Thanks for the feedback, and your usual gentle but firm style! I wanted to counter on a few points (I don't think we'll end up disagreeing much, but there do seem to some important subtleties that are worth noting).
1. You are wrong when you state in your reply, without any qualifications, that "investing money in industry clusters without taking on monopoly
regulation is not the most effective way of encouraging innovation". The failure to put any qualifiers to that (in the same way that you make a sweeping "How Governments Actively Discourage Innovation" statement in your original post - no contextual limiters, just a sweeping blanket statement) is the mistake.
There are plenty of examples from economic history of just that approach being highly successful. As it happens, here's a very topical article on Brazil from Forbes - note the fifth paragraph that shows just such a constructive 'national champion' as being highly successful (and spawning an innovation hub). The S Korean chaebols of Samsung and LG are similar phenomenally successful examples. From heavy industry to consumer durables to sophisticated electronics - with heavy R&D along the way.
The key point in these examples, of course, is that the 'national champions' (which were essentially national monopolies or oligopolies that were created by the respective governments) were still having to compete in international export markets. So they had to innovate. This seems to be the difference w Mexico, with the national monopolists not just being protected domestically, but also not being forced to compete in export markets?
So if the point you are trying to make is that competition is important for innovation, then absolutely. But that does not necessarily mean that competition has to be domestic. Context - both time & space - is key. The policies needed in country A may be very different from country B, with one needing national champions and the other needing anti-trust. Equally the policies needed in country A at time T1 (when perhaps national champions are needed) may be very different from a later time T2 (when perhaps anti-trust breakups are needed).
Pragmatism is vital - see Deng's classic quote here. And making blanket statements, without qualifiers, is something that I'm afraid I have to call out (very unlike you, in your defence!).
2. This then leads to the question of what is the nature of, and motivation behind, govt policy choices in any country at any time. My point is that institutional analysis is the key holistic insight here - an insight that leads to my dismissal of "culture".
But before we get to that, I think it is worth clarifying a misundertanding. You seem to be seeing institutions as something mostly procedural or regulatory (eg, anti-corruption commissions, structured rules, legal rights around property or marriage, or things that can be "accompanied by complementary initiatives in the media and education"). In the normal sense of "institution" in day to day language, that's probably right.
But in new institutional economics, these are simply sub-sets of "institutions", with institutions actually being much broader than that. In particular, you'll see the references in that hyperlink to not just social norms, but also to governance, ideological values, gained control, asymmetric information, bargaining power and so on.
This may seem just like semantics but its not. Govts do not control or create institutions - but are in fact themselves a reflection of, and created by, institutions (in the economics sense). So you cannot separate those, and criticise one without criticising the other. And equally, if there are shortcomings in one, that will typically be driven by shortcomings in the other. This is a dynamic, endogenous relationship.
Your critique of 1980s/90s LatAm with import substitution policies that were not accompanied by skills, education or deregulation is a perfect example of this. All of those seem to be consistent with LatAm having extractive institutions in that period. The elites benefited from import substitution (since they controlled the national champions) and of course also had no incentives (or pressure) to invest in the skills, education or opportunity-creation of the non-elites. So actually the fact that that happened is not surprising at all.
The real question is how and why did LatAm institutions change to become more inclusive. I'm not an expert on the region, but I daresay the political struggle and mobilisation of the marginalised or underprivileged was the key factor (a la Lula, Morales, Chavez et al). I'd doubt that there was any magical, benevolent culture shift in the region. I'd wager that it was political competition that either led to outright regime change, or progressively more inclusive politicoeconomic bargaining by incumbent elites.
(Yes, I'm aware that Brazil, Venezuela, Ecuador have all gone different ways. Context is indeed key as flagged above - there is no deterministic blanket path. Even Lula I believe started his first administration as a classic radical, but was foresighted enough to know he had to be pragmatic).
3. So when you extol the importance of norms, behaviours and values, I couldn't agree with you more. But those are part of institutions! They are not something alien or parallel (or exogenous) to institutions. Media and education are not things that accompany institutions, they are examples of institutions.
This may seem like generalising institutions to such an all-encompassing level that they are no longer useful for analytical purposes. Not so, because what such a lens of "institutions" forces us to look at is not just the formal rules, but also the underlying norms, behaviours and value systems. But not just stop there, but also to look at bargaining power, information asymmetry etc. And not just stop there, but to look at the fact that these shape each other endogenously and reflexively - and that therefore the whole thing becomes not just dynamic but also the epitome of a complex system.
This forcing process to look at all these factors is vital (and is the real value-add of such an institutional approach). It is also why I argue that "Culture" does not exist. And that arguments based on "Culture" are prescriptive, ascriptive and are rhetorical camouflage (devices of distraction even).
4. So now we come to the point that you seem to have felt most strongly. And actually your example proves my point :) ...
Let me ask you, is there such a thing as "Mexican" culture? I know much less about the region than you, but do the peasants in Chiapas share the same culture as the landowners and industrialists or the hipsters and techies or the narcos?
Certainly, if we look at other parts of the world, the values, beliefs, worldviews, norms (however you want to define "Culture") vary hugely within countries. Not many folks would claim that the Northern states of India have the same culture as the North-Eastern or Southern states. Or that the adivasis have the same culture as the landowners, or the landowners the same culture as the city-dwellers. Or that the Muslims have the same culture as the Hindus or the Christians. Or that even within the same state or city, that 20-something dalits have the same culture as 20-something upper-caste Hindus.
Or that in Nigeria, for example, that the northern Muslims have the same culture as the southern Christians. Or that the Igbo have the same culture as the Yoruba or Hausa. Or that in Kenya (very topical), that the Kikuyu have the same culture as the Kalenjin or Luo. Or that in Uganda that the Karamojong have the same culture as the Kampala-dwellers. Or that in South Africa, the English have the same culture as the Afrikaners, and either of them have the same culture as rural black people (whether Zulu, Xhosa or other).
You get my point. Where or what is "Culture" in these countries? "Culture" as a proposed explanatory variable omits a crucial dimension: power.
I believe that societies are composed of hugely diverse groups. These groups have different world-views, norms, beliefs etc. These groups form coalitions and rivalries in order to advance their own well-being. These coalitions and rivalries are never static or linear - they will be nuanced, Machiavellian, opportunistic (as well as more strategically motivated through generations of ingrained dogma). Power is contested for, achieved, shared, lost, rebalanced, renegotiated. It is frankly a perpetual competitive process.
This is what institutional analysis shows us, and forces us to confront. You cannot wave a magic wand of "Culture" over this. You can use "Culture" as a lens to try and taxonomise the component norms, beliefs and views of a particular sub-group. But the bargaining, coalition and rivalrous behaviour is fundamentally a political one - not a cultural one.
5. As a coda, you're absolutely right around media and education. In the long-run, persuasion is more effective (and efficient) than coercion. Why else do the Jesuits say this? And why else is education (and the lack thereof) so close to the elites' hearts? And curricular content (and subject matter prioritisation) so fought over? And as Freire beautifully wrote, pedagogy also so skewed?
But let's also be clear. When you correctly say that education is needed, and that cultural campaigns are needed - implicit in that is that these should be aimed at delivering or enhancing the views and beliefs that you share. (I'm not picking on you - the same is true of anyone who makes this point: it's human nature!).
Gay marriage is a perfect example - "marriage" is a legal institution that is only happening because societally, norms around homosexuality have (thankfully) changed (ie, the institutions around sexual orientation changed to pave the way for an eventual legal reflection of that). The opposite is also the case with, for example, racism. There are plenty of laws that prohibit racism, but of course it is institutionalised into society so that it still happens (see the Lawrence enquiry in the UK, or the topical observations by Charles Ramsey in Cleveland).
So when "Culture" is used, it is an ascriptive explanation. Let's be clear - culture is never neutral, it seeks to convert and evangelise and differentiate (many would argue that is its evolutionary point!). And indeed it is the most potent tool and device because once it works,
people think, behave, act (and elect) on the basis of identity and
self-identification. I would even go as far as saying (to be wilfully
provocative) that "Culture" is an insidious framing because it makes
those who don't share it a more alien "other".
Anyway, returning to our argument of how best to think about how societies work, "Culture" is not a neutral explanatory framework but a competitive tool, device and objective.
That is why I argue that "Culture" doesn't exist as an explanatory framework. Societies are made out of sub-groups (themselves often in flux) which are in a constant competitive process of coalitions and rivalries. Institutional analysis that forces us to look holistically at all these factors is by far the better explanatory framework than "Culture".