Economies Cannot Produce Wealth without Patience and Long-Term HorizonsTags Economic FreedomFree MarketsEntrepreneurship
In a pioneering study, psychologist Walter Mischel demonstrated that delaying gratification in childhood led to success in later life. The experiment entailed placing toddlers in a room with treats and giving them the option of eating them immediately or waiting for fifteen minutes so that they could get a second offering. Follow-up studies found that participants were more successful in adolescence if they exercised self-control by waiting for fifteen minutes before eating the treats.
The observation that self-control is correlated with individual accomplishment is uncontroversial, though its link to national success is underexplored. Building a civilization necessitates the renunciation of present desires for long-term benefits. For society to thrive, citizens must save, invest, and plan. In planning for the future, people will automatically prioritize investments at the expense of acquiring luxuries, thus indicating low time preference.
Invariably, capital accumulation is a consequence of low time preference, and those with lower time preference will be inclined to forfeit current wants for future success because they are future oriented. When an entrepreneur reinvests profits into his venture, this is an outcome of futuristic thinking. Since he is a long-term thinker, the entrepreneur appreciates that capital investments drive value creation and ultimately increase the firm's competitiveness.
Even contemplating starting a business is indicative of long-term thinking, considering the roadblocks that entrepreneurs frequently encounter. Most people are unlikely to become entrepreneurs, however, sustaining progress requires that characteristics of entrepreneurship like long-term orientation and patience are widely diffused throughout society. Essentially, outlier performers are indeed crucial for national success, but the average quality of the population maintains prosperity.
Many countries boast talented entrepreneurs and intellectuals; however, they remain poor because the population's average quality is too low to induce economic dynamism. Economists in a 2019 paper state that the reproduction of middle-class traits emphasizing human capital investments and long-term planning might have played a pivotal role in the rise of industrialized England:
We find that the middle class had the highest reproductive success during England's early industrial development…Hence, the prosperity of England over this period can be attributed to the increase in the prevalence of middle-class traits rather than those of the upper (or lower) class.
Today, saving and investments in human capital are markers of elite status, but originally, aristocratic elites preferred conspicuous consumption and cared little for boosting family wealth through enterprise. Therefore, the assumption that England's rise was aided by the proliferation of people with bourgeois traits is entirely plausible. Interestingly, there is evidence showing that patience—a proxy for long-term thinking impacts national wealth
In a paper entitled "Patience and the Wealth of Nations," economists conclude that patience explains "a substantial fraction of development differences across countries."
Countries with more patient populations have higher incomes, superior levels of human and physical capital accumulation, and better institutions. Such findings are explained by the future-oriented outlook of patient people. People invested in the future will save and work hard in the present to live a better life in the next decade.
Furthermore, more recent research asserts that patience is positively correlated with a country's external wealth. According to Mika Nieminen, countries inhabited by patient individuals have a positive net foreign asset position, whereas countries populated by impatient people have a negative net foreign asset position. Similarly, economic literature suggests that long-term orientation is also instrumental to development.
A 2021 study by European economists argues that long-term orientation increases economic freedom's benefits. Using a panel analysis of a sample of sixty-seven countries from 1970 to 2019, Johan Graafland and Eelke de Jong reveal that economic freedom has the greatest effect in countries where people are high in long-term orientation. Discussing these findings, they write:
Economic freedom appears to be particularly effective in raising income per capita in countries in Asia (China, Hong Kong, Singapore, South Korea, Vietnam), because these countries combine low Uncertainty Avoidance with Long Term Orientation…In addition, South American countries and countries in the Middle East and Africa hardly benefit from more economic freedom, because of the combination of a relatively high Uncertainty Avoidance and short-time orientation.
Additionally, countries that score high on long-term orientation are also more innovative. This is unsurprising because inventing is a trial-and-error process that includes failure; therefore, people who exercise patience and think long term are more likely to materialize success, since they refused to quit.
In sum, the latest findings in economics should make policy makers aware that designing policies without accounting for a population's capacity to think long term won't yield preferred results. Proposing workable solutions is an exercise in futility when people fail to appreciate their impact.