Jun 08 2009

City-regions that struggle together, gain together

by at 3:28 pm under Uncategorized

 Avner Greif’s article, “Cultural Beliefs and the Organization of Society…” (1994), presents an important look at how cultural beliefs systems have an impact on trade and markets within societies. When looking at the impact of collectivist societies against individualistic societies, Greif notes that cultural beliefs impact social interactions but can have varying effects on wealth distribution (Greif, 19). The horizontal relationships within collectivism are often very beneficial for individuals in small closed regional economies as they provides the informal institutions of protection and feedback loops, but they do little to grow the market for the overall wealth of the people. It can also have devastating results when groups and their cultural beliefs clash with nearby regions.

One of the major ways that collectivist societies can face disaster is through the “group-think” or sacrifice that comes through such a tight-knit society, in which the group’s values override the individual’s needs. As Greif details in his game-theory analysis, the long-term relationship between prisoners facing similar outcomes can facilitate a more mutually-beneficial approach to the problem (Greif, 8). This relationship only comes about through repeated transactions as trust is built and capitalized on. The lack of trust between political groups, such as the case in Rwanda, has allowed self-interest of the group to overcome mutually-beneficial outcomes.

Rwanda – a collectivist society – has struggled as a developing nation due to tragic in-fighting. After its independence in 1965, the country showed a strong and vibrant diversification of tradable goods, including coffee, tea, sugar, and tannery. However, after the wars and genocide of the 1990s, Kigale, the capital, and small-scope city region with neighboring Burate have suffered immensely with more than 65% of companies still attempting to recover in that region. With the market for the products still local and little to no competition, the government has interposed to stabilize the prices even against its trade liberalization policy.

The barriers to entry into a self-sustaining market economy are exacerbated on a macro level by uneven trade relationships and limited import-replacement. Using the U.S. Census Bureau, I took a look at just the import/export relationship with Rwanda over the past 10 years and found that the balance favored U.S. exports to Rwanda over Rwandan imports to the U.S.  It would be a struggle for Rwanda to enhance its exporting power with the U.S. alone. In impoverished city-regions, import-replacing and innovation stem more frequently with other similarly impoverished city-regions. This way they could develop, as Jane Jacobs says, on “each other’s shoulders” (Jacobs, 144).

Live Together, Die Alone

Live Together, Die Alone

 

Competition is necessary for markets to evolve through such natural evolutions as import-replacement in city-regions. In a collectivist society, however, the competition can either be downplayed within the group, or heightened to the point of exacerbation of another out-group. “Development is a do-it-yourself process; for any economy it is either do it yourself or don’t develop.” (Jacobs, 140) However, cultural beliefs must be taken into consideration when an at-risk society is developing itself. The more ties a region has to neighboring cities as well as burgeoning economies, the stronger the network overall, leading to a more flexible approach to market growth. Therefore, the collectivist approach, while strong within closed communities, may need to weaken to build the markets necessary for city-regions of growth.

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