Cultural institutions: What do we believe or belong to?
The cultural institutions we’re a part of will play a big part in shaping our economic choices - from donating to charity as part of a church group, to fasting for Ramadan, to giving up chocolate for Lent. They could also play a part in how much power we have in an economic relationship.
What we want, how much power we have, and what we see as ‘fair’ or ‘right’ differs so much depending on the culture we’re part of.¹ In a globalized economy, we often end up in business relationships with people from cultures across the globe that we’ve never encountered before, and whether our economic relationship lasts will depend not just on how good the deal is but on whether we speak each other’s languages, understand each other's habits and respect each other’s cultures.
One economist, Karl Polanyi, studied a society in Papua New Guinea where trade happened through gift-giving.² Rather than exchanging things, trying to get the most out of the other person as possible, villagers simply passed things on in the knowledge that someone would give them something one day too. The generosity this showed would boost the villagers’ status, and that social recognition was what motivated them to trade more. So, Polanyi claimed, the cultural institutions these villagers were part of formed their economic behaviour.
Another claim, though it’s a heavily contested one, is that the reason the industrial revolution happened in Protestant countries first is because Protestantism encourages hard work and frugality as a way to prove being predestined for heaven. So when a Protestant business made lots of profit from working hard, the theory goes that rather than spending it on luxuries, it reinvested the profit, and grew as a result.³
The cultures and social groups we’re part of could also affect how much power we have in an economic exchange. Free market economists often don’t consider power in their studies, saying that in a voluntary exchange, power is shared equally. But others, called institutional economists, think that our gender, age, nationality, and religion, among other things, affect the amount of power we have in relation to others, which a huge part in determining who gets what.⁴ Even in a ‘free market transaction’, the institutions we’re part of influence how much control we have over an economic choice.