and especially its long term implications. Today, the situation is, of course, vastly different. Significant outposts of development have been created, exist and thrive well beyond the west an d westernized countries. Information about the technological and  the tested policy tools that seem to foster progress is more readily available. And, nowadays, thanks to the internet, news can travel fast, even to the most backward corners of the earth. Likewise, both the amount and the speed of information transmission increase literally on a daily basis. By the same token, today, ideas about development and strategies to promote growth are the objects of intense debate across the board, including of course in Third World countries –sometime serious discussion, sometime mere lip service.

Yet, all this notwithstanding, the reality is that for hundreds of millions, to date, these are still scarcely, if at all, understood notions with little or no bearing or impact on their daily lives.

Economic Development: A New Reality without clear Causes

One of the reasons for this difficulty in making inroads in the minds of untold millions, is that even we, in the western, modern, technologically booming world, are still uncertain as to the “laws” (if any) that rule the growth process. We (usually) know development when we see it, but we are not exactly sure as to what it takes to have it. Indeed, right here, in the industrialized, developed world, where, at this stage, compounded, massive and very tangible changes have reached almost all strata of the advanced societies, we are still far from any intellectual consensus of what “development” is and –more importantly– what it takes to make it happen. We have problems with both the definitions of the concepts and their implementation. Economic development is a reality but its dynamics are still to a large extent an elusive mystery. Indeed, even within highly developed societies, some parts, regions or areas within cities do not participate; while others suffer from decline, development in reverse. Thus, many attempts at mastering it notwithstanding, it is clear that the development phenomenon is more art than science and it cannot be easily conceptualized within a body of clearly transmissible knowledge.

Yet, paradoxically, even without a full understanding of the process, the reality of progress has given life to a set of beliefs that –at least for some– amount to some kind of creed. By and large, in the west, most people today are born or have grown into adulthood with the axiomatic belief that they live in societies characterized by the reality of an ongoing “economic progress”, where “economic progress” is described as an achievable personal and societal goal.

Further, (regardless of the theoretical uncertainties mentioned above), for many westerners (if not most), overtime other assumptions and postulates managed to take strong roots. As a result, there is now a widespread belief that “there are” known, practical and viable economic policies and activities that would or should lead to the improvement of one’s material conditions, as well as policies that should favor broader economic dynamism and thus growth for the whole society.

Again, any cursory observation of ongoing economic debates shows that there are many unresolved and heated disputes as to how best to achieve these goals. The most disparate policies are heralded as absolutely essential by some, while the same are condemned by others as harmful to growth, if not utterly insane. However, despite conflicting views and confusion, at a deeper level, there is a faith that somehow, the broader goal of continuous progress is both attainable and necessary.

In fact, at this stage, the conventional wisdom in the West is that continuous economic improvement is deemed to be not only possible but indispensable. A century or so after sheer survival ceased to be the dominant preoccupation in the West, the constant improvement of our standards of living via wealth generating economic activities has come to be viewed as a necessity. In the West, the reality of growth has allowed the establishment of a belief, now entrenched, that tomorrow has to be better than today. If this does not happen all the time, then there must be serious ailments affecting the society in question. In fact, in the world that we have created, we have now the almost undisputed axiom that it is not possible to live a decent life without the constant improvement of material conditions –the benign outcome of economic progress. Majorities would agree that increased human satisfaction is related to increased wealth and improved living conditions. For these reasons, the promise of more, or more rapid, economic progress is a pledge routinely made on the part of the political elites of any given country seeking popular support.

For example, in the nineteenth century, the Brazilian ruling elites, strongly affected by positivism, inscribed the word “Progress” (after the word “Order”) on the country’s national flag. Governments the world over, almost by definition, are supposed to promote economic growth; while they are evaluated mostly in terms of their ability to improve the economic picture. Although we do debate as to the best mix of activities on the part of both the private sector and public powers that will improve economic conditions, we do generally share the belief that government has a major responsibility in fostering economic growth. In the United States, for instance, the most common, although largely flawed, parameter to judge a president’s performance is “how the economy is doing” under his stewardship –even though it is well known that any president has very limited powers to influence economic performance.

Based on all this, we can say that, in Western societies, most individuals from an early age are taught that a) it is both desirable and possible for people to “advance economically” in the material world; b) that there are time proven ways, (such as hard work, starting a business, saving, improving one’s skills through education, and so forth) to achieve this goal. Furthermore, these ideas are so deeply ingrained that we are now consciously or unconsciously “conditioned” to think in terms of degrees of growth. While many individuals may stay throughout their lives on an even course, or actually see the deterioration of their material conditions, if society at large does not “grow” economically, then people start worrying and begin to look for causes of “stagnation”. If and when there is a net, albeit small, deterioration of economic conditions, then we must be in serious trouble. When we have severe economic stagnation or crisis, with accompanying unemployment and falling standards of living, concern may turn into real fear. In extreme cases this may cause social unrest or even revolution.

Development: For Most Still a Distant Concept 

But there again, the West and the large portions of Asia and other continents that have adopted western approaches are not yet the universal standard. A large, if not the largest, portion of the world’s population is still moving according to the old parameters focused perhaps no longer on sheer survival but still on subsistence. Most of the common people on this planet can scarcely begin to comprehend the concept of “man made growth”, let alone become actively involved in activities that would engineer such growth. For hundreds of millions of people on earth today, life is still about securing enough to get by today, in a world where they perceive opportunities to be determined by a “visible” pool of finite resources. This narrow worldview cannot conceive the notion of getting “more” out of what exists.

By the same token, those who live in realities dominated by the entrenched perception that resources are finite, by default, if nothing else, operate following a “zero sum game” mentality. According to this view, in any given situation, one can have more only by taking away something from others. Following this basic approach, the clever people become involved in activities (political, military or otherwise) that place them in the position to either directly control the existing pool of wealth or to acquire material gain by supervising its distribution. The name of the game is not “wealth creation” but instead “wealth control”.

Anywhere we have the predominance of thinking and practices aimed at wealth control, it is very hard –if not outright impossible– to have the germination, let alone the rooting of the idea that people can advance both economically and socially, not by taking away from someone else, in a zero sum game, but by creating something more and something new. In these circumstances, the mental path to even begin to think about increased “wealth production” is yet to be discovered.

No Theoretical Consensus in Developed Countries

But, as mentioned above, even in the modern, industrialized world, where economists have been theorizing for centuries as to the purported parameters that will cause or foster wealth creation, we have not yet mastered, agreed upon, or defined a proven method. We have produced large libraries of books on economic theory, models and analysis. But the most striking observation in reviewing economic literature is a lack of conceptual unity based on real facts. To date, economics is not a real “science”. At best it is a diverse, sometimes confusing, ensemble of widely differing theories. As yet, we have not been able to clearly identify basic principles which determine certain dynamics nor the ingredients that will trigger growth both in societies that have it and in those which do not have it or not enough of it.

It is important to stress that, thus far, we have not yet singled out the rules (assuming that they exist) nor devised a system that can generate and guarantee continuous steady growth. All this may appear quite paradoxical. The West embraced the concept of the possibility and desirability of growth long ago. One way or the other, growth, albeit uneven and often staggering, has become a tangible reality. Yet people after a century long debate have yet to agree as to what the recipe should be.

To cite just the most obvious example of a radically different approach to the goal of growth, Socialism (in its different varieties), was conceived and then applied –no doubt in good faith at least in some instances– as a supposedly better, indeed more “scientific”, way to secure the same goals of progress and growth –only to agree later on, friends and foes alike, faced with the evidence of monumental failure, that its shortcomings were far greater than its benefits.

But even in the Western mainstream we vehemently disagree about the right mix of ingredients for growth. We do not have clear recipes. Carefully crafted economic plans fail miserably or, at least, fall short of desired results. Conversely, periods of high growth occur without any clear correlation to existing economic policies. In some instances we have had economic reversals, painful and long (the Great Depression), in other instances some societies, try as they may, seem to be impotent prisoners of listless, anemic trends that fail to deliver on the general expectation that they should be moving forward. By the same token, even in societies that seem to be doing very well, such as the United States in the last decade, we are confronted with the phenomenon of significant portions of the population that neither participate in nor benefit from this unprecedented stretch of great economic dynamism.

Development: What are the Ingredients?

Whatever the outcome of their efforts, economists of all stripes for centuries have been trying to identify the key components of a growth-oriented environment. Of course, in the early days it was said that land was the key. Not exactly in this sequential order, they then discussed capital formation, the prerequisite for investments and thus future growth. Then they added inventions and technological innovations that could be industrially applied and commercially exploited. Then they considered raw materials; then population and thus market size, then access to markets and trade. Then they added the role of the State in aiding or impeding growth. Thus, a new focus on the need for appropriate macro-economic and monetary policies, a balanced system of taxation and the need to have good infrastructures that would facilitate economic activities. Then they discovered the value of skills and thus the importance of improved education standards, both in technology and management. Then they became conscious of the need for affordable sources of energy. Clearly all these are components of the economic process. They all matter as factors capable of influencing growth. But they matter in unequal and sometimes mystifying ways.

Countries with enormous reserves of raw materials and or energy are poor. Countries that have not been graced with anything at all by nature have become rich. Countries with benign weather are poor. Countries where people battle daily with the elements are rich. Some regions within countries do well, whereas others, although theoretically sharing the same macroeconomic and institutional environment, are doing very poorly. Even more interestingly, countries that used to enjoy economic leadership positions in the past no longer do today, while some new comers have managed to reach unimaginable heights in relatively short periods of time.

 New Focus on Culture and Beliefs

Be that as it may, while the debate is still going on, there is now a growing consensus that the material components of the economic process (land, raw materials, energy sources) are comparatively less critical than we used to think. Whereas, more importance is attached to the characteristics of the society within which economic activities take place.

Thus more emphasis is placed on the existence or creation or strengthening of some basic institutional features. Among them: a government that can provide useful services at a moderate cost in terms of tax burden; a dependable legal system, (that would among other things guarantee private property rights and the enforcement of contracts); a good education system that will produce a competitively skilled work force, and so forth.

This new thinking has been reinforced by reflections on the failure of the socialist and other statist systems. Socialism did not fail because of lack of materials means. The former Soviet Union had practically all the basic ingredients for sustained growth: abundant agricultural land, raw materials, energy sources, a relatively good education system that produced capable scientists and engineers. And yet, the system eventually collapsed, literally on itself. Notwithstanding early successes based on the ability to coerce people to produce according to state plans, eventually the political, judicial and societal make up proved to be inimical not just to economic growth but to productive activities in general.

After the end of communism many, in a rather naïve fashion, thought that, with the elimination of this system so deeply hostile to growth, a functioning free market, capitalist system would more or less spontaneously blossom. According to this optimistic view, this would happen because the people would have the opportunity to follow the tried western blueprint but also because they would be driven by some kind of innate inner force that, barring no artificial obstacles, leads societies to free market capitalism and democratic institutions.

The conventional wisdom was that there is a “natural” human propensity toward free market capitalism, itself the fundamental engine of growth. Communism represented an aberration, a distortion forcefully imposed. Eliminate the distortion and the natural order of things would progressively assert itself. But the chaotic situation characterizing most post communist societies shows that this is clearly not so. Thus, the aftermath of the Soviet Union’s collapse reinforces the theory that the “correct” institutional-legal framework does not form itself naturally nor can it be just quickly superimposed on any given country through the work of well meaning advisors. For such a framework to gain firm roots, it has to be both understood and believed. It has to become part of the shared worldview, of the psychological make up of the people. (More on this later).

This assertion is further reinforced by observing a number of societies, especially in the Third World, that were not affected by the distortions of socialism. Decades after their leadership had claimed to have accepted and to be following the basic Western philosophy and practices which, according to the conventional wisdom, should induce growth, they are still not capable of making it happen. Now, why is it so? In order to at least try and answer these questions, we should revisit some of the ideas that have become something akin to axioms and dogmas regarding development.

Questioning the Conventional Wisdom

Although the debates as to which are the key ingredients of growth and the agents of growth have not been settled, at least at some level there is an almost unchallenged orthodoxy which has come to dominate “official” thinking, at least in the West, on these complex subjects. And this is the “classical” economic theory, which, notwithstanding the many instances in which it has been proven wrong by empirical facts, continues to have a surprising resiliency.

The Western classical economic thought that, to this date, continues to provide the elements and the framework for a large part of economic discourse, is rooted in the European rationalism of the XVII and XVIII Century. According to this thinking, Man is fundamentally a rational creature. Therefore, it is postulated that he will have a natural propensity to look rationally at economic activities. This will spontaneously lead him to constantly maximizing the use of resources in the most rational way to obtain the best return for the effort. According to this long established school of thought, there is a natural propensity to have an ever more rational and thus more efficient and productive allocation of resources itself based on a rational, intelligent use of available information, while intellectual efforts aimed at improving existing processes will lead to new inventions. It is important to stress that this classical economic thought postulated the existence of an innate human predisposition to look for better ways, to experiment with new technologies and to constantly refine processes in order to obtain the best return on any investment of resources.

In more recent times, new psychological theories made it apparent that capabilities and skills, including those “rational qualities” attributed by the classical theory to humankind in general are acquired through a process of learning, as opposed to being natural tendencies. The study of capitalistic economies has led many to observe that a higher degree of growth is a function of applied innovation in both products and processes which in turn leads to higher efficiencies, a higher level of productivity (higher output per unit of work) and thus higher wages and standards of living. The ability to innovate and to quickly find optimal commercial applications for innovation is understood to be a function of acquired and progressively refined skills for the individuals actually involved in the different stages of any productive process. The level of those skills is the key variable that can be modified, depending on the length and quality of the instruction provided to the individuals as well as their ability to creatively build upon it to engineer more and more innovation.

We thus define the individual’s capability to perform in any economic activity as the outcome of a learning process that includes material knowledge and an approach that postulates that progress can be constant and that it is within the mental abilities of all people to actively contribute to it. In other words, people learn “things” but more importantly they learn a new approach about the possibility to apply ingenuity in order to constantly improve on what exists.

Thus, little by little, we are coming to accept the notion that at least certain critical components of the economic equation have to do with conditions internal to the individuals. These conditions largely determine what actions various individuals perform to create and alter external circumstances and the degree of effectiveness with which such actions are carried out.

Further, we have come to recognize that the actions of individuals are a function of their knowledge and skills combined with a new approach about creative thinking and that such skills are imparted through some kind of learning and or education process, formal or informal as it may be.

This is already a major shift. Little by little we are coming to believe that the individual and his/her range and level of skills is probably the single most critical variable in the economic process. Depending on what he is taught, or what he learns through experience, the individual is likely to do or not do certain things that are going to have significantly different economic consequences.

This is important. Modern thinking has moved away from the notion of a “natural, inborn propensity” to maximize value shared by all humans. But, although this shift is relevant, we have not yet grasped the full dimension of the issue. The current debate about skills is generally focused on applied knowledge. That is: how much economically applicable knowledge about science, technology, management and business practices has the individual received? From this vantage point, the individual is regarded almost as an empty vessel. Pour in the right mix of information, knowledge and training and he/she will perform in a way that will produce improved economic results.

It is undeniably true that certain specific and increasingly sophisticated skills are required to improve performance, as many economic activities are more and more tied to the ability to understand, manage and manipulate complex information. Yet, this approach, although largely true, fails to capture the broader picture.

The fact is that all these theorization about economic skills somehow assumes that economically relevant behavior is an independent variable, not tied to the rest of the person, his attitudes, beliefs, needs, aspirations and problems.

In a word, we seem to forget that the economic behavior of individuals can only be but a component of their global psychological formation and ensuing disposition towards all areas of their lives, including economically relevant activities. Whereas, it is the basic psychological make up that is the dominant variable. This make up tends to affect all aspects of the individual’s life — including his economic behavior.

Max Weber: The Unintended Economic Consequences of Religion based Ethics

A rather famous example may serve to illustrate this point of view. Long ago, the argument was made by the German sociologist and economist Max Weber that the successful emergence of capitalism was due or at least aided by a state of mind which was itself the byproduct of religious beliefs. In his seminal work “The Protestant Ethic and the Spirit of Capitalism”, Weber argued that the early successful capitalists, especially in Germany and North America, were not originally driven by the desire to improve their material conditions per se. Rather, they were motivated by religious beliefs that influenced their economic activities and, as an unintended byproduct, made them successful wealth creators.

According to Weber, there is a correlation between the Calvinist theological belief of predestination and the development of a certain type of ethical and behavioral code that just happened to be conducive to the development of successful capitalist systems. Very briefly, belief in “predestination” meant that some individual souls were going to be saved and others damned according to decisions made by God. The individual was completely powerless in changing his predetermined fate. This could have plunged people into a sense of complete fatalism. Instead, the Calvinists, secure in this belief and also that, somehow, as witnesses of the True Faith they had to enjoy some special place, overtime developed a theory whereby there should be “signs” of predestination that would indicate to the “chosen ones” that they would enjoy eternal life. According to this view, success in the material world should be considered as a positive “sign”. By permitting to an individual to improve his circumstances through his actions, the Lord would provide a sign of predestination. Whereas, the lazy, the drunk, the good for nothing, the failed were clearly sinner who could not possibly be among the saved.

In the austere Calvinist environment, the goal was not to amass wealth in order to live the dissolute life of the rich as in other societies. This wealth was a testimony of God’s blessing. The producer was supposed to be the “steward”, the guardian of wealth and not the consumer. The good Christian would live a sober, simple, laborious and honest life. Capital was to be created but not spent; thus it would be reinvested. Furthermore, the Calvinist, constantly under the watchful eye of the Almighty, had to behave according to the Biblical moral code. Honesty and integrity had to be part of his life just as hard work and frugality.

So, here we have the basic ingredients of capitalism: enterprise, a mind constantly focused on devising ways to rationalize processes and improve things, hence a bent toward seeking technological innovation, capital accumulation and reinvestment. Finally, we had a behavior that had to be respectful of the basic Christian rules –which happen to coincide, at least to a degree, with the rules of a free market economy. These rules would oblige individuals to keep their word, (i.e. contracts), to have respect for someone else’s property and rights; while they would create at least some deterrent to those tempted to engage in theft or dishonesty.

In all this, the salient element is that a certain economic behavior that happened to be conducive to the strengthening of a capitalist market economy, at least at its inception, found its roots and its legitimacy in transcendental concerns that had nothing to do with economic development goals. According to Weber, a set of beliefs spurred people to act in a fashion that just happened to have significant economic consequences.

Now, we could debate to what extent Weber was correct in establishing a specific correlation and perhaps a causal link between a religious belief and the emergence of a particular economic system. Indeed, many have argued against Weber’s theory.

A Step Ahead: Economic Behavior is a Component of the Person’s Formation

But today, after the explosion of psychological studies encompassing practically every aspect of human life, few would seriously doubt that the ethical make up of an individual (which includes any values drawn from religion or ideology) and his general psychological conditions and disposition has no impact on his attitude towards all behavior, including economic activities. Most would agree that the inner core of a person’s psyche, coupled with the type of education received and the culture absorbed, determine, among other things, an individual’s level of dependability, conscientiousness, diligence, honesty, openness to change, willingness to take risks, etc. All these happen to be qualities that have a direct impact on that person’s economic behavior as an employee, as an employer, as an entrepreneur as a civil servant or as a judge.

The relevance of this approach is recognized at least by some. Indeed, a very fashionable field of study in the Western world concentrates on “motivation”: i.e. how to make someone focused and goal oriented in such a way as to improve their performance and effectiveness especially in economic activities. What is it that makes a worker eager to do better or that renders his performance lackluster?

Motivation gurus would disagree as to the best recipes; but generally they would concur that the key to change behavior and thus outcomes is a positive modification of the individual’s state of mind. And so, a constructive modification of the state of mind of those who are still outside the development sphere should be a logical component of any development strategy. And education about new ways of thinking and approaching reality is a lot more than skills training.

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