Culture and Competition: The Power of 'Tribes' in the Global Economy

As the world becomes at once geographically smaller and more attitudinally indistinct are we reverting to ancient delineations of culture and custom in order to preserve identity - and advantage?

It is too soon in this transformation to know for sure. The break-up of the old Soviet bloc took place less than a generation ago. The subsequent realignment is still sorting itself out. But research suggests that as people try to find their place in the global economy they are both embracing the opportunities presented by the new while simultaneously cleaving to that which is familiar and trusted. JL

The Economist reports:

EVER since the collapse of the Soviet Union ended the old, neat division between East and West, people have been inventing new ways of dividing up the world. In the 1990s it was fashionable to talk about America, Europe and Japan. Today pundits draw the line between emerged and the emerging markets.

Joel Kotkin, a geographer, suggests another frame of reference. In “The New World Order”, a paper for the Legatum Institute, a think-tank in London, he looks at the world through the prism of culture. The ties of history and habit—of shared experiences and common customs—can explain a lot about who does business with whom. Mr Kotkin quotes Ibn Khaldun, a 14th-century Arab historian: “Only tribes held together by a group feeling can survive in a desert.” Substitute “globalised economy” for “desert” and this describes the modern world quite well.
Mr Kotkin’s argument chimes with recent research. The World Values Survey divides the world into big cultural zones (the Confucian zone, the English-speaking zone, etc) on the basis of common values. These common values cannot be explained simply by income (eg, English-speaking countries tend to be rich, and rich countries tend to be liberal). Pankaj Ghemawat of IESE, a business school, calculates that two countries which share a common language trade 42% more with each other than two otherwise identical countries that lack that bond. Two countries that once shared imperial ties trade a startling 188% more. Imperial ties affect trade patterns more than membership of a common currency (which boosts trade by only 114%).

Cultural ties matter in business because they lower transaction costs. Tribal loyalty fosters trust. Cultural affinity supercharges communication. Reading a contract is useful, but you also need to be able to read people. Even as free trade and electronic communications bring the world closer together, kinship still counts. Indians in Silicon Valley team up with other Indians; Chinese-Americans do business with Taiwan and Shanghai.

One of the most vibrant cultural networks is also one of the oldest: the Sinosphere. China’s growing might is reinforced by its links with the overseas Chinese. Some 70m ethnic Chinese live outside mainland China. Some are descended from those who moved abroad during China’s imperial expansion from the 12th to the 15th centuries, settling in what are now Indonesia, Vietnam, Malaysia and Myanmar. More recently, many fled to escape the horrors of Maoism, or to seek a better life in America or another rich country. Together they connect China to every corner of the world.

The overseas Chinese are the biggest investors in mainland China. Some 68% of the foreign direct investment (FDI) that China received in 2009 came from places where ethnic Chinese are the biggest group, with Hong Kong the number one source, Singapore number four and Taiwan number nine. The overseas Chinese also spearhead China’s global expansion: Africa, for example, is dotted with Chinese malls that sell the latest gadgets from Guangdong. China’s government grasps the importance of cultural ties: it has funded hundreds of Confucius Institutes to teach Chinese and nurture China’s soft power.

The world’s second rising power is doing something similar, though with less direction from the top. India’s success at home is reinforced and rearticulated by the Indosphere. Ethnic Indians are less than 1% of America’s population but 13% of the graduate students at the country’s best universities. In Britain ethnic Indians earn at least 10% more than the national average. The top five destinations for Indian overseas investment all have large Indian populations: Mauritius, America, Singapore, the United Arab Emirates and Britain. The Tata group, an Indian conglomerate with a new British-educated boss, is the largest employer of manufacturing workers in Britain.

The third great cultural zone is the “Anglosphere”. Mr Ghemawat has tried to measure the links between Britain’s former colonies and the rejected mother country. He looked at the flow of goods, services, FDI, migration and information (using telephone calls as a proxy). He compared the ex-colonies’ traffic with Britain with their traffic with the rest of the world. He found that trade flows were 13% higher than you would expect, capital flows were 24% higher and the flows of people and information were a startling 93% higher. The Anglosphere is not the only great European cultural block: Mr Ghemawat calculates that by some measures Spain’s ties with its old colonies are even closer than Britain’s.

Despite the financial crisis of 2008, which has seriously tarnished the reputation of Anglo-Saxon capitalism, Mr Kotkin predicts that the Anglosphere will remain powerful for some time. It is the world’s biggest economic block: it accounts for more than a quarter of the world’s GDP (at purchasing-power parity), compared with the Sinosphere’s 15% and the Indosphere’s 5.4%. It is still the frothiest fountain of science and technology. America produces far more scientific papers than any other country, and Britain ranks number five. English is the closest the world has to a lingua franca. It dominates international business and diplomacy. It also binds the Anglosphere to the rising Indosphere.

Global tribesmen

This way of looking at the world clearly leaves something to be desired. Culture is not everything. Wise firms recruit people on the basis of merit, not blood or background. Those that get too clubby miss good ideas produced by outsiders. Also, the lines between different cultural zones are often blurred: Britain is tugged towards Europe as well as its old dominions. But cultural ties explain so much that it would be foolish to ignore them. In an age when many businesspeople are turning into global nomads, it is worth remembering the enduring power of tribal loyalties.