Political Culture, Economic Structure and Policy: The Laffont-Tirole Model Extended to Modern Japan. (New Perspectives on Transition Economics Asia)

By Young, Warren; Meijaard, Joris | The American Journal of Economics and Sociology, January 2002 | Go to article overview

Political Culture, Economic Structure and Policy: The Laffont-Tirole Model Extended to Modern Japan. (New Perspectives on Transition Economics Asia)


Young, Warren, Meijaard, Joris, The American Journal of Economics and Sociology


I

Introduction

IN THIS PAPER we discuss the interaction between economic policy and political culture and identify an intriguing correlation between the economic policy system and national culture. A measure of culture (Hofstede 1980, 1991) can be coupled to the typical nature of the state and its political manifestation (Olson 1965; Stigler 1971; Wade 1990; Laffont and Tirole 1991, 1993). The imperative task in our paper emanates from two sources. The first is the recent search for alternatives to the "Developmental State" explanation regarding economic structure and policy making in general and in the Japanese case in particular (e.g., Fine 1999; Chan et al. 1998). In this regard, we propose a number of alternate models, including the "Bureaucratic State," to explain the Japanese case. The second is the lack of explanation beyond the regulatory capture model, and here we propose alternate forms of capture, including "bureaucratic capture."

We show that variations of the capture or interest group theory apply, given the particular cultural predispositions of people in countries. We present an extension of the static Laffont-Tirole (L-T) model (1991, 1993) covering four types of capture in economic policy making. The case study of atomic energy in Japan and the United States is then used to evaluate the predictive efficacy of the extended L-T model. The extended model is evaluated in terms of stability, resulting in the conclusion that only the regulatory capture is truly incentive-compatible if one assumes that government agents are self-maximizing. The use of the term "rents" in this paper, therefore, refers to rent-seeking behavior of bureaucrats and politicians; that is, the replacement of market decisions by government control or another type of collective decision making that benefits a small group of bureaucrats and politicians or individual bureaucrat or politician accordingly.

II

Culture and its Dimensions

SOCIAL SCIENCES differ in the degree to which they attach importance to the consequences of culture. Anthropologists, sociologists and political scientists largely agree on a dominant influence of culture, as do most psychologists, but economists often still deny the relevance of culture as a direct determinant of economic behavior, despite the work of Wildavsky and others (e.g., Wildavsky 1994; Wildavsky et al. 1990; Trentmann 1998; Inglehart 1998; Abrams and Lewis 1995; Grief 1994). Moreover, the economics mainstream and many economists have forgotten that in his works, Veblen looked upon human behavior and economic activity as cultural behavior (e.g., Veblen 1898, 1904, 1906).

Since culture has several meanings, a definition is needed here. The first meaning of culture is "the training or refining of the mind." The second meaning may be captured as "the collective programming of the mind" (Hofstede 1991). This definition of culture distinguishes individual members of a group from individuals who are not members of the group. It corresponds to the use of the term in anthropology, and is the meaning that we will use throughout this paper.

Several crucial features of culture should be stressed. First, culture is always a collective phenomenon. It is the collective meaning that is attached to values, symbols and norms. Culture is always learned. It is not inherited, but rather derives from extensive interaction with one's context. Culture is not human nature and it is not individual personality. It is in between. Culture may be traced back to one's nationality, one's residence, one's social class, one's generation or one's employment. We focus on the first root of culture: the nation state. It should be stressed that features of national culture probably take ages to develop. They are largely history-dependent, and only major catastrophes seem to change cultural predispositions in the short run.

Geert Hofstede (1980, 1991) has derived five main dimensions of national culture. …

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