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Individualism-Collectivism and its effect on Economic Development

Updated: Mar 10, 2020

 Article by Rhea Sinha

It is often argued that societal structures influence the course of economic development in a country. Throughout this article we shall deal with primarily two aspects of social structures: the individualistic and collectivistic tendencies a society exhibits. For example we can see the American culture is grounded in individualism. This stems from the belief that each person has individual significance and by virtue of being human beings, they have the right to engage in self actualising behaviour. In an individualist model, importance is given to  personal control. autonomy and individual achievements. If we take a closer look at home we can see how ancient India has always prized social institutions such as the joint family. A society which relies on collectivist ideas, puts a premium on loyalty and cohesion and imposes mutual obligations on all the members belonging to that group.In status quo, India as a country contains significant features of both individualistic and collectivistic values.

To further investigate the effect of collectivism and individualism on economic development, we shall see that causality runs in two directions: the collectivist or individualistic character of a society will influence the course of economic development and in turn the effect of  patterns of economic growth and development will alter the orientation of society to either an individualistic or collectivist structure.[1]

We shall investigate the effect of the individualistic and collectivistic character of a community on economic development.

Several scholars such as Ball (2001), Bauer and Yamey (1957) and Lewis (1965) have elaborated on the positive impact collectivistic societal structures have on the long-run growth. The focus has been mainly on developing countries and how the idea of an extended family may in fact be quite advantageous because they can provide informal insurance.There is a strong sense of community and thus it leads to a creation of monetary dependence amongst each social group.This becomes a major cause in deduction of individual incentives to invest and accumulate wealth. Wealth becomes a common concern of the entire family institution rather than simply the individual. Also due to its inherent nature, collectivism facilitates the coordination of production factors and collective action and hence promotes growth. However, it could also be a major reason for growth being stunted due to imposition of conformism and thus blunting individual initiative.

When it comes to studying the impact of individualistic societies have on economic growth and development, there has been a large consensus among popular literature that there is a positive correlation between both these entities. This consensus stems from the idea that individualistic society drives various functions of the society based on meritocracy and thus is its performative value is intrinsically high as individuals consistently look after themselves and their own interests. To the extent that individualism attaches social prestige to personal achievements this is likely to spur innovation to the benefit of growth. Despite this scholars such as Gorodnichenko and Roland (2011, 2015) have proposed that from a theoretical perspective that the direct impact of individualism on long-run growth is ambiguous. On the contrary it is often argued that individualistic societies often hamper growth because they undermine social coordination.

We will now examine the impact patterns of growth and development have on societal structures and its ability to alter existing collectivistic values. We will base our understanding of this according to the Indian Society predominantly.

India as an ancient society has always functioned on collectivist ideas and values.The idea of a joint family institution has always been highly regarded and has always been attributed to the success of a smooth functioning economy.[2] With the advent of liberal ideas came the market economy.The transition to a market economy was associated with a rise in the use of words corresponding to individualistic values and a decrease in the use of words associated with collectivistic values.[3] There were new patterns of economic growth which was being witnessed in India. This in turn led to the breaking of family institutions and the increase in nuclear families which promotes the very idea of individual interest. This change was brought about due to the  innate nature of a market economy and the spirit of competition it promotes which in turn makes individuals more self reliant but at the same time self centered. There was also greater scope for individual choice and decentralized decision making in the economic sphere. The situation witnesses the coexistence of both individual and collectivist values and norms.

Some scholars argue that the expected benefits of individualism affect the dynamic efficiency of the economy. Dynamic efficiency in economics is concerned with the productive efficiency over a period of time. Thus it relies on the optimal rate of innovation and investment to improve production processes. Individualist societies due their inherent nature tend to promote innovation and also spur growth.On the other hand, the benefits of collectivism impact on static efficiency in the economy. It focuses on the allocation of resources at a particular point in time. Thus the coordination of productive factors helps in improving the static efficiency of the economy.[4]

The confluence of both these societal structures suggests that there is a positive effect on governance, state structures and how various elements in society currently interact. India currently operates on this confluence and both individualistic and collectivistic ideals that circulate in our society become true beacons of economic development.

[1] Ball, Richard. “Individualism, Collectivism, and Economic Development.” The Annals of the American Academy of Political and Social Science 573 (2001): 57-84. http://www.jstor.org/stable/1049015.

[2] Eckstein, Alexander. “Individualism and the Role of the State in Economic Growth.” Economic Development and Cultural Change6, no. 2 (1958): 81-87. http://www.jstor.org/stable/1151737.

[3] Velichkovsky, Boris & Solovyev, Valery & Bochkarev, Vladimir & Ishkineeva, Farida. (2017). Transition to market economy promotes individualistic values: Analysing changes in frequencies of Russian words from 1980 to 2008. International journal of psychology : Journal international de psychologie. 10.1002/ijop.12411.

[4]Kyriacou, Andreas. (2015). Individualism-Collectivism, Governance and Economic Development.

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