Abstract: Cultural Change and Business History

Naomi R. Lamoreaux

Abstract

For all the focus on cultural history over the last quarter century there has been remarkably little attention to the problem of how cultures change.  The purpose of this paper is to show how some simple economic experiments have the potential to illuminate the process of cultural change in a way that has applications to business history.  I focus in particular on the public goods game.  In this game, all the players are given an initial endowment of money and told that they can keep it or contribute some or all of it to a common fund.  The fund will then increase in value and at the conclusion of the game will be divided among all the players, whether they contributed to the fund or not.  Most players respond by contributing to the fund, but a few choose to free ride on the others’ investments.  If the game is repeated for multiple periods, players who initially contributed realize what is going on and stop putting their money in the common fund.  If the rules are changed, however, so that free riders can be punished, then in a repeated game players will start contributing again and the common fund will grow and provide general benefits.

Although this game is typically applied to the problem of taxes and physical public goods, I believe it can also be useful for thinking about cultural change.  Many cultural practices have elements of a public good.  Society is better off when citizens follow prevailing norms, but adherence imposes some cost on practitioners.   If it is possible to deviate from the norms without consequence, adherence is likely to fall off, and so societies develop ways of enforcing cultural practices.  This analogy suggests a number of hypotheses about how cultural change occurs, but one is that change is more likely when for some reason the enforcement of cultural norms becomes less effective, for example because there are competing norms that also have authority behind them.  In the study of business/corporate cultures, competing norms can arise in situations where important firms merge, where businesses move into new geographic environments, or draw on global talent pools. The paper will explore how such situations can be used to flesh out a theory of cultural change with insights into when the process is likely to be bottom-up versus top-down.