PAUL FUDULU1 

Stating this component in terms of reality, why from so many third world and transition countries that rushed to adopt the efficient institutional framework just a few were successful? Referring to a reality which is closer to my own experience, why countries like Poland, Hungary, Czech Republic, Bulgaria and Romania, which were in 1989, relatively in the same initial position as Communist countries, have recorded quite different results in adopting free market and democratic institutions? Is it an accident that those successful ones [Poland, Hungary and Czech Republic] are part of a somehow different type of culture?2  In what way those successful countries are different from those unsuccessful ones and in what way this difference is shaping the consistency to economic growth?

(1) The awareness that economic growth is dependent on the institutional framework of an economy, but that there is a complete inability to understand the nature of institutions and the way they evolve.3 

(2) The feeling that economic systems and their performances are in some way connected to people’s cultural values and that, despite of this, these values are absent from the formal analysis of economists.4 

 

One fundamental assumption which differentiates the theoretical model advanced herewith from other former models known to me consists in a dramatic shift in the maximand: while in almost all the cases the type of man which populates economists’ models is a wealth-maximizer – wealth taken as an absolute magnitude or position – within my model individual’s interest in relative magnitude, that is in relative positions, is taken into account not as a constraint [as is the case within the theory of positional goods], but as some other ‘good’ capable of generating utility on an equal footing with absolute positions.5  In terms of absolute wealth, in my model individuals are potentially equally maximizing absolute wealth and relative wealth, which is tantamount, as will made apparent further in the presentation of my model, to maximizing general power.

In my model individuals are endowed differently with external [e.g. inherited fortunes] and personal resources, that is, one individual’s physical and mental abilities,6  which taken together I call general power resources(). These resources can be employed in taking actions and making things into natural or human environment. Given a volume of general power resources, the maximum volume of things and actions that can be generated simultaneously into the natural and human environment is what I call general power. In the former environment, it is the case of absolute power(a); in the latter, it is the case of relative power(r).

It is this absolute power what economists think is wealth; in fact it is absolute wealth(w), because it is defined with no reference to some other individual. If A’s relative power over B, for instance, implies control over some natural system X, which is part of B’s external resources,7  A’s relative power8  over B is:

that is, the difference between A’s absolute power and B’s absolute power in x. Consisting with naming absolute power absolute wealth would be to name relative power relative wealth.9  It is this latter form of wealth that, in spite of some relevant warnings,10  it is not till now part of the theoretical core of economic theory. And it is exactly this relative wealth that is crucial within this model in explaining institutional choice and the connection among culture, institutional setting and economic growth.

How far apart are the classics of economic science and social science as a whole from the general power maximand? Let me start with Adam Smith. It is astonishing to realize that between the type of man Smith is describing in The Wealth of Nations and that depicted in The Theory of Moral Sentiments there is a huge distance. Although unintentionally, in The Wealth of Nations every individual labors to render the annual revenue of the society as great as he can,11  within a nation-wide division of labor, so that the economic activity is a co-operative effort or in more modern terms a positive-sum game. Shaping it in the specific concepts of this study it is the case of a whole nation working unintentionally just to increase the absolute wealth of everyone or, in terms of personality type, it is as if all individuals are homo absolutus.

This unintended result is brought about by competition system, which thus promotes the wealth of nations. The consequent logic is straight and clear: if we want to promote the wealth of nations we need competition and consistent with competition is a special type of man – homo absolutus. Then homo absolutus – the individual maximizing absolute wealth – is a normative type of man. How the real type of man is in Smith’ view, we learn from The Theory of Moral Sentiments. Here "the great purpose of human life which we call bettering of our condition" it is not "to supply the necessities of nature," but rather "[t]o be observed, to be attended, to be taken notice of with sympathy, complacency, and approbation, are all the advantages which we can propose to derive from it. It is the vanity, not he ease, or the pleasure which interests us."12  The real type of man Smith is describing in the above quoted lines is a combination of homo absolutus and homo relativus, the last one having for sure a greater weight, because "[f]or what purpose is the toil and bustle of this world. What is the end of avarice and ambition, of the pursuit of wealth, of power, and preeminence? It is the supply of necessities of nature? The wages of the meanest laborer can supply them."13 

If we take Mill, the idea that the classics were very aware of the fact that individuals do in fact maximize general power and that relative power is the more prominent component of it is even clearer. For Mill "[t]he greatest part of the utility of wealth, beyond a very moderate quantity, is not the indulgences it procures, but the reserved power which its possessor holds in his hands of obtaining purposes generally. . ."14  From these many purposes Mill, taking a normative stance as well as Smith, chose to be interested in the growth of material wealth, that is of absolute wealth, and this is why Mill, as other classics, was so interested in the topic of productive labor.

Mises rejects the irrationality of other ends than ‘material’ or tangible advantages and seems to accept that maximizing general power is "a primal feature of life."15 

For Veblen the beginning of ownership of material or living wealth coincides with the emergence of leisure class to which wealth has the nature of a trophy. Then the struggle for wealth is not a struggle for subsistence, but for the poorer members of the community, because merely all goods are in private property. To the other members, possession of wealth has been and it is still mainly the "evidence of the prepotence of the possessor of these goods over individuals within community."16 

But why did this not happen till now? Why only after so many years have economists come closer to realizing that in fact individuals are not primarily maximizing absolute wealth and that man is more or less interested as well in some competing mega-good such as relative power? And why, at the same time, great social thinkers as Plato, Hegel, Nietzsche, employing of course different terms, started from the very beginning by representing men on the two dimensions, and were launching and maintaining a debate for such a long time about what ‘the last man’ will look like and why this is a topic of significant interest even today?17 

The answer might be in the fact that this problem was stifled in economic theory, even before it entered a debate, by the very founder of it. It is for sure that in The Theory of Moral Sentiments Smith’s perspective on man is quite similar to that of Veblen or Fukuyama’s for instance. However, when Smith went on to write his economic work, with his unequal power for understanding of the social and economic life, he might have decided that the future of mankind is in the competitive system which has as his counterpart a homo absolutus, that is a man interested only in absolute wealth and with no interest at all in relative power. Then as its title says – An Inquiry into the Nature and Causes of the Wealth of Nations, Smith’s economic work is taking a pure normative stance: it is about how the wealth of nations – their absolute wealth18 – can be maximized. Then the economic theory enters history with a type of man with which in fact history ends.19  This was to bring about a great and still living confusion in the minds of almost all orthodox economists: instead of taking the maximand of absolute wealth as a simple normative assumption, they are taking it as a positive description of reality. Also, this is the primary cause of the plight in which the theory of economic growth has found itself and still remains.

Let us take for instance Eucken who had written a special book just in order to solve what he called the ‘Great Antinomy’, that is the great variation in economic systems we encounter in reality. Eucken was aware that the classical economists found in the competitive system "the rational and just structure for economic systems generally" and that the competitive system was the only one possible among "the variety of actual historical systems."20  Furthermore, although he rejected subsistence as the only economic goal even for some historical period of mankind and accepted profit as a permanent goal, which is clear that in his mind it is an indicator of relative power,21  he failed to solve the problem just for the reason that he could not dare to think that the maximand itself should be changed so as the variation in economic systems to be matched by the variation in the types of man.22 

When it comes to the other social thinkers, starting with Plato and going on with Hegel, Kant, Nietzsche, Tocqueville and, for instance, more recently Fukuyama, the type of man is shaped on a continuum by the weights attached to desire and thymos, some philosophical terms for absolute wealth and, respectively, relative power. For Fukuyama, whose position is very close to Hegel’s or more precisely Kojeve’s interpretation of Hegel, a description of human personality that does not take into account absolute wealth and relative power cannot be complete and "leads to vast misinterpretation of politics and historical change."23  It is exactly this relative power, that is, thymos, the "desire to dominate and rule, which was the wellspring of social creativity."24 

To Fukuyama,25  and at least consistent with, if not present in the works of the other social thinkers, economic modernization of different societies, technical and institutional, is intimately connected, employing my own concepts, to the victory of absolute wealth over relative power in shaping human personality. While for political philosophers it is quite clear that any social evolution has its counterpart in a human personality transformation, that for instance democracy cannot exist without democrats,26  for economists the free market is perfectly consistent with the same type of man that only a few years earlier was perfectly consistent with a strongly centralized economy.

It might seem strange to define a church or a religious faith in terms of absolute and relative power. Nevertheless, let me take three unrelated scholars: Weber, Novak and Cunningham and check this hypothesis. In Weber’s work, the explanation of the fact that business leaders and owners of capital as well as the higher grades of skilled labor are overwhelmingly Protestant, consists in an effort to determine the weights for absolute wealth and relative power characteristic to the Protestant Church.27  Let us follow Weber’s logic very closely.

Reformation of the Church toward Protestantism and away from the Catholic Church did not only mean a relaxation of the Church’s control over every day life, but on the contrary it meant the replacing of a control which was very lax with a much broader and stronger control which permeated "all departments of private and political life."28  How was this greater control over the whole mundane life distributed between what I earlier identified as two complementary mega-goods: absolute wealth and relative power?

If we refer to relative power, what Weber describes as "the absolute decisive difference from Catholicism" – "the complete elimination of salvation through Church and sacraments"29  – is, in the frame of the paradigm I am advancing here, a plus in the individual’s relative power at the expense of the Church’s power. The liberation of the individual from the Catholic church meant less relative power for the latter or more equality within the social structure.30  The fact that the "Calvinist’s intercourse with his God was carried in a deep spiritual isolation"31  is, from my own perspective, a terrible blow to the religious leader’s relative power.

Just because the two mega-goods have complementary weights, the decline in relative power weight should be matched by a increase in the absolute power’s weight. This is exactly where the development of Weber’s thought leads. The individual salvation through the Church is replaced by salvation through labor in a calling. This salvation through a calling is conceived in such a way that it is perfectly consistent with the highest efficiency in terms of absolute wealth, that is, with growth of absolute wealth. It is exactly what the features pinpointed by Weber himself describe, though he seems not to have understood their deep economic meaning.32 

The first, a calling, is essentially specialized labor in itself. Within the Protestant faith glorification of God is done not by any labor, but only by specialized labor. The choice of a calling, the possibility to change one’s calling, or to have more than one calling simultaneously is dependent on the fruits of this practice; it has to be consistent with maximum efficiency. As Weber points out, the Puritan view of this matter recalls "Adam Smith’s well-known apotheosis of the division of labor" – it is the primal means towards greater efficiency. Within the Protestant faith saving in a calling has a very clear role: it has to make wealth grow. Wealth is so important and so natural that "[t]o wish to be poor was, it was argued, is the same as wishing to be unhealthy."33  It is clear that Protestantism gave free reign in an unparalleled degree to the production of wealth. The only danger in the accumulation of wealth was the eventual relaxation in producing more wealth and to avoid this the Protestant faith contained specific rules for everyday life.

What Weber is pointing out can be better expressed in a dynamic fashion: a Protestant believer has to maximize the rate of increase in absolute wealth in an infinite time span. This was only made possible after an individual has been released from any comparison with others, that is, he was released from any relative power objectives. The type of man adopted by the Protestant faith is a pure homo absolutus. This is reminiscent of the classical economists’ thesis of productive labor – which the orthodox economist is so remarkably unable to understand – and Hobbes.34 

When it comes to how man should be modeled, Hobbes might be the starting point of a sound economic theory. The race for power is a very realistic dynamic perspective on the maximizing individual and it is not abject at all if power is primarily general power – and this is the case with Hobbes – and not relative power. General power becomes relative power just when the latter is available.35 

The third, within the Protestant frame, social organization becomes a much easier problem to be solved and of course, as a consequence, the Protestant faith is, even for this reason alone, in a higher degree consistent with economic growth. Paradoxically, as Weber himself points out, it seems difficult to reconcile the "undoubted superiority of Calvinism in social organization,"36  which is vital to economic growth of any community, with the fact that the individual is torn away from the ties with this world because the individual is forced to perform his intercourse with his God not by means of the Church but by a deep spiritual isolation. However, as I remarked a bit earlier, the Protestant’s concern with absolute wealth is ‘absolutely absolute’. Completely freed from the concern with relative positions or relative power, the Protestant believer has to solve a much easier maximization problem: the relative position is not anymore a good in the maximand, not even a constraint. It is a perfectly mobile derived variable: it can take any shape required by the maximization of absolute wealth. That is why by the Protestant faith work has to be done in a calling as a specialized labor and while the individual is encouraged to dedicate himself to only one calling, he may although keep more callings or change them in a life time if this meets the criterion of private profitability and serves the common good.

Let me now take the other two completely unrelated social scholars whose treatment of the Church is far less systematic than Weber’s. It is astonishing that the most important description of any church they are interested in is in terms of or is directly connected with relative power [and, consequently, implicitly absolute power]. Novak relates the most important novelty [out of three] of the US political system – the division of powers [in my own terms power equality among relevant institutions] – to Jewish-Christian notion of sin.37  The basic biblical perspective on man – very eager, if possible, to acquire power over the others – has thus a direct bearing on how the political system should be conceived: a system whose concern with checks and balances, that is with power equality, should be systematic. Power equality, in terms of the type of man, is consistent with zero weights for relative power, that is, with homo absolutus interested only in absolute wealth. The other two novelties, inspired also by Christian faith – creativity and voluntary association – that is, the idea of man made in the image of God the Creator and, respectively, community based on voluntary consent, are in fact basic conditions for any sustained growth of absolute wealth. They become necessarily complementary after by checks and balances the availability of positive relative power had disappeared.

In trying to find out why Islam in comparison to Christianity failed "to give inspiration for human progress," Cunningham reaches very soon a description of the two churches in terms of relative power in regard to which he finds out a "striking contrast": the religion of the Prophet unlike Christianity "gave no scope for doctrine of responsibility of civil rulers and of duty towards the governed."38  It is the inability of Islam to lessen the weight of relative power [and respectively to heighten the weight of absolute power], that is, the inability to shape a type of man consistent with the growth of absolute wealth which is responsible for the failure of Islam in terms of human progress.

It is again Cunningham who suggests a difference between the ancient religion and Christianity in terms of their impact on the relative power of individuals. The ancient religion was fit to encourage a high relative power. Then it was personal and local, that is, it was shaped to worship, for instance, the Emperor – an arbitrary human will. In contrast, the Christian religion was a spiritual faith independent of person, place, or time."39  It means it was binding upon all men and much better fit to temper those too greedy of relative power by warning, through the voice of those speaking in the name of God, the disobedient with divine punishment. Thus a crucial transformation of the world church is described as well in terms of evolution in the weight for relative power and implicitly absolute wealth.

Just as a huge variety of words of different composition and different length can be formed out of two dozen letters, similarly unlimited variety of actual economic systems can be made up out of a limited number of basic pure forms.40 . . . they are the ideal type of economic system we call centrally directed economy in which there is no exchange, and the type of system we call the exchange economy. . . . No other types of economic systems, or even traces of others – besides these two – are to be found in economic reality past or present.41 

 

It is easy to prove so if the maximand of general power is accepted. In theory, to the degree the mega-good of relative power is permitted, the other mega-good is not allowed to the general power-maximizing individuals. The unconvincing aspect comes when one has to prove that in reality there is an inconsistency between the two mega-goods. While some social scholars like North42  or Novak43  accept as a sure thing the fact of consistency between zero relative power [the institution of the free market] and the maximum growth of absolute wealth, others like Fukuyama44  and Weede45  see the two pure types of economic systems as equally consistent with growth of absolute wealth. My position, which I am not going to develop here, is that the latter group is fundamentally wrong by failing to realize that the centrally-directed economies’ short-run growth, which fuels their idea, is an externally forced or induced economic growth determined by the very free-market economies’ remarkable long-run growth.

In pointing out the differences between Latin American economies and US economy, Novak goes beyond markets and private property that he finds ‘traditional’.46  What make the difference between the two kinds of economies, the first ‘pre-capitalist’, and, respectively, the second capitalist, is just how they do relate to relative power. US ‘capitalist economy’ goes beyond the Latin American ‘traditional economies’, because the former limits state power in the economic sphere and balances the power between the political and economic systems. Furthermore, it is as well about relative power – one of the most striking contrasts between the capitalistic US and feudal Latin America: in comparison to the US, in Latin America there are "highly visible inequalities between the very rich and the very poor (with an unusual small middle class)."47  It is exactly this feature Ropke is emphasizing in presenting the function of ‘private ownership’ in a free market economy, that is, setting limits to relative power or not enhancing or favoring high relative power.48 

These two fundamental mega-goods for any economic systems are employed by two other completely unrelated scholars, Weber and Galbraith. Weber, by taking profit in the first instance as an indicator for relative power, points out that capitalism "may be even identical with the restraint, or at least a rational tampering" of it and at the same time, "capitalism is identical with the pursuit of profit" because, this time, an indicator of absolute wealth, profit is "for ever renewed profit by means of continuos, rational capitalistic enterprise."49  Galbraith is pinpointing that an economic system as perfect competition, which is for economists a solution to the problem of efficiency [in terms of absolute power, I would add], it is for political philosophers a solution to the problem of power [for dissipating relative power in my own terminology].50  Galbraith’s own book51  is within economic theory a rare effort to defend the mutual exclusion of the two mega-goods – absolute wealth and relative power – but unfortunately performed within a rather narrow theoretical framework.

The connection between the shift to lower levels of relative power by passing to the market economy and the corresponding increase in the interest for absolute wealth by the emergence of economic calculus and capital as a very fluid wealth is underlined by Cunningham.52  Thus the dissipation of political power by secularization and the rise of nationalities is found by Cunningham to be simultaneous with "the gradual and increasing intervention of capital."53  These phenomena are really very closely related; in my own logic, passing from lower weights for relative power to greater weights for absolute wealth requires instruments consistent with the objective of greater efficiency in terms of absolute wealth. Capital is exactly such a device; capital is, for social scholars like Cunningham54  or Mises,55  not an indicator for wealth accumulation but primarily fluid wealth which is easily transferable from one sector to the other and as well instrumental to economic calculus and thus highly conducive to growth of the acting individual’s wealth.

Culture is the preferred field of sociologists so in dealing with the topic of culture I am mainly using extensively the sociologist Geert Hofstede’s work which by his own appreciation is consistent with the standard approach of the topic in sociology. Culture is a set of values of a collectivity and value is a preference ranking.56  Then, culture can be defined by an economist as a utility function and correspondingly represented by a family of indifference curves. The set of values which composes culture is for a collectivity [and not for the entire humanity] or more exactly for its major group. If culture is for a collectivity what personality is to an individual,57  then culture can be said to be a special kind of utility function for the median individual of a collectivity. This is an important thing to remember when we will be later specifically dealing with the problem of consistency.

Culture is attached to an entire collectivity, because it is not genetically but culturally transmitted by a process of socialization. It is in this way that culture is irrational, that is, because most of the cultural values are not appropriated due to rational decisions, but are programmed early in our lives when our minds are relatively empty. This does not rule out the fact that cultural ideas can have causes we could rationally understand.58  Economists are barring their ability to deal and understand cultural problems when they divide ends themselves into rational and irrational.59  Going beyond judging the relationship between ends and means and classifying the means themselves, economists exclude from their field a large area and miss the opportunity of having a comprehensive and simultaneously more realistic perspective by studying the very important problem of the relationship between ‘rational’ reality and the neglected ‘irrational’ reality. Because ends relates to personality, by taking such a stand economists are stuck to an unchangeable man and thus they cannot deal with the evolution of institutions. It is in this way that economic science is well lagging behind other social disciplines as regards the understanding of the problem of economic growth.

Although cultural values refer to almost any basic human activities, the most important are regulating behavior,60  that is the interplay of individuals. This is a basic feature that leads one very soon to what is culture about and extremely interesting to my approach. If cultural values are about behavior, then it is basically a set of rules governing behavior and rules cannot avoid the problem of the preference for relative power of interacting individuals and implicitly the problem of the weights for absolute wealth. Consequently, it can be said that culture is an implicit statement about the preference for the two mega-goods – absolute wealth and relative power. For the economist culture is a relatively imprecise description, performed by other social scholars, of the most comprehensive utility function for a collectivity having as its arguments the mega-goods of absolute wealth and relative power. This can be proved taken as examples rather general references as well as very deep professional treatment of culture.

Novak, in trying to pinpoint the major differences between North American and Latin American culture, is in fact trying to make definite the weights for the two cultural mega-goods.61  The very important weight North Americans attach to absolute wealth is presented by the fundamental idea of economic liberation, "that the way out of poverty is invention and established institutions, customs, habits and educational methods that encouraged practical inventiveness by every means possible," while the very important weight Latin America is placing on relative power consists in South Americans as being courteous, genteel, flirtatious, playful, changeless, impressed by power and "less concerned with material advance." 62 

Weede in characterizing Western civilization is emphasizing the small size of the weights for relative power in all the features he is choosing to depict it: limitation of governmental power, separation of the economy and of science from government and religion and the popular participation in government or democracy.63 

Sometimes the cultural emphasis placed on the weights for the two mega-goods is done not only implicitly [emphasizing or de-emphasizing the weight for one of the mega-goods] but in a disguising way as well, that is, by presenting the weight which is attached to work by a definite culture. In understanding this we should remember Veblen’s suggestion that work began as a by-product of the successful raid. It is the value placed on the defeated individual, which is proportional to the value for his activity. Work is drudgery within that culture when is done by those ranked inferior. Then it is less desired, the more the superior relative position or relative power is desired. Work is less valued as the absolute wealth is less valued. The weight for work is then as great as the weight for absolute wealth and, respectively, inversely related to the weight for relative power. Fukuyama is right in asserting that "attitude toward work is decisively influenced by national cultures"64  and, consequently, that economic performances transcend macro-policies. This is for sure a strong suggestion about a direct relationship between culture and economic growth.

This is a sufficient reason for non-economists to require a change in the economic discourse.65  To this request economists are deaf and blind because they are stuck in their narrow theoretical assumptions which are meant rather to give supplementary accuracy to the study of a partial behavior than to understand the overall human behavior.

Some are characterizing culture by suggesting the weights for one of the two mega-goods in an implicit and as well disguised way. Cunningham is describing Western civilization by pointing out "its extraordinary facility for procuring material wealth"66  and later on by mentioning its new inspiration for the attitude toward work. While in Greek and Roman cultures labor was drudgery and all human advance was connected with leisure, Christian Europe "insisted that labor itself might be a discipline and might thus conduce to the ennobling of human character."67 

Sometimes when different scholars choose to characterize the same culture by different mega-good, the results fits perfectly. For instance, Novak chose to approximate North American culture by emphasizing its weight for absolute wealth [implicitly de-emphasizing its weight for relative power], while Galbraith choose to de-emphasize its weight for relative power.68  In his characterization Galbraith finds "nothing in the American tradition of dissent so strong as the suspicion of private business power."69  This peculiar way to pinpoint the very low weight for relative power of the North-American culture fits perfectly with the very high weight placed on its absolute wealth and found by Novak.

In the end of these examples of what an economist would consider a vague approximation of the weights within cultural utility function, a word of warning is suggested by Hofstede. The cultural preferences or weights should be consistent with cultural ‘values as the desired’ and not to ‘values as the desirable’.70  The first set of cultural values is what an economist would properly call revealed cultural preferences, which, being closer to reality are different from morally acceptable cultural preferences that brings us into the field of ideology. It could be one of the reasons that economists are still on the wrong track in asserting the state of economic growth theory. They consider that, in reference to the failure of adoption of the institution of the free market, we must be concerned with "how to get there."71  In fact the problem is not one of knowledge, but one of desirability and this can only be learned by reading the cultural preferences as the desired and not as the desirable.

Coming now to a more professional or more detailed study of culture I will be dealing with Hofstede’s four dimensions of culture: power distance, uncertainty avoidance, individualism, and masculinity.72  Could these four dimensions reduced to one of my mega-goods [implicitly to the other complimentary mega-good] prove my economic definition of culture right. How then do these criteria relate to relative power?

Power distance is about "desirability or undesirability of inequality or of dependence versus independence in a society."73  Hence power distance norm is directly a value about what I called relative power. Cultures ranges in a continuum along power distance norm and it is power distance which is chosen by Hofstede as the first dimension of a culture and many other authors had employed this criterion as well, because in parent-child relationship, teacher-pupil, husband-wife or any superordinate-subordinate relationship the same pattern applies for each culture.

What sociologists are telling us is that the individualism-collectivism relationship is about the degree of emotional or moral independence or dependence of the individual from groups or organizations. Within a collectivist setting personality is not conceived as separate from society or culture. The individual, within the same collectivist perspective, is not ‘inner-directed’, "but controlled by a need for not loosing face."74  How can this information can be codified in terms meaningful to the orthodox economist? It seems that it is tantamount to saying that part of the individual utility function does not pertain to individual himself but to a collectivity. This is not the case of altruism, but rather the case of a fuzzy and diffused individual utility function. It is this situation which relates collectivism to dependence and individualism to independence. We can talk about an individual after he has emerged from a given collectivity, that is, after he has become a true independent body. It only makes sense to talk about power distance among individuals and thus it can be said that individualism is more fundamental than power distance when it comes to independence versus dependence. Temporally, pure concepts assumed, individualism is prior to power distance. It might be for this reason that Hofstede found both low and high power situations associated with individualism, but does not mention any country where collectivism is associated with low power distance. [Though he founds countries, like Latin European ones, where individualism is associated with low power distance].75 

The peculiar nature of the individual’s utility function assumed by a collectivist setting might as well explain why collectivism as opposed to individualism is negatively related to GDP.76  Collectivism makes individual calculus less likely,77  if not impossible, and individual activity less efficient in terms of whatever. Any efficient action of one human unit [individual or group] requires that rewards for any action should pertain and be related to costs at the same given human unit. However, ultimately, if no action of larger social bodies can exist without individual action, the individual is the fundamental unit where the economic calculus should rest.

While individualism and masculinity seems not only to contradict the definition of culture as a function of absolute wealth and relative power, uncertainty avoidance diverges significantly. Although Hofstede chose to place this dimension secondly after power distance, uncertainty avoidance is, in my own perspective, as fuzzy as great is its distance from the mega-good of relative power. Although uncertainty and how people react to and approach this situation seem to be a basic human problem and as such pertaining to culture, the way it is measured introduces confusion. As rule orientation is one of its indexes and it is accepted that rules are made up just to cope with uncertainty irrespective if we talk about free people or people under totalitarian regimes,78  no separation is possible within this framework between freedom and dictatorship, that is, between high and low relative power situations. Furthermore, as this dimension cannot relate us very clearly to relative power it seems not an accident at all that Hofstede is not able to develop in this case a ‘causal chain’ [as was the case with all the other three dimensions] or to find clusters of countries more or less similar with those found employing the other dimensions.

The problem of translating culture in meaningful economic terms is originated in the problem of the relationship between culture and economic performance. However, there are already studies that relate culture directly to economic performance through the concept of trust.79  As I was driven to find relative power value as the only relevant dimension of culture [or its complementary good absolute wealth] and a strong correlation has already been proven between power distance and GDP,80  the problem which becomes crucial now is which is the fundamental relationship: trust-wealth or relative power-wealth?

Then, what is trust and more important which is its ‘deep adaptive rationality’? Trust is a value about the ability of individuals to keep promises or to honor agreements. The problem of trust can be posed as soon as we talk about individuals who potentially can have separate conflicting interests. Thus trust becomes relevant as we start to refer to an individualist culture; it ceases to be at all relevant if only collectivist values are assumed. As such, Fukuyama seems to be wrong when he originates trust in shared values and the ability "to subordinate interests to those of a larger group."81 

However, trust is not a primary cultural dimension. Hofstede includes trust with power distance norm and the logic behind this suggests even a stronger assessment: high trust norm originates only in low relative power norm.82  The logic is simple: people who believe that others are their equals feels less threatened and more prepared to trust people and people who believe that others are of a different kind [superiors or subordinates] find that other people are a potential threat who should not be trusted. The level of threat one feels is inversely related to his ability to retaliate. When parties are of equal powers, which means equal retaliation power, there is no potential threat because there can be no gain by drifting away from agreements. Nevertheless, this logic is valid when individuals are engaged in activities modeled as zero-sum games as well as in activities that can be considered as positive-sum games. Then, if the relevant question is how culture determines economic growth, the important conclusion is not that high trust explains good economic performances [trust can be developed in zero-sum situation as well], but a deeper cause to which trust itself is a consequence. This deeper cause is relative powers equality.

Circumventing the problem of defining and originating trust and assuming communities with a different level of trust, but with equal high weights for absolute wealth, Montenegro,83  as well as Fukuyama, associates high trust with high economic growth because high trust determines low transaction costs. As the association of trust only with economic growth it is proven to be false, the entire logic of low transaction costs entailed by high trust falls apart: high trust entails low transaction costs which makes association in efficient-size groups and markets more likely to occur. The problem should be rather posed the other way around: given high trust, how can we explain strong preferences for absolute wealth and impressive economic growth?

As for the economists the explanation can be put in more technical fashion. Choosing institutions means choosing opportunity costs. Culture can be modeled as an utility function and as such represented by a family of indifference curves. Given the general shape of the indifference curves, the maximizing individual will be more able to reach a higher indifference curve the more the slope of the production possibility curve will represent opportunity costs more consistent to preference ranking depicted by the indifference curve. That is, with reference to our specific case, the higher the preference for relative power, the lower the opportunity cost for it and vice versa. Thus, as a general rule for how collectivities with given cultures choose institutions, the greater the weight for a cultural mega-good, ceteris paribus, the more will be preferred a institution with a lower opportunity cost for that mega-good.84 

Our special interest rests in the ability of one country with a given culture to adopt the institution of the free market – the most efficient institution in terms of economic growth. The institution of the free market is the institution that places zero weight on relative power, and, as such, a given culture is more consistent to the institution of the free market the more it places a lower weight on relative power or a greater weight on absolute wealth or countries with cultures characterized by high relative power have a high degree of inconsistency and will not be able, except in cases of strong external constraints, to adopt the institution of free market.85  As cultures vary in a continuum on the relative power dimension, and countries have different cultures, their ability to adopt the institution of the free market and grow economically varies in a continuum. From my own perspective, it is one of the reasons that Hofstede found a very high correlation between power distance index and GDP.86 

Almost all the countries having poor economic performances have proportionally higher degrees of cultural inconsistency. Coming back to the question posed in the beginning of this study, it is for this reason that Poland, Hungary and the Czech Republic are more successful in reforming toward the institution of the free market than Romania and Bulgaria. In presenting the cultural features of the first cluster of countries, Kundera is just emphasizing their lower weight for relative power as against the countries from the latter cluster.87 

 1Paul Fudulu, Associate Professor, Faculty of Political Science, University of Bucharest.

 2Kundera, M., "Tragedia Europei Centrale", in Babeti, A., Ungureanu, C.(eds.), Europa Centrala: Nevroze, Dileme, Utopii, Iasi, 1983/1997.

  3North, D., "Where Have We Been and Where Are We Going", in Avner Ben-Ner, Putterman, L.(eds.), Economics, Value and Organization, Cambridge University Press 1998.

 4Sen, A., "Forward", in Avner Ben-Ner, Putterman,L.(eds.), Economics, Value and Organization, Cambridge University Press, 1998.

 5Shifting the maximand would be supported at least by some leading figures in economic theory. Accepting the "elegance and power" of wealth maximization, Buchanan and Brennan find the too ready acceptance by economists of this hypothesis damaging: See Buchanan, J.M., Brennan, G., "Predictive Power and Choice Among Regimes," in Exploration into Constitutional Economics, Texas A&M University Press, 1989. Mises accepts as well that as against the procedure of logic or mathematics, economics should introduce assumption such as the reality to be better understood: See Mises, Ludwig von, Human Action: A Treatise on Economics", Henry Regnery Company, 1949/1966.

  6Sen, supra note 3.

 7French, J.R.P., Roven, B., "The Bases of Social Power," in Walter E. Natemayer (ed.), Classics of Organisational Behaviour, Moore Publishing Company, Inc., Illinois, 1978.

 8From the very beginning there is an implicit assumption that is quite different from what the founders of liberalism (Hobbes, Locke, Smith) assumed: the pervasive initial equality of men. Their assumption which might be a simple mirroring of Anglo-Saxon culture, defined by a very low relative power level is very far from cultural reality of most countries.

 9Relative power could be defined as well as . I have chosen to define it as a difference between absolute power because it is similar to sociological concept of power distance that is crucial in comparing the results of this research with some fundamental sociological research.

 10e.g. Locke, John, Two Treatises of Government, ed. Peter Laslett. Cambridge: Cambridge University Press, 1988; see also Scitovsky, T., Human Desire and Economic Satisfaction: Essays on the Frontier of Economics, New York University Press, New York, 1986.

 11Smith, A., An Inquiry into the Nature and Causes of the Wealth of Nations, Liberty Press, Indianapolis, 1776/1976.

  12Smith, A., Theory of Moral Sentiments, Oxford University Press, 1759/1976, p. 50.

  13Ibid.

  14Mill, J.M., Principles of Political Economy, London, John W. Parker, West Strand, 1848, p. 6.

 15Mises, supra note 4.

 16Veblen, Thorstein, The Theory of Leisure Class, Transaction Publishers, New Brunwick, New Jersey, 1992.

 17See Fukuyama, Francis, The End of History and the Last Man, The Free Press, New York, 1992.

 18It is for sure the absolute wealth that Smith’s nations are maximizing because Smith is waging a great attack on mercantilists economic theory.

  19Fukuyama, 1992, supra note 16.

 20Eucken, W., The Foundations of Economics. History and Theory in the Analysis of Economic Reality, William Hodge and Company Limited, London, 1940/1950, p. 48.

 21Opposing Sombart’s idea that the principle of subsistence or "principle of meeting needs" and the principle of profit prevailed in two different historical periods, Eucken writes immediately after: "Medieval trade gave expression to a vigorous lust for power to which the notion of subsistence was completely foreign", Ibid, p. 277. It is clear that principle of profit and principle of power were identical. It is worth mentioning as well that he found that this "unscrupulous striving after profit flourished strongest where the majority of the community was more or less completely powerless," Ibid, p. 278.

  22It is amazing that Eucken is listing all the possible factors which might be responsible for the existence of so many different historical systems with one major exception: knowledge about what is efficient, how needs are conceived, the beneficiary of the maximising activity, the employed time span, the economic mobility of the population. He does not dare to think about the possibility that different population to desire in different degrees absolute wealth, that is about the possibility that the maximand could be something else than absolute wealth as was implicitly set by Smith. It is even more amazing that when he comments on different economic systems he defines them in terms of the relative power which they allow to different economic agents. Why then this relative power was not acquired at the expense of absolute power or wealth?

  23Fukuyama, 1992, supra note 16, p. 174.

  24Ibid, p. 58.

 25See generally Ibid.

 26Ibid.

  27Weber, W., The Protestant Ethic and the Spirit of Capitalism, Routlege, London and New York, 1930/1992.

  28Ibid, p. 36.

  29Ibid, p. 104.

  30There are other arguments as well to support the idea that Protestantism brings the equilibrium point to more power equality. While in a medieval perspective, work holds only for the race and not for every individual, according to Protestantism everyone has to labor; even the wealthy shall not eat without working. The equality of all men to the command of work in a calling is matched by the equality as regards the intercourse with God; because it is done in a deep spiritual isolation by everyone, then everyone becomes a monk.

  31Weber, supra note 26, p. 106.

  32Referring to the works of Calvin, Calvinism and Puritan sects, Weber is accepting that their bearing on the modern life was completely unintended and that their only concerns were purely religious, see Ibid, pp. 89-90. My findings from this work rather confirms Hofsteede’s idea that the institution of Protestant church was determined by some specific culture and was meant to reinforce these cultural values; that is it was meant exactly to influence directly the basic facts of human life of those communities. If by unintended we mean that not all had a clear image of the consequence of their actions as a whole it might be true. It is completely false if by unintended we mean that there is not a deep and sound rationale behind these all facts and that no one was able to comprehend this.

  33Ibid, p. 163.

 34Hobbes projects the same dynamic perspective when he admits that mankind is dominated by " a perpetual and restless desire of power after power that ceaseth only in death" [Hobbes, Thomas, Leviathan with selected variants from the Latin edition of 1668, Edwin Curley(ed.), Hackett Publishing Company, Inc., Indianapolis/Cambridge, 1994, p. 58] because "Felicity is a continual progress of desire from one object to another" [Ibid, p.57].

  35Edwin Curley in his Introduction to Hobbes’ Leviathan, Ibid, is taking a stance which is in the orthodox social theory normal and equally wrong. Retaliating to it in two points I have to say this: (1) Power is not just a passion among the great diversity of passions. Power is, as I understand Hobbes, the most comprehensive of all passions, that is it includes everything. It includes, for instance self-preservation and eminence as well. (2) I cannot see at all that "In Hobbes, however, the desire for power leads quickly to a desire for power over others". Such a conclusion is contingent upon the constraints. Curley is mentioning the absolute scarcity – rather unrealistic I would say – but is missing completely one other very important constraint, that of the inequality among players. No one can exercise power but over a weaker individual. What is peculiar to Hobbes and all the other Anglo-Saxon classical thinker is just the assumption of basic power equality among individuals. Himself part of Anglo-Saxon culture, Curley might be in the position of the fish which did not realise yet about water.

 36Weber, supra note 26, p. 108.

  37Novak, Michael, Will it Liberate? Questions about Liberation Theology, Paulist Press, New York, Mahwah, 1986.

 38W.Cunningham, W.W., Western Civilisation in its Economic Aspects: Medieval and Modern Times, Cambridge at the University Press, 1910, p. 118.

 39Ibid, p. 72.

  40Eucken, supra note 19, p. 109.

  41Ibid, p. 118.

  42North, supra note 2.

  43Novak, supra note 36.

 44Fukuyama, Francis, "Capitalism and Democracy: The Missing Link", in Diamond L. and Plattner, M.F.(eds), Capitalism Socialism and Democracy Revisited, Baltimore: John Hopkins University Press, 1993.

  45Weede, Erich, "Political Regime Type and Varation in Economic Growth Rates", in Constitutional Political Economy, Vol.7, No.3, 1996.

  46Novak, supra note 36.

  47Ibid.

 48"Ownership means, as in civil law, the delimitation of the individual sphere of decision and responsibility against that of other individuals. But ownership also means protection of the individual sphere from political power." See Ropke, W., A Humane Economy: The Social Framework of a Free Market, Liberty Fund Inc., Indianapolis, 1971, p. 94.

  49Weber, supra note 26, p. 14.

  50Galbraith, J.K, American Capitalism: The Concept of Counterveiling Power, Transaction Publishers/New Brunswick, 1952/1993.

  51Ibid.

 52Cunningham, supra note 37.

 53Ibid, p. 162.

  54See generally ibid.

  55Mises, supra note 4.

  56Hofstede, G., Culture’s Consequences: International Differences in Work-Related Values, p. 18, Sage Publications: The International Professional Publishers, 1984.

 57Ibid, p. 21.

  58In this regard Fukuyama writes: "Culture, however can have its own deep adaptive rationality, even if this is not evident at first glance": Fukuyama, Francis, Trust: The Social Virtues and the Creation of Prosperity, Free Press, New York, 1995, p. 33. This statement becomes extremely important because in a more comprehensive model for institutional choice and economic growth the problem of how the preferences are shaped or how they relate to real opportunity costs cannot be avoided.

  59I am taking now into account a non-economist’s view that for this very reason can be more realistic. I think Fukuyama [Ibid, p. 37] is right in reaching this conclusion by passing from a generally accepted statement of the maximisation of utility to what it really means to most economists and more important to the way economic theory develops. While for some economist a utility function can formally include anything a individual want, in fact what is assumed to be maximised is absolute wealth, and this not because of its elegance and power, but because it is assumed that no man’s interest can be inconsistent with absolute wealth maximisation. Thus the "irrational" ends are implicitly defined. Take for example that field of economic theory which studies political reality – public choice theory. What explicitly is rejected is the assumption that individual are furthering "public good" and not that they are pursuing absolute wealth [which by how the analysis is conducted can be understood to be the only element in the maximand], although we all know that is mainly relative power what politicians are targeting.

  60Fukuyama, Greif, and Hofstede after presenting the human activities covered by culture very quickly concentrate on behaviour: See Ibid; see also Greif, Avner, "Cultural Beliefs and the Organization of Society: A Historical and Theoretical Reflection on Collectivist and Individualist Societies", in Journal of Political Economy, Vol.102, No.5, 1994; see also Hofstede, supra note 55.

  61Novak, supra note 36.

  62Ibid, p. 3.

  63Weede, Erich, "Ideas, Institutions and Political Culture in Western Development", in Journal of Theoretical Politics 2(4):369-389, 1990.

 64Fukuyama, 1992, supra note 16, p. 224.

  65Fukuyama writes: "Current economic discourse needs to recover some of the richness of classical, as opposed to neo-classical economics, by taking account of how culture shapes all aspects of human behaviour, including economic behaviour, in a number of critical ways": See Fukuyama, 1995, supra note 57, p. 17. Unfortunately taking account of the richness of the classical economics means a reconsideration of what should be the core of classical economics. As I mentioned before, from the classics’ theory the orthodox economists retained just a very narrow normative perspective on human personality type and missed the comprehensive picture presented in works like Theory of Moral Sentiments which is till now more a curiosity and hardly quoted or taken into consideration.

 66Cunningham, supra note 37, p. 15.

  67Ibid, p. 105.

  68Galbraith, supra note 49.

  69Ibid, p. 7.

 70Hofstede emphasises that distinction between value as the desired and as the desirable avoids the confusion between reality and social desirability. Values as the desired are much closer to behaviour and , consequently, much likely to have a greater bearing on behaviour: See Hofstede, supra note 55, p. 19.

  71North, supra note 2.

 72Hofstede mentions that the four dimensions qualifies as criteria for "universal categories of cultures: See Hofstede, supra note 55.

 73Ibid, p. 93.

 74Ibid, p. 151.

 75This more fundamental expression of independence versus dependence through the individualism level is confirmed indirectly by stronger correlation between individualism and GDP than between power distance and GDP: See ibid.

 76Ibid.

 77 Hofstede is quoting Etzioni (1975) as finding individualist values as corresponding to more ‘calculative’ involvement as against collectivist values in which case moral involvement is assumed.

   78Previously I proved that institutions which consists in rules of behaviour can be defined in terms of absolute wealth and relative power. Consequently rules are conceived and enforced to deal with uncertainty and relative power as well.

  79See for example Fukuyama, 1995, supra note 57, and Montenegro, Alvaro, "Constitutional Design and Economic Performance" in Constitutional Political Economy, Vol.6, No.2, 1995.

 80Hofstede, supra note 55.

  81Fukuyama, 1995, supra note 57, p. 10.

  82Hofstede, supra note 55.

 83Montenegro, supra note 78.

  84Hofstede stresses the relative prevalence of culture on institutions. Once in place institutions reinforce the cultural values that led to them. In case they differ from culture they do not necessarily change it but rather are smoothed "until their structure and functioning is again adopted to societal norms": Hofstede, supra note 55, p. 22. Here might rest the answer to Weber’s question about why "the districts of highest economic development" adopted Protestant faith which in turn made them even richer: Weber, supra note 26, pp. 35-36.

 85To most economists the idea that cultures reject the institution of free market with varying power might seem strange. From the authors I went through, only Ropke stays as a singular case of a serious warning for the limits that culture poses to the regulation of economic life. See Ropke, supra note 47.

 86Hofstede, supra note 55.

 87Kundeera is identifying the lower cultural weight for relative power of Poland, Hungary and Czech Republic by their stronger resistence to Communism, that is, to an institutional setting with very high weight for realtive power. See Kundera, supra note 1.