American Economic Association

Do We Underestimate the Benefits of Cultural Competition? Author(s): and Tyler Cowen Source: The American Economic Review, Vol. 94, No. 2, Papers and Proceedings of the One Hundred Sixteenth Annual Meeting of the American Economic Association San Diego, CA, January 3-5, 2004 (May, 2004), pp. 402-407 Published by: American Economic Association Stable URL: http://www.jstor.org/stable/3592918 Accessed: 28/04/2009 19:35

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Do We Underestimatethe Benefitsof CulturalCompetition?

By BRYANCAPLAN AND TYLER COWEN*

Economic has drawn fresh at- Most cultural commentatorsapproach diver- tention to cultural issues. The Uruguay Round sity from a different point of view. They focus of trade negotiations debated whether there less on individual choice and more on whether should be a protectionist "culturalexception" various cultures "look the same." We can dis- for television and movies, as practiced by the tinguish between diversity as a menu of choice French, Canadians,Brazilians, South Koreans, and diversity as cultural distinctiveness. When and Chinese to varying degrees. Governments an artwork is traded from one society to an- around the world subsidize culture, in part to other, the menu of choice commonly becomes favor one national traditionover potential com- richer, as the new importing consumers have petitors. More generally, cultural questions are more choices. But cultural distinctiveness central to broadercritiques of trade and global- may go down, as the two societies become ization (Cowen, 2002). more alike. Consumers can now buy French Current analyses, however, have neglected cheese, sushi, and Mexican food in either some insights from . We will suggest France or Germany. This makes France and that market competition across cultures is de- Germany more alike and less distinct, but it sirable and favors relevant notions of diver- also widens the menu of choice in both sity. An underlying theme is that individuals countries. hold unjustified prejudices-or, in economic Drawing upon economic reasoning, we see jargon, "systematically biased beliefs"-about these developments as positive, not a cause for globalization. concern. In some regards the world was very diverse in 1450, yet few people enjoyed much I. What SupportsDiversity? of this diversity. Tomatoes were available in Mexico but not in Italy. In contrast, today's An economic approach to product diversity consumersmight have a Japanesestereo, a Ger- starts with the idea of trade. In the absence of man car, cook from Chinese recipes, and buy significant fixed costs, a will Persian rugs and Mexican rap music. Rather supply however much diversity consumers than bringing a culture of the least common are willing to pay for. In the limit, if fixed denominator, markets decrease the costs of costs approachzero, and transactionscosts are serving consumer tastes, whether common or minimal, the extent of product diversity will not. reflect an optimum. Viewed dynamically, trade spreadstechnologies aroundthe world, causing II. Do Trade and Globalization Damage fixed costs to fall and the number of available Distinctiveness? productsto increase. Cultural distinctiveness might be a , or for some ethical or aesthetic reason it Discussants: Roland Fryer, ; could be a merit each Thai citi- Richard of Daron good. Perhaps Thaler, University Chicago; Acemoglu, zen American but MassachusettsInstitute of Technology. enjoys wearing sneakers, * Thai society as a whole somehow suffers from Departmentof Economics, Center for Study of Public the of traditionalfootwear. Choice, , Fairfax, VA 22030 disappearance (e-mail: [email protected] [email protected], respec- Nonetheless trade and globalization often tively). support and extend cultural distinctiveness.

402 VOL. 94 NO. 2 COMPETITION 403

Most generally, a broader internationalmarket fact, the music market became much more di- allows domestic producersto cover their fixed verse, following the advent of recording and costs. Reggae would have been less successful radio.' and less diverse without consumersupport from Finally, market exchange typically supports the United States and United Kingdom.In other individual distinctiveness, even when it de- cases trade holds communities together. Con- creases distinctiveness across larger societal sider a simple Heckscher-Ohlin setting where units. Marketsallow individualsto pursuemore two nations have differing initial endowments. varied consumption patterns. Collectors of Trade in goods serves as a substitutefor factor Mexican artworkscome from aroundthe world, migration and thus supportsthe distinctiveness as do fans of The Lord of the Rings, which is the of the regions. Consumption bundles become product of British, Germanic, and Nordic less distinctive in the classic Ricardianexample myths. Rather than saying that trade has de- (the English drinkSpanish wine, the Spanisheat stroyed diversity, trade has liberated diversity English corn), but Englandremains a culture of from the constraintsof borders and geography. corn-growers and Spain remains a culture of Compare this development to poorer and more winegrowers. isolated societies. Each tribe might have a Increasing returns to specialization intensify different music, but everyone within a given regional distinctiveness on the productionside. tribe will hear and perform the same music. In these models the larger the size of the inter- Distinctiveness across tribes will be high, but national market, the more regions specialize. distinctiveness within a given tribe will be Thus, Hollywood produces more movies, but very low. Yet if distinctiveness has intrinsic Paris produces more new fashions. Consump- or external benefits, we might wish to extend tion patterns may become more distinctive the choice of cultural distinction to all indi- across borders as well. Regions differ in basic viduals within a given area. Such a recom- endowments,for reasons of climate, geography, mendation would point us in the direction of and history. The spread of a common technol- globalization and trade, not isolation and ogy interactswith these endowments in unique protection. ways. So the guitar gives us flamenco music in Spain, rock and roll in the United States, III. Some Evidence from the Arts and meringue music in the Dominican Repub- lic. Trade can make basic technologies more We find a greater menu of choice in a wide similar, but neither convergence in produc- variety of cultural settings, as illustrated by a tion nor convergence in consumption is contemporary book or music superstore. Or implied. consider some simple numbers. Between 1450 One possible mechanism for a diversity de- and 1500, about 10,000-15,000 titles were pub- cline comes from Sherwin Rosen's (1981) lished. By 1962, 250,000 titles each year were "superstars"hypothesis. In this account, a re- being published in the world, and the number producible technology centralizes market re- has continuedto rise (GabrielZaid, 2003). Sim- turns. Rather than hearing a live singer at the ilarly, we can observe the more recent growthof local nightclub, recordingallows music fans to diversity in the music market. Between 1980 buy the "best"vocalist and hear higher-quality and 1998, exports of musical goods rose at an singing on disc. In this case the total number average of 10.3 percent per annum (UNESCO, and kind of singers can decline, thus damaging 2000 p. 11). Available data from the 1990's diversity. Note, however, that the superstarhy- show the number of new American releases pothesis can improve market diversity as well. rising from 18,400 in 1992 to 33,100 in 1998. When fans disagree about which singer is the While the numbers alone offer no proof of a best, recording technology allows many more singers to reach broader audiences and thus the size of the make a living. Again, the larger 'See Cowen (1998) on the history of the music market potential market, the easier it is to cover fixed and Cowen (2000) for more general evidence on the super- costs of production. As a matter of empirical stars phenomenon. 404 AEA PAPERSAND PROCEEDINGS MAY2004 causal connection, both trade and diversity are Arabic, and others. The benefits of a common rising together.2 language outweigh the desire to remain sepa- A trickier question is whether national dis- rate, as is typical in networkmodels. That being tinctiveness has proved robust. Fiction best- said, common languages ease the communica- seller lists show that many readersprefer to read tion of cultural ideas. In this regard overall books from their home countries. In spring of culturaldiversity can rise as linguistic diversity 2001, for instance, three U.S. novels made the falls. top ten in France, two made the top ten in The broader history of mankind shows that Britain, and one each made the lists of Ger- periods of growing wealth, commerce, and trade many, Israel, and the Netherlands. Even the are correlatedwith artistic and creative produc- Canadian bestseller list had only four novels tivity (Cowen, 1998; Charles Murray,2003 pp. from the United States. National literaturesap- 350-51). Globalizing eras tend to be good for pear to be alive and well. In addition,television the arts, whether we consider the menu of programsdo not sell very well across linguistic choice or regional distinctiveness. The era be- lines. American programs dominate the Cana- tween 1800 and World War I saw an unprece- dian marketand are prominentin Australia,but dented increase in globalization. The West often no American programwill crack the top adopted the steamship, the railroad, and the ten in a European continental nation. Music motor car, replacing travel by coach or slow consumption also shows continued distinctive- ship. Internationaltrade, investment, and migra- ness. Circa 1998, domestic producers held 71 tion grew rapidly. The European 19th century percent of the market in Ghana, 81 percent in was, by virtually all accounts, an extremely Egypt, 96 percent in India, 78 percent in Japan, creative and diverse time. 81 percent in Indonesia, 68 percent in Russia, Conversely, the most prominent period of and 73 percentin Brazil. AmericanTop-20 mu- cultural decline in Western history coincides sic is popular around the world and is widely with de-globalization and a shrinkage of trade. available, but it is hardlydominant (Cowen and After the collapse of the Roman Empire in the Eric Crampton,2001). West, interregionaltrade and investment con- Decentralized production has been less pro- tracted.Rarely are these so-called "DarkAges" nounced in the case of movies. Most of the cited as an especially fertile period for architec- movies viewed in the world come from Holly- ture, writing, reading, or the visual arts. The wood, Bollywood, or to a lesser extent Hong buildings of antiquityfell into disrepairor were Kong. In Europe, Hollywood market share is pillaged for their contents. Bronze statues were frequentlyabove 80 percent. For whatever rea- melted down for their metal, and most of the son, it appears that movies are produced more notable writings of antiquityperished. The rise efficiently from a clustered geographic center of medieval society and the Renaissancewas, in (Cowen, 2002). Europeanand other global tal- large part, a process of re-globalization,as the ents then tend to congregatein this center rather West established significant contact with the than working in the home nation. This ten- Chinese and Islamic worlds. At the same time, dency makes it harder for each country to trade fairs expanded, shipping lanes became have a commercially healthy movie sector of more active, and overland trade paths were its own. reestablished. Languages are arguablythe strongest excep- Figure 1, adaptedfrom Murray(2003 p. 249), tion to the robustness of distinctiveness at the illustrates the temporal distribution of promi- macro level. The numberof living languages is nent figures in the arts. This display, of course, plummeting as speakers move into the major underratesthe diversity of moder times. The linguistic groups of English, Spanish, Chinese, graphmeasures when culturewas produced,but the contemporaryworld also gives consumers access to Mozart and Shake- 2 The unprecedented figures for new releases are from the Recording can cumulate Industry Association of America. In very recent times the speare. Diversity through time, figure has been falling, which is widely attributedto file- at least once technology can preserve past sharing. creations. VOL.94 NO. 2 COMPETITION 405

160 it in reality depends on global culture and in- 'I Europe ' ternationaltrade. 140 Everywhere Else ia Rest of the West 120 i A. Cultural Pessimism

Inn 1 debate the extent of economic rn I growth during the last 30 years, but virtually r,n I A. s none disputes that growth has been greaterthan Ai'l ! sees matters differ- *vs zero. The general public , It has a tendency to think that the 20 , r ' ently. strong 0| to | economy has declined and will continue get 0 ---...... 800 400 0 400 800 1200 1600o 2000 worse. For example, noneconomists are much B,C, AD. more likely to believe that family incomes and real wages are going down, that new jobs are FIGURE 1. TEMPORAL DISTRIBUTION OF and the next will be ACHIEVEMENT,FROM 800 B.C. TO 195 A.RSTC low-paying, generation poorer than the current one. This pessimistic bias is robust to a variety of control variables. Economists remain systematically more upbeat IV. "Rational Irrationality" and the Opposition than noneconomists after controlling for in- to Global Culture come, job security, ideology, and numerous other noncognitive explanations for divergent Political beliefs tend to be "rationtally irratio- perceptions (Caplan, 2002). nal" (Caplan, 2001, 2002). Econo)mists have It is hardly surprising,then, that culturalpes- long recognized that false political tbeliefs have simism is so pronounced. The public sees little or no personal cost. These inc:entives are mounting poverty in the face of increasing widely thought, under the rubric (of "rational riches. It brandsglobal cultureas a "wasteland," ignorance,"to promptpolitical apathly. But false ignores consumers'burgeoning cultural choices, beliefs also take the form of dogmattic, passion- and denigrates moder culture by comparing ate commitmentto palpable error.f For instance average works of today with masterpiecesof the many people angrily oppose foreign traderather past. than admittingthat they know too liittle to form an opinion. As any teacher of Ecoinomics 101 B. The Seen and the Unseen should know, some irrationalcomr litments are more popular than others. The distinction between the seen and the un- Along these lines, critics of globailization are seen is one of the most important truths of prematurely certain that culture iss declining, economics. Few American citizens understand and they greet conflicting evidence with hostil- that in the long run protectionismis more likely ity rather than curiosity. We see aI suspicious to reduce living standardsthan to save jobs. The divide between individuals' political convic- short-runemployment effect is obvious, but the tions and their private behavior. Thne same peo- long-run consequences are not. Similarly, indi- pie who criticize cultural trade still use the viduals commonly neglect the long-runbenefits Internet,talk on cell phones, fly to fc)reign coun- of downsizing, even though they now travel in tries, wear sneakers, and eat fast food. The cars rather than horse-drawn buggies. Recent democratic mechanism translates such ratio- research by John Haltiwanger and co-authors nally irrationalbeliefs about politicss into policy (Steven Davis et al., 1996) reveals that these (Caplan, 2003). If protectionistvie, ws are pop- long-run benefits are large. Most productivity ular, it pays for candidates to advocate protec- growth is attributableto selective attrition in tion-even if protection makess everyone favor of more efficient firms, not rising effi- poorer.Similarly, if anti-globalizati(Dn views are ciency within existing firms. widespread, successful politicians feel pressure The distinction between the seen and the un- to protect "so-called"local culture,( even though seen has potent analogues in the realm of 406 AEA PAPERSAND PROCEEDINGS MAY2004 culture. We see which cultures are losing market, the stronger the impulse to vilify it as ground due to trade and globalization. They junk.4 have been recorded, studied, and catalogued in Hostility to cultural globalization thus stems detail. They have their intellectualpartisans and partly from the more general anti-foreignbias. their politicians. Yet those cultures are not dis- Indeed, if "foreign steel" and "foreigncars" are appearinginto thin air. Ratherthey are evolving appealingscapegoats, "foreignculture" is better into some new set of hybrid cultures, which still. Steel and cars are only "foreign" in the build on and modify the older traditions.Since sense that foreigners made them. Foreign cul- we do not yet know what to look for, it is harder ture is alien in a strongersense: they are trying to see the forthcomingcultural gains and easier to turn us into them. As private individuals, of to notice the current cultural losses. Further- course, we often like becoming a bit more like more we do not yet have the same emotional them, but as voters, many people find this pos- attachmentto culturesthat are "on the way," so sibility repellent. their arrivaldoes not seem to offset the tragedy of currentcultural loss.3 But as in the rest of the V. Conclusion economy, selective cultural attritionbrings in- novation. Furthermoreselective attrition also Trade and competition are, for the most part, has favored the culturesbetter suited to preserv- misunderstood but beneficent cultural forces. ing the culturalcreations of the past. No great culture has arisen in isolation; all owe their existence to the international economy. C. Biases against Foreigners Consumerchoice (the most relevant measureof cultural diversity) is expanding, not shrinking. Belief differences between economists and Culturalcompetition is not without losers, but the generalpublic are especially strongconcern- selective attrition, "cultural downsizing," is a ing foreigners. The American public believes significant engine of future cultural growth. that excessive foreign aid and loss of jobs to None of this denies the possible existence of foreigners are among our biggest economic culturalmarket failures. But, as the rent-seeking problems. Virtually all economists, regardless literature teaches us, every loser has a story of their political views, know better. These sys- about why it would be better "for society as a tematic biases are large for quantitativeques- whole" if the rules of the game were different. tions as well. When asked to identify the two Since the public readily accepts some uncon- largest components of the federal budget, for- vincing stories at face value, the economics eign aid was Americans' single most common profession should examine those stories with response (Caplan, 2002). due skepticism. Now what would a person suffering from anti-foreignbias tend to think about culture?He REFERENCES would overrate the importance of his national culture and underratethe contributionsof other Caplan,Bryan. "RationalIgnorance versus Ra- countries and regions. He would neglect the tional Irrationality."Kyklos, 2001, 54(1), pp. importanceof culturalexchange and exaggerate 3-26. the case for protectionism. The more success- "SystematicallyBiased Beliefs about fully a foreign competitorinfiltrates his national Economics: Robust Evidence of Judgemental

4 3 Note the following paradox.If diversity is a value more Anti-foreignbias-not concernabout suboptimal di- generally, we might be tempted to conclude that diversity versity-may be theprimary motive behind cultural protec- over time is a value as well. But many critics of globaliza- tionism.Note that proponentsof culturalprotectionism tion decry the passing of previous cultures and implicitly often opposeintra-national diversity. The Frenchgovern- stake out an opposition to intertemporaldiversity. Why ment,for instance, has a longhistory of tryingto discourage should atemporal diversity be so good and intertemporal regional,linguistic, and religiousdiversity within France diversity be so bad? itself. VOL.94 NO. 2 COMPETITION 407

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