Warsaw University Faculty of Economic Sciences Master of Arts in Development Economics

Joanna Nestorowicz album number: 257801

Katarzyna Kopaczewska’s research on

Geographical rent in socio-economic development in Central and East European countries A critical review

Combining research on social and economic development with regard to a geographical location of a region is a very hard task, but if carried out with full understanding of both – social and economic – issues, it surely can be a very useful and source of information, going far beyond what we can find out from ‘traditional’ research carried out in one field only. The analyzed paper makes a courageous attempt at achieving this. Some methods of analysis though seem not to correspond with each other due to lack of linkages between them. This leaves a wide field of possible extensions, which would enable fuller support of the presented thesis.

October 24th, 2006 Warsaw

Introduction

Understanding the way people behave and why they do so has been question which scientists tried to answer for years. This is why such disciplines as sociology or psychology have become so popular. The true motivations and reasoning underlying people’s decisions and behaviors have lately become an area of interest also to economic sciences.

Having dozens of products to choose from and numbers of possibilities for economic activity and earning money it often becomes hard to make up one’s mind simply based on rational thinking. What starts to drive us are unconscious factors such as stereotypes, emotions, preferences developed in early childhood, the culture in which we have been brought up.

Exploring such topics requires using methods, which were not considered as typical for the study of economics. Qualitative research, debating on values and patterns of thinking is immanent to all those who had something in common with studies on cultures. Unfortunately these aspects of our lives can seldom be measured in percentages and visualized on graphs. This is what makes them very controversial. Among researchers and their critics there is common knowledge on the fact that any result of qualitative research can be put under question. For every argument ‘for’, one can find an argument ‘against’. That is what makes the discussion over the results so important and vivid, and what encouraged me to focus more on the ‘social’ part of this research.

Literature review

It has been observed that economics, as an academic discipline, have been successfully shifting from the area of ‘mathematical’ to ‘social’ sciences. This trend can be observed in recent publications in this discipline. Research and publications on economic culture, economic psychology, psychology of consumer behavior etc. have become very popular. Even though some scientists still feel strongly connected to one field of economic sciences, many examples prove, that carrying out interdisciplinary research, often using methods, which have not been so far recognized by economics, may bring very interesting results.

Such research was carried out by Hampden-Turner and Trompenaars on a group of 15,000 entrepreneurs worldwide. The findings of this research have been presented in their book Seven cultures of capitalism. Katarzyna Kopaczewska refers to this book in her bibliography. The idea behind the research presented in Seven cultures…is that an economic success depends on whether we understand our trade partners’ deeply hidden motives. In each culture there is a secret sphere, set of beliefs, which we are not aware of. All the representatives of such a culture/society assume they are so obvious, that they push them beyond their consciousness. According to the authors building prosperity is not purely a matter of precise, pure science, but also has a lot in common with the mysterious world of culture. The rationale behind this is that the way a product is made, or the way a service is carried out, somehow reflects it’s creator and, as the authors write, the Creator of it’s creator. By this they mean that e.g. our religion, and following that – our philosophy of living - affects the way we think not only about eternal life, but also such earthly things as e.g. generating income. In each culture, according to Hampden-Turner and Trompenaars, the secret structure of beliefs is like an invisible hand, which rules the peoples’ economic activity. Katarzyna Kopaczewska has also made an attempt to combine two spheres of economic activity – the financial one, calculated in GDP growth, and the cultural one – ‘calculated’ in values, according to the methodology of the European Values Survey1. From this point of view her research may be considered as very modern as far as the theoretical approach is considered.

Analysis of the theoretical framework

The geographical factor in the pace of a country’s development has been noticed, among others, in David Landes’s The Wealth and Poverty of Nations. There he did analyze rather ancient times, but the thesis still manages to defend it’s self nowadays – where people live determines their possibilities of economic activity. The geographical factors include such things as climate, availability (in qualitative and quantitive terms) of resources, but also what becomes more and more important in modern times – neighborhood of other countries.

1

Details to found at www.europeanvalues.nl .

The main assumption of the analyzed research is the one derived from Inglehart’s Thesis – economic development and development of value systems are interconnected. The same logic can be found in the publication described in the literature review above. As I have mentioned this assumption represents a very innovative way of thinking about economic development.

A question which immediately comes to one’s mind in this context is whether economic transformation changes values or does a change in values enable economic transformation? For the author there is no good answer to this question. Yet in the analyzed example of the fall of the Iron Curtain the change was carried out in the terms of whole system. First a small group started transforming the system, having a holistic approach. It is possible that addressing the issue form an individual level would be followed by a risk of having the QWERTY effect. But if people are, more or less suddenly, put into the framework of a new political and/or economic system, they are forced, by the state law, to change their behavior. These ‘new’ patterns of thinking become natural in the next generations and constitute a cultural change, which can be recognized in a national perspective. Therefore under the analyzed circumstances I would conclude that that the change in values was first for a small group of people, who then changed the political and economic system and due to that the rest of the society had to change it’s system of values in order to make it coherent with the new socio-political reality.

An other assumption which is made by the author is that a poorer region profits from it’s location with a rich one. Yet this happens only if the economic contacts are normal, free, without barriers. Otherwise different levels of economic development may cause the effect of relative depravation and even deepen the difference and lack of cooperation and communication between the two neighboring areas. Rich would always want to cooperate with the rich and because of visible discrepancies the poor might want to strengthen their contacts with the poor, where the differences are less visible.

Analysis of survey methodology

In her research Katarzyna Kopaczweska compares the rise in GDP, as value of economic development, in a certain region with the change of two indexes she has developed, based on the data from EVS. This data seems to be incomparable within one region though.

Rise of GDP involves those who are working (productivity age group), while EVS is representative for the whole society. Therefore we can conclude that preferences and priorities declared by one in EVS are not necessarily correlated with one’s input into the rise in GDP in one’s region. This can either lead to under- or overestimation of the results. Not knowing how excluding the EVS answers for the non-productivity age groups would affect the data, it is impossible to make any other conclusions.

An other simplification made by the author of the research under analysis is that EVS gives a respondent a range of possible answers. That does not show when assigning dichotomy values to questions (1 if a factor is important and 0 if it is not). Of course one may say that, as this simplification has been made in relation to all the EVS data for all the regions, the numbers are still comparable. Maybe it is so, but they do not represent the actual answers given in EVS. Considering the qualitative character of this study I fond it strongly unscientifically to make such simplifications.

An other questionable reasoning is that underlying the construction of two indexes – the Activity Index and the Participation Index. Both of them are two constructs created for the need of this particular research. The way it has been done though is merely by taking a few variables from the EVS and assigning each one of them the same value. By adding the values the author has come up with a result she called an ‘index’. The reasoning behind choosing some variables and not others is unknown. The way they are linked together as an index seems to be also much too simplified and therefore the indexes may actually not show anything – neither the level of social ‘activity’, nor participation. In her analysis of geographical rent the author used a matrix in order to show the number of bordering regions for a given region. What is momentarily to be noticed is that some of the regions suddenly become situated in direct neighborhood of absolute vacuum – east of Poland, west of Germany, south of the Austria and Hungary. The border regions of these countries in those areas are treated like they had no foreign neighbors, which of course is not so and leads to an underestimation of their geographical rent. On the other hand some countries like the Czech Republic and Slovakia became, with one exception – central region in Czech Republic, purely ‘borderland’ countries.

Analysis of theoretical and empirical findings

Fall of the Iron Curtain is taken as a factor which is supposed to enable contacts, including trade, among the Eastern and Western Europe. Yet when one analyzes the rules governing group behavior it is easily noticeable, that as recognize the ‘other’ we tend to be more centralized, instead of open. This due to fulfilling the need of self identification with a particular group, which we consider more similar to us then an other group. This strengthens the need to identify with one’s nation. Participation in organizations, which is linked with a rise in GDP in a certain region, may actually derive from having an idea of ‘leisure time’, as opposed to ‘working time’, what would indicate growth in the sphere of labor and employment. Yet it could also mean that people for some reason have the time to join in and participate in the activities of these organizations, which can further imply that, as far as time is concerned, they could work more (or work at all) instead. By work one can understand generally generating income, what influences growth of GDP.

An other factor connected to participation and the artificially constructed Participation Index is e.g. participation in religious organizations. This seems to overlook the fact of further implications from such activity. It merely gives the reader information on whether people from a certain region participate in religious life or not, while it has been long proven that different religions and beliefs have a different attitude towards generating income. Therefore ‘religious activity’ of a region inhabited by Roman Catholics will have a completely different influence on their approach to earning money then the same factor measured in a region where the majority are Protestants, who, as stated by Max Weber, represent a very high level of initiative compared to confessors of other religions. Not taking such facts into consideration, while actually giving significance to religious activity as such may lead to misleading comparisons, what might have taken place in the research.

The author has recognizes certain centripetal and centrifugal forces causing the fact that border regions remain peripheral despite the fall of some obstacles such as well guarded (or even impassible) national borders. This, following the hypothesis, would mean that border regions do not benefit from their preferential localization. The reason of this state , as given by the author, is that it is due to historical resentments and cultural differences, including

language barriers. This may be so, but I would also put more emphasis also on the fact of functioning under one legal system within a country, including tax regulations, labor rights and methods of professional elicitation. Such circumstances surely make it easier to function on one, native, labor market. Some legal acts might discourage borderland inhabitants from taking the advantage of their geographical position. On the other hand we can observe several manifestations of centrifugal forces, e.g. nowadays it is cheaper for inhabitants of Poland’s western regions to travel to the international airport in Berlin, then to Warsaw. This can lead to a bigger mobility of human capital and at the same time, from the German point of view, it generates more income, and GDP growth in the regions facilitating internal travels across the country.

A very good point made by the author was that historical barriers among nations are stronger then administrative ones. Unfortunately the data presented within the research seems not to underlie this thesis. Some obstacles mentioned e.g. language differences appear to be taken for granted. The same goes with historical resentments etc. The conclusions may intuitively seem right, but within the research they come out of the blue and neither EUROSTAT, nor EVS data which is being referred to by the author proves these findings.

Conclusion and possible future extensions

All in all the research presents a very good concept of combining culture studies with economic research under one umbrella field of social sciences. This approach still is considered as very innovative and surely requires a lot of effort in order to link qualitative methods of exploring cultural codes with quantitive methods of

proving hypothesis of

economic character. In order to overcome these difficulties it seems that it is not enough to compare to sets of absolutely different data gathered independently using different methodologies, which have just one thing in common, what is the fact that they refer to the same geographic areas.

On a cultural level there are many more (even data-based) ways to measure cross-border linkages and cooperation, which would surely be worth analyzing. These basic factors would be:  Percentage of schools where the ‘other’ language is taught.

 Overall number of people speaking the ‘other’ language.  Number of mixed marriages.  Number of exchange students in neighboring regions.  Number of local press articles concerning the foreign, neighboring region.  Number of people who execute their right to vote in elections to the local governing bodies abroad.  Qualitative research on differentiating between ‘us’ and ‘them’ using both the emic and etic approaches.

Even though all the countries opened their borders to a great extent, as compared to the times of the Iron Curtain, it is still internal policies, laws and regulations, which may encourage, or discourage certain economic behaviors. On economic level it might have been worth taking into consideration:

 Finding links with partner cities of cities in the border regions; due to open borders the rise in GDP in border regions does not have to be owed to cooperation with neighboring regions, but it can be due to cooperation with other, inner territories of a given country.  Wage-earning migrations; how many people work abroad – seasonally, and permanently, what is the scale of living and the standard of living in neighboring regions.  Percentage of foreign consumers on the local market, as in the example of a village near the Polish-German border where all the households became hair salons due to a very high demand on the German side for this type of service.

On the level of policy design it might be worth analyzing:

 What are the regulations, both national and local, considering such issues as taxes, employment of foreigners, health care for employees, labor rights, foreign investment facilities etc.

Exploring the topics mentioned above may seem as a very large and wide suggestion of extending the presented research, but in order to actually link economic behaviors with

cultural factors one needs to explore as many aspects of culture and the economy as possible, what gives a very wide range of areas to explore.

Bibliography

1. Falkowski A., Tyszka T., Psychologia zachowañ konsumenckich, Gdañskie Wydawnictwo Psychologiczne, Gdañsk 2005. 2. Hampden-Turner C., Trompenaars A., Siedem kultur kapitalizmu, Oficyna Ekonomiczna, Kraków 2003. 3. Harrison L. E., Huntington S. P. (red.), Kultura ma znaczenie, Zysk i S-ka, Poznañ 2003. 4. Landes D., Bogactwo i nêdza narodów. Dlaczego jedni s¹ tak bogaci, a inni tak ubodzy, Warszawskie Wydawnictwo Literackie MUZA SA, Warszawa 2000. 5. Tyszka T. (red.), Psychologia ekonomiczna, Gdañskie Wydawnictwo Psychologiczne, Gdañsk 2004. 6. Weber M., The Protestant Ethic and the Spirit of Capitalism, Routledge, London-New York 2004.