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Evidence from two communities suggests diverging paths of economic development; one which integrates culture into economic activities, and a second path which does not. If endogeneity cannot be assumed, does the relevance of culture for economic activities influence its stability and sustainability? Despite the predominance of culture in the former community, the social norms, ethnic cues and symbols are neither more likely to thrive or survive. Against expectations, the latter group appears more successful in preserving culture through a strategy of separating social identity from economic activities.

It is widely accepted that the institutions and laws of a country affect economic opportunities and constraints. With the explosion of countries making the transition to democratic capitalism, political scientists and economists renewed the study of institutions and laws which promote democracy at the same time as they maximize economic efficiency and growth. As behavior does not conform to expectations, explanations frequently turn to the endogenous relationship between culture and economic development. While including culture in development is the right direction there is cause for careful consideration of the way it is included in analyses. It used to be that culture was treated as a residual category simply filling in what could not be explained by other variables. Today, we risk placing culture as an omnipresent set of factors. This new wave of attention to culture carries the risk of pushing the pendulum of error from the absence or “black box” of culture to its ubiquity, and suffers to the extent that it assumes the relevance of culture for economic interaction and development. To avoid treating culture as a residual explanation and assuming culture as relevant to all explanations, greater attention needs to be given to the specification of mechanisms by which culture interacts with political and economic development. Endogeneity is an empirical question rather than theoretical certainty and understanding the patterns, or mechanisms, which connect culture to economic factors is crucial for the study of development. At the same time, if it is the mechanisms which vary, rather than the cultures themselves, it may be possible to generalize beyond any one ethnicity. This paper focuses on the endogeneity between culture and economic development, but the emphasis on mechanisms applies similarly to studies of the endogeneity between culture and political development. The study of the interaction between culture and economic development is not new. From Adam Smith, social science and legal scholars continue to debate economic efficiency across cultural groups as defined in recent work by Pagden (1988) and Fukuyama (1995), the relevance of uniform legal regulations to solve “market failure” in different cultural communities as explored in Chong (1996) and Sunstein (1996), and the apparent convergence of decision making processes and patterns within particular groups, for example, in Landa (1994) and Wright (1995). Research on the endogeneity of culture and economic development include studies of culture’s effects on economic development, and studies investigating the cultural consequences of economic development. In the first area, a dominant approach explores particular cultural traits and relationships between members which promote economic activities and success in competitive environments. Early beginnings with sociologist Max Weber (1930) evolved, and more recently political scientists Bates et al. (1998) and economist Grief (1994) specify those particular sets of norms and social patterns which foster economic development. Most recently, the collected volume edited by Lawrence Harrison and Samuel Huntington, Culture Matters revisited cultural prerequisites of progress and concluded that certain values were more conducive to development. Cultural norms, for example, like trust are types of symbolic credit which enhance the ability of individuals to cooperate and to forgo short run gains in transactions. When individuals are closely connected they can avoid costly contracts, avoid enforcement and measurement costs, and tap into extensive information networks. When competing against businesses compelled to incur such costs, the social cohesiveness or social capital (Putnam, 1993) brings a competitive edge that translates into higher profits and long run success. In this area of research, authors emphasize the cultural criteria for development. Bonds between individuals sharing a culture can create economic advantage. The literature on the relationship between culture and development is replete with studies focusing on the impact of cultural characteristics on political, social and economic development. A second focus of literature explores the relationship from the perspective of the impact of development on culture. The wide range of approaches include Knight’s (1992, 1995) examination of institutions and the distribution of resources where asymmetries in power translate into the dominance of particular cultural norms. And through surveys and comparative cases, Inglehart, 1990 and Inglehart, 1998 explores the causal influence of culture, but also the impact of industrialization and post-industrialization on values. Generally, studies with this focus fall into two groups: those adhering to the idea that culture converges towards a dominant model, and those maintaining the distinctiveness of culture throughout stages of development. Convergence theorists argue that culture changes with each stage of economic development. Furthermore, as countries and groups progress through the stages of development there is a convergence of values. In contrast, culturalists maintain that groups preserve their unique traits. Different cultures create and perpetuate models of development which may be similarly economically successful and simultaneously richly diverse in the norms and values which underlie those activities. A third approach to the cultural debate emerged with many social scientists making the methodological assumption of rational choice. From this assumption, theorists point to structural legal rules and the push of economic efficiency as sources for cultural change, and likely convergence. In this vein, individuals respond rationally to incentives, and community characteristics may either disappear or thrive depending upon whether or not the cultural features support the drive for maximization within constraints. Contrary to assuming the presence or absence of an endogenous relationship between culture and economic development, my research approaches the relationship as an empirical question. As an empirical question I explore the relationship both in terms of culture affecting economic activities and the consequence of economic development on culture. Rather than particular cultural characteristics, the organization of culture is decisive in determining the relevance of culture in economic behavior. This shift in debate invites more rigorous comparative study of the differences across communities in the extent to which cultural characteristics interact with economic activities. In order to make effective generalizations about the type of cultural characteristics or quality of economic development which are assumed to be part of an endogenous relationship, social scientists need to establish the connection between culture and economic activities. My evidence suggests that this connection is not the same across cultures and communities. In addition to arguing that the connectedness between culture and economic activities is an empirical question, the second theme of the paper emphasizes that the perseverance of cultural norms is also an empirical question. I test the hypothesis that culture is more likely to persist in communities where social norms are an integral part of economic activities. Intuitively, one expects that the persistence of cultural norms depends upon the relevance and presence in everyday activities. It would follow that culture is more likely to persist where it is a strong presence in economic development. In this comparative test, the Punjabis have created an ethnic enclave, and by separating the community geographically culture appears to be a consistent and integral part of economic activities. In contrast, the Gujarati neighborhood is multiethnic. Rather than a separation of the community, Gujaratis have developed institutions which ultimately define and constrain the exercise of culture in business activities. While culture does not appear to be part of economic development to the same degree, the effective institutionalization of culture shows signs of greater resilience for its sustainability.

This paper began with the theoretical debate concerning whether or not there is an endogenous relationship between culture and economic development. My research suggests that the debate must shift towards studying variation in the endogenous relationship rather than assuming the presence or absence of the connection. In 1999, the edited volume of Culture Matters concluded theoretically that variation in cultural values and behavior corresponded with different levels of progress. The empirical solution for undeveloped countries, therefore, is the promotion of “progressive cultural change”. However, by examining groups in different contexts my study demonstrates that an important component of the relationship between culture and development is the various mechanisms which define the relationship between culture and economic activities. In contrast with the conclusions in Culture Matters, it is these mechanisms, rather than the characteristics of a particular culture, which affect the endogeneity of culture and economic development. The Punjabi case presents geographic separation as one mechanism preserving the integration of culture and economic activities. On the other hand, the Gujaratis’ institutionalization of culture, is another mechanism with the effect of limiting the role of culture in development. In Wembley, culture is of limited relevance, and it served as a temporary foundation to cultivate business in the short run and as a springboard for expansion into other areas. Owners start up businesses within the ethnic community, but then once capital is established, they expand opportunities by investing elsewhere and developing a broader consumer base. In the early stages, Wembley entrepreneurs earn necessary capital by appealing to a market that captures Gujaratis, but is not limited to their consumption products or patterns. In contrast, Southall businesses have captured Punjabi consumption but they have been unable to develop appeal beyond the immediate neighborhood, or localized cultural population. There are strong signs of economic stagnation. Not only are the stores themselves in desperate need of renovation, but there is so much turnover that it is difficult to establish long terms growth. As cited in earlier examples, within a span of 1 or 2 years, an owner of a ready-made clothing store becomes an owner of a cloth retail store or kitchenware store and then he or she may become a property rental manager. Punjabis have cultivated their cultural attachments and in the early stages it seems that these bonds facilitate early investment and business relationships. In the long run, however, these attachments prevent the necessary accumulation of profit for reinvestment, expansion of products to attract non-Indian customers, adjustment of practices to accommodate non-Indians similarly, and the legalization of business deals to establish objective standards and expectations. Furthermore, there is indication that the geographic separation of Southall is not stable in terms of individual’s preferences, and cultural identification appears unsustained by those outside of regular interaction in the neighborhood. Beyond long run economic development, it appears as though the Gujaratis’ institutionalization of culture severely and formally defines the individual experience of culture but nevertheless, allows for its sustainability in a non-Indian environment. While the evidence supports the importance of studying culture in order to understand development, it is not thereby concluded that culture is relevant during the process of development. Contrary to the current theoretical resurrection of culture, it is not culture’s characteristics which determine impact, but rather the way in which culture is organized. As it happens, this perspective offers optimism theoretically and practically. Theoretically, there is a much greater possibility of generalization when the mechanisms of organization are the focus of explanations rather than the specific cultural values. And practically, evidence from this study suggests that the politically charged and empirically suspect activity of measuring and comparing development potential behind different cultural values is irrelevant. Regardless of content, cultures can persist without negative consequences for development. In this way, economic progress is possible and can be reconciled with cultural diversity. Few would argue with the social merit of this empirically grounded conclusion.