Globalization and 'Contract Culture'

R.A. Hettinga rah at
Wed Jan 5 07:41:48 PST 2005


Tech Central Station

Globalization and 'Contract Culture'

By Christopher Lingle

It is obvious that the process of globalization inspires great disagreement
concerning its nature and impact. Despite acts of terrorism and labor
disputes that have marked this public discussion, one point of agreement is
that this process is seemingly irresistible.

 A sober assessment of the merits of the arguments in this debate requires
identifying some essential elements behind this momentum. One place to
start is to discard an important misinterpretation.


Globalization should not be confused with Westernization or Americanization
of economies and cultures. Perhaps this muddled thinking arises from an
observed sense of convergence towards certain norms or rules that are
associated with Western cultures, especially concerning commercial
considerations. Promoting this misconception adds to an unwelcome
divisiveness. It also implicitly assigns a sense of domination or
superiority of American or Western culture over others, itself a patently
foolish assertion.


The view offered here is that this convergence is a natural and
evolutionary procedure. In this sense, global convergence arises from
voluntary choices by citizens and their governments to engage in worldwide
markets to achieve some individual and collective goals, including shared
prosperity. Indeed, the overpowering nature that some observers find so
troubling is actually the outcome of choices made by most other members of
their own communities. In the end, the movement is towards the
establishment of and guidance by the legal bounds that govern contracts. As
will be argued, exposure to contracts has important impacts on cultures
since it imposes greater accountability on businesses as well as


As such, globalization should not be viewed as the outcome of anonymous,
outside and mysterious forces. Instead, an important source of globalizing
influences in a local economy arises from choices made by most of ones'
compatriots who prefer better or cheaper products that are imports rather
than shoddy or higher priced ones produced locally. In this narrow
interpretation, globalization can be seen as a universal application of
democracy. Opposition to these results is tantamount to an elitist loathing
of thy neighbor, or at least their choices.


In all events, the spreading of the benefits of globalization depends upon
how well markets function, because competitive markets are a force that
empowers consumers and humbles producers. And well-functioning markets
require and inspire a certain attitude towards agreements that can be
identified as a "contract culture".


A contract culture exists when all parties in an agreement are predictably
treated as equals whenever there is a legal dispute or a need for
interpretation of the conditions behind the pact. Markets both depend upon
and set the stage for the emergence of a contract culture as well as
providing an impetus for the emergence of a commercial morality and a wider
application of trust.  In turn, institutional frameworks evolve to
reinforce and reward or punish actions in reference to the agreements and
the legal institutions that support them. This convergence is inspired by


While most may think that the discussion only involves private contracts
concerning commercial transactions, it also covers social contracts like
constitutions that specify duties and obligations of citizens and rulers.
Markets inspire the development of a contract culture where the spirit of
compromise becomes part of human interaction. In such a setting, equals are
treated as equals just as unequals must also be treated as equals before
the law. Governments or large corporations should not receive special
treatment in the courts over individual citizens while domestic interests
should not override those of foreign claimants. At the same time,
interactions within a community where contracts are widely negotiated can
bring about a greater appreciation for compromise and humility that might
undermine future claims for authoritarian leadership.


Viewed from this vantage point, capitalism and free markets are seen to
provide a necessary underpinning for democracy's success rather than merely
a sufficient one. It is through individualist-based institutions associated
with and arising from markets that people exercise true self-ownership to
pursue their own chosen goals.


The importance of establishing a contract culture cuts deep.  It is an
intangible element in the measurement of growth factors, but it is
certainly an essential element of the institutional framework for an active
player in the global economy. Apart from promoting political stability due
to greater fairness, the contract culture is also associated with
"middle-class values" like the importance of education, thrift and moral
values that promote hard work and honesty in contract fulfilment. 


Globalization can reduce some of the economic vagaries by eliminating some
of the sources of recurrent crises. During periods of rapid economic
growth, massive cash flows can compensate for some of the inconveniences
arising from a weak adherence to contractual obligations. Once an economy
reaches a certain level of maturity or begins to lose its comparative
advantages, the importance of legal protections becomes clearer. It is the
absence of such safety measures that induce investors to undertake
reassessments that can lead to the sort of mass exoduses of capital like
the one associated with the Asian crises that began in 1997.


In many Asian countries, the dominance of autocratic rule led to an
entrenchment of hierarchical power relations that retard the development of
a local contract culture. Outside of some former British colonies, few
Asian countries have an independent and competent judiciary that issue
ruling based upon strict interpretations of a body of law concerning
fulfilment of contracts that includes predictable bankruptcy proceedings.
Yet the exposure to and pressures from the international marketplace will
eventually pressure governments to adhere to the rule of law.


Some opponents to globalization express legitimate concerns. Perhaps the
most compelling objection is the fear of the dilution of local culture.
Nonetheless, opening a community to global influences is most likely to
reveal the strengths of those elements that are worth keeping and
undercover weak points that might be given up. (It is worth noting that the
Dutch have been deeply engaged in the globalization process for many
centuries without losing their unique cultural identity.)


An assessment of globalization should begin with the fact that it
introduces a contract culture in association with the rule of law as the
basis of a modern market-based economy. Although there will always be
transition costs of such monumental changes, there are solid reasons to
believe these will be exceeded by the benefits. Above all other benefits is
the increased commercial and political accountability that offers greater
protections to citizens and consumers.


Christopher Lingle is Global Strategist for eConoLytics.

R. A. Hettinga <mailto: rah at>
The Internet Bearer Underwriting Corporation <>
44 Farquhar Street, Boston, MA 02131 USA
"... however it may deserve respect for its usefulness and antiquity,
[predicting the end of the world] has not been found agreeable to
experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire'

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