For Blog #4, I have decided to focus on the culture of communism and its effects on financial development in countries that have transitioned out of communism. Culture has a significant impact on financial development, and I was able to review a study that suggests that different cultures of Central and Eastern European influence the financial and economic development of their respective countries.
As it has been stated throughout our lessons, “Culture encompasses people’s attitudes, beliefs, values, and norms that are determined by ethnic, social, and religious groups and passed down from one generation to the next,” (Klein & Klein, 2017). Culture changes slowly over time and Central and Eastern Europe have been greatly influenced by 45 years of communism (Klein & Klein, 2017). Under communist institutions planning took place at both the micro and macro levels. Communism was about controlling people’s lives and changing their beliefs and feelings about it was done through communist propaganda and adapting to the harsh life of communism. Those who did not follow the system were punished. The people decided it was best to void criticizing or challenging the institution. The system relied on informants that created distrust in the population. In turn, this influenced the attitudes and expectations of the people. The population became more passive as many people lost interest in politics and a loss of ambition. They also began to expect the government to provide jobs and basic accommodations creating a reduced sense of responsibility for actions. This was known as paternalism (Klein & Klein, 2017). There was no incentive to innovate and there was little promotion of intellectual autonomy. The study confirms what we learned in our lesson, that while culture is not homogeneous throughout all of Europe after the fall of communism. Those countries that are now under the category of Western Europe have moved forward towards democracy and parts of their culture have changed, this has not been the case of Central and Eastern European countries. The people of Eastern Europe have similar values when it comes to religion, politics, and relationships with the West. They also place less value on appreciation for “initiative, hard work, and responsibility for work outcomes, which is a consequence of the communist system, (Klein & Klein, 2017). Interestingly, the study points out that while Central and Eastern Europe have a lot in common, there are still significant differences between them that influenced their economic success transitioning out of communism. Another study from 1992 states that those countries that showed a strong resistance to communism had more economic success during the transition (Klein & Klein, 2017).
The study collected data on the financial development of Central and Eastern Europe by country and region, and data on cultural values. The countries were grouped according to their exposure to communism. What they study concluded was that while there is an association between culture and financial development, there are no results to prove causation. There is the possibility that other factors influence culture and finance. For example, religion can play a role in culture, as well as economic, financial, or institutional development that was in place before communism (Klein & Klein, 2017). It is possible that those old institutions could affect the culture which would in turn affect the financial outcome. The study does show, there is a strong connection between institutions and culture. Because communism shaped the cultural values of Central and Eastern Europe, it also influenced their financial development. A culture that values trust, tolerance, and control (markets and banks) is associated with superior financial development. This “better” culture is also synonymous with decrease in a country’s transaction costs (Klein & Klein, 2017).
While communism is not an ideal form of government, there are still many things we can learn from the negative effects communism that can inform our thoughts about government and culture in the future. For example, as we learned from the study, tolerance, trust, and control of certain markets are important to financial success. We need to look at our values and culture to understand how they influence our government. Will we be able to continue economic success with our values and culture today? Will we let our personal values influence our decision to take rights away from another? How does our culture affect our government?
Klein, A. F., & Klein, R. F. (2017). Communism, Culture, and Financial Development. International Journal of Economics and Financial Issues, 7(4), 575-578. Retrieved from file:///C:/Users/krist/Downloads/Communism,_Culture,_and_Financ.pdf.