Multicultural Markets

Today, Australian's awoke to the news that Australia's real GDP has shrunk 0.3% per capita. Joshua Howes explores one of the least discussed causes of this. [6 Minute Read]

Written by Joshua S. Howes

Ethnic diversity has always been present in society but has become even more pronounced in today's world. Globalisation has broken down barriers between religious, cultural, and linguistic groups, allowing such groups to transcend the borders of nations and even continents. What has accompanied globalisation is industrialisation, and with it, a focus on economic development at home and abroad. The increasing migration of people to countries which for the most part do not share their religion, culture, or language, as well as the fluctuating economic state of these countries, raises questions. The question which I will attempt to answer in this article is whether there is a negative correlation between ethnic diversity and economic development.

Ethnic Conflict
Ethnic diversity is negatively correlated with economic development because ethnic conflict is only possible in environments which are ethnically diverse. In turn, countries which experience ethnic conflict also experience less productivity and investment as a result, which negatively impacts their economic development.

Turning first to the impact of ethnic conflict on productivity, Khalid and Amin find that large businesses enforce workplace diversity training for the purpose of minimising the inevitable conflict which arises due to ethnic diversity in the workplace. The logical conclusion is that the resources funnelled to such training are resources which could have otherwise been used in more productive ways, such as the actual development and distribution of a business’ products. Furthermore, that businesses regard training to even be necessary suggests that the ethnic conflict present in businesses hinders productivity, hence their willingness to devote time and money to reducing it. There is no doubt that the same principle regarding large businesses can also be applied on a larger scale to countries.

Considering the impact of ethnic conflict on investment, Montalvo and Reynal-Querol acknowledge that a concentrated ethnic minority in a country increases the odds of civil war, thus reducing investment and in turn negatively impacting economic development. That this causal chain is acknowledged by the literature means that a direct link between ethnic diversity and poor economic development can certainly be established. Snodgrass attempts to refute this line of thinking when he claims that Malaysia is a multi-ethnic society which has experienced economic development due to foreign investment from businesses in countries like China who identify with its Chinese minority ethnic group. This can be easily countered when one considers Massey and Akresh’s finding that over one third of recent immigrants to the U.S. send money to their family back home, and 12% leave the U.S. for at least a month. That their wages are not being fully invested into the economy, and that goods and services outside their new country are being consumed, suggests that investment oftentimes does not benefit the economic development of the country which is being ethnically diversified. Instead, such investment benefits the homeland from which these new immigrants have arrived – in other words, the country which they have a greater loyalty towards.

Language Barriers
Ethnic diversity is negatively correlated with economic development because it, in the form of multiculturalism, creates language barriers. Such barriers increasingly cause governments to struggle to communicate with their business sector and advertisers to struggle to communicate with their market.

Touching on the impact of language barriers on the ability of governments and their business sector to communicate, Belov et al. provides a case study of Russia, where there are wide gaps in communication between the government and linguistic minority businesses. The authors acknowledge that this breakdown in turn eventuates in these businesses suffering decreases in performance due to poor morale. Poor economic development in a country such as Russia can certainly be attributed to poor business performance, which finds its origin in communication breakdowns because of language barriers. Clingingsmith attempts to posit the counterargument that economic development decreases the need for linguistic heterogeneity in society, with the obvious conclusion being that language barriers are best eliminated by economic development and not ethnic homogeneity. Li, Dewaele, and Housen, however, concur with Belovet al. in asserting that linguistic homogeneity and economic development reinforce one another. They further assert that the frustrations towards the presence of a linguistic minority in a society are channelled to violent ends on the part of the majority, which no doubt negatively impacts economic development, as has already been demonstrated. This fact, as well as the preponderance of literature siding with Li, Dewaele, and Housen and Belov et al. leads me to believe their arguments are superior compared to those made by Clingingsmith.

Turning to the impact of language barriers on the ability of advertisers to communicate with their markets, Rodríguez reflects on the way in which advertisers are forced to choose between economic efficiency and successful communication with linguistic minorities. He outlines the costs associated with adapting different forms of advertising for different ethnic groups, including that of new technologies, training programs, and strategies. That such difficulties exist suggests that advertisers oftentimes fail to successfully cut through to those who do not share in the common language, leading to less consumption and economic activity among such groups. Furthermore, the costs in dedicating resources to advertise towards these groups can be expected to negatively impact profit margins and the greater wealth of the country in which these businesses are operating.

Cultural Differences
Ethnic diversity is negatively correlated with economic development because the cultural differences it creates cause the economy to behave inefficiently. This is because shared values within one culture, such as work ethic and consumerism, are not shared between all cultures.

Considering the impact of cultural differences on work ethic, Slabbert and Ukpere reflect on a case study of South Africa and China, in which China is found to have a superior work ethic compared to its counterpart. Reasoning for this includes the collectivist culture of South Africa as contrasted with China’s comparatively individualist culture, which has made it more efficient. It is logical to assume that if more South Africans were to enter China, China’s economy would become less efficient, as fewer workers than before would share that common culture of individualism which is attributed to their past success. However, Sombart, a contemporary of Weber, who established the Protestant work ethic, counters the very notion that something like a work ethic can find its origin in culture. He argues that since a desire for wealth pre-dates Protestantism, the culture of Protestantism cannot be the source of the work ethic. Crowell, however, effectively refutes the validity of Sombart’s reasoning by indicating the way in which he conflates a work ethic for a desire for wealth. This fallacy is also identified by Weber, who does not deny that a desire for wealth has always existed. Instead, he is merely arguing that because of their culture, different civilisations have embraced the work ethic to varying degrees, which is no less the case for South Africa and China.

Touching finally on the impact of cultural differences on consumerism, Hino undertakes an analysis of the supermarket consumption habits of citizens in Jordan and Israel. He finds that a disproportionate percentage of Jordanians, that is, almost half, opt for traditional grocery stories rather than supermarkets. He attributes this to Arabian cultural norms, identifying the way in which Israeli Muslims refuse to purchase their meat products from supermarkets due to their dietary beliefs, with only Jews and Atheists, then, being those who purchase their meat from supermarkets. That Jordanians and Muslims in Israel are markedly less consumeristic in this regard suggests that the notion of the West as a particularly consumeristic civilisation is true. This being the case, if Israel’s Palestinian minority were to be replaced by Jews, one would suspect that on account of Israel benefiting from a more homogenous and consumeristic population, its economy would grow in wealth and efficiency.

Conclusion
Having demonstrated that ethnic diversity is negatively correlated with economic development, we are left with many implications. Perhaps the most salient is which measures a government can take to address immigration and multiculturalism if it wishes to pursue economic development to the detriment of ethnic diversity.