The Economics of Cultural Diversity

Anil Markandya, Bath University and BC3

Presentation to Workshop on Cultural DiversityProcida, Italy, September 2009

Some Definitions I consider culture here to mean the sets of

preferences of individuals, especially those relating to public goods but also those relating to private goods.

“Public goods” here are interpreted to include language, social customs, shared histories and interpretations of past events.

Culture further includes an element of commonness in these preferences. It requires that societies have some core preferences that are common. This does not exclude the scope for differences in tastes but it places some restrictions on variation.

Not all societies are equally restrictive in terms of permitted variations (liberal, conservative etc.)

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Diversity Versus Commonality

The more diverse are individual preferences, the higher the cost of dealing with the differences.• For example in the EU in 2003 the cost of official translation

services was €1.45 per person per year (379 mn pop.). After enlargement it went up to €1.78 (453 mn pop.). This is about 0.8% of the 2005 EU budget. If everyone spoke the same language we would save about one billion euros a year.

• For manfacturers, the costs of translation and meeting local product requirements can be significant buit necessary.

• Other differences (Cars: LHD vs RHD). (Telecom: fixed costs of compliance with diverse telecom requirements in developed country markets can cost developing country firms around US$425,000 or 4.7% of Value-added).

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Diversity Versus Commonality

So if tastes were the same, costs of production would be lower and output could be higher.

But if tastes were the same, it would be a very boring world!

Diversity in tastes produces benefits. These include:• Externalities to society from seeing diversity of products (not all

cars are black, not all buildings are grey, not all music is heavy metal..).

• It provides more choice, so if sometimes we want pasta No 35 and sometimes No 73, we can have it (individual preferences have an element of variety).

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Benefits of Diversity

Diverse societies are more creative in economic terms.• (Analogy with biological diversity).• (Analogy with technological innovation).

Diverse societies are less liable to be hijacked by a single idea that can turn out to be highly damaging (e.g. Nazism).

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Analogy with Biodiversity

Languages are part of a cultural system, just as species are part of an ecosystem. Damage to one can cause damage to the whole system. (Crystal, 2000).

Loss of language is loss of inherited knowledge just as loss of use traditional knowledge of plants may imply loss of valuable benefits of these plants.

We do not know which species will yield medicinal and other benefits. Loss of species therefore implies possible loss of benefits. Likewise linguistic variety offers possibilities of innovation of ideas, which are lost with a more homogeneous system.

Both linguistic and biodiversity are under threat.

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Struggle Between Diversity and Commonality

We have emphasized the benefits of cultural diversity But are there limits to the amount that is desirable? Societies are after all defined by a degree of common

values. And providing variety is costly So how should these factors constrain cultural variation,

if at all? Noah’s Ark Problem applied to languages (distinctiveness

of language, utility of its use and probability of survival). Weizmann’s model for biological diversity set out in Gorter et al.) but empirical applications not available.

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What Do We Know About All This?

I have posed a large number of questions but I don’t have all the answers.

I will try and interpret what the literature says about the questions

And then leave you to do the research to fill the gaps!

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Linguistic Diversity: Cost Effectiveness (Fidrmuc J., Ginsburg V., 2007) Languages in the European Union: The

Quest for Equality and its Cost The EU extends equal treatment to all member countries’ official

languages. This is costly, especially since many Europeans speak one of the procedural languages, English, French or German, either as a native or a foreign language.

The authors compute disenfranchisement rates that would result from using only the three procedural languages for all EU business and then proceed to quantify the average cost per person and cost per disenfranchised person associated with providing translations and interpreting into the remaining languages. Both the disenfranchisement rates and costs are shown to vary substantially across the different languages, raising important questions about the economic efficiency of equal treatment for all languages. A proposed, efficient solution would be to decentralize the provision of translations.

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How Much Do Individuals Value Linguistic Diversity? Study by Cenoz, Gorter, Onofri and Nunes in San

Sebastian and Lieuwarden, 2008.The local authorities are studying the behaviour of the

tourists in detail. In order to assess and rank their priorities, we kindly ask you if you were given 100 Euro by the local authorities, how would you allocate this amount of money among the following activities:

____ having the signs the way you want them ____ having clean, public toilets in the city centre ____ having more parking space in the city centre ____ having more written information about the city for tourists ____ having a private guided tour

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How Much Do Individuals Value Linguistic Diversity? Study by Cenoz, Gorter, Onofri and Nunes in San Sebastian and

Lieuwarden, 2008.If the local government asks for your financial assistance to this

program, via an overnight stay tax, how much is your maximum willingness to pay for?

____ having the signs the way you want them

____ having clean, public toilets in the city centre____ having more parking space in the city centre____ having more written information about the city for tourists ____ having a private guided tour The main difference with the previous question is that they leave

the respondents free to bid their preferred amount of money (open question). The respondent does not chose how to allocate a fixed amount of money received by the government, but chooses to contribute for the good “out of his pocket”.

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How Much Do Individuals Value Linguistic Diversity?

Study by Cenoz, Gorter, Onofri and Nunes in San Sebastian and Lieuwarden, 2008.

Results show a ‘demand curve’ for linguistic diversity that varies across the population, with a small group having a very inelastic demand (WTP for multi-lingual signs is high), followed another section that has a more elastic demand (WTP for for multi-lingual signs falls as numbers increase).

There is a difference between the two questions. This suggests that the answers may be sensitive to the

payment vehicle adopted.

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Benefits of Cultural Diversity in Terms of Creativity (Ottaviano and Peri, 2004): The Economic Value of Cultural

Diversity: Evidence from U.S. Cities

Authors use data on wages and rents in different US cities to assess

the amenity effects on production and consumption of culturaldiversity as measured by diversity of countries of birth of city

residents. Show that US-born citizens living in metropolitan are where the share of foreign-born increased between 1970 and 1990 have experienced a significant average increase in their wage and in the rental price of their housing. Such finding is economically significant and robust to omitted variable bias and endogeneity bias.

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Benefits of Cultural Diversity in Terms of Creativity (Ottaviano and Peri, 2004):(Ottaviano and Peri, 2004): Cities

and Cultures The authors investigate the existence of wage premium due to

cultural diversity across US cities. Using census data from 1970 to 1990, find that at the urban level richer diversity is systematically associated with higher average nominal wages for white US-born males. They measure cultural diversity in a city using the variety of languages spoken by city-residents. While the positive correlation between wages and diversity survives a battery of robustness checks, it seems to be larger once foreign cultures have been assimilated. Finally, instrumental variable estimation hints at causation going from diversity to wages. Comparing real and nominal wages across cities, they interpret these results as evidence that diversity enhances productivity.

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Conclusions

Fascinating topic but we are just scratching the surface as far as I can see.

Costs of cultural diversity: some data on translation costs but I did not find wider estimates available of economic costs of different systems of product classification, meeting country-specific requirements that could be described as cultural.

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Conclusions Costs of protecting communities at risk

of extinction? Links between expenditures on

protection of linguistic and cultural practices under threat and risks of loss of these practices need further study.

Do majority communities dislike having minority practices in their midst?

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Conclusions

Benefits of diversity. Some studies referred to here but a lot more needs to be done.

More empirical work needed on value of maintaining languages in different ways: spoken, written, musical etc.). Each may have a different value.

Does cultural diversity produce an increase in range of products available to all? (E.g. Ethnic foods in UK, USA). If so what are the benefits of the increase?

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Cultural Diversity: A Thought at the End The aim to combine unity and diversity

through social organization. “To unify is to tie together the individual

diversities; not to wipe them out in order to create a vain order”: Antoine de Sainte-Exupery (1900-1944).

That is our challenge. I believe the study of economics of cultural diversity can contribute to that.

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Thank You!