Palestinian leaders were understandably insulted when Mitt Romney, noting the huge gap in wealth between Israel and the West Bank during a speech in Jerusalem on Monday, declared, "Culture makes all the difference." Although culture plays an important role in economic development, the presumptive Republican presidential nominee overlooked another key variable: government.
Good government establishes conditions that are conducive to production, innovation and trade. I am not talking about the roads, bridges and public schools cited by President Obama in his notorious "you didn't build that" speech. I am talking about a more basic kind of infrastructure: the rule of law, protection of property rights, enforcement of contracts, honest and open government, tolerable taxes and a minimum of interference with transactions between consenting adults.
When the state flagrantly flouts these principles, people do not prosper, no matter how much they value education, how hard they are prepared to work, how much risk they are willing to take or how inclined they are to save and invest. In fact, oppressive, arbitrary government changes culture, making these traits less valuable and therefore less common.
When Romney said "culture makes all the difference," he was quoting "The Wealth and Poverty of Nations," a 1998 book by the historian David Landes. Elsewhere in the book, Landes is less categorical, saying, "Culture can make all the difference," and cautioning that "culture does not stand alone."
What else makes a difference? Landes is quite clear that limits on government are essential. When he says "the driving force" of economic progress during the last millennium "has been Western civilization and its dissemination," he is referring not just to cultural values such as thrift, competition, gender equality and the Protestant work ethic, but also to the political values that keep the state from smothering creative effort.
Saeb Erekat, a senior adviser to Palestinian President Mahmoud Abbas, highlighted the importance of political institutions when he complained that Romney "doesn't realize that the Palestinian economy cannot reach its potential because there is an Israeli occupation." Israeli checkpoints, control of imports and exports, and interference with land use, even if justified by legitimate security concerns, surely have impaired economic development in the territory administered by the Palestinian Authority, but so has the authority's history of corruption and incompetence.