Lecture Notes on Long-term vs Short-term Orientation

Introduction

• Dimension of Long-term vs Short-term Orientation introduced in 1991.
• Identified as the fifth dimension of differences among national societies.
• Initial data from 23 countries; expanded to 93 countries in collaboration with Dr. Michael Minkov using World Value Survey data (1995-2004).

Definitions

Long-term Orientation

• Fosters pragmatic virtues oriented to future rewards.
• Key traits include:
  • Perseverance / Persistence
  • Thrift / Saving
  • Adaptability to changing circumstances

Short-term Orientation

• Fosters virtues related to past and present.
• Key traits include:
  • National pride
  • Respect for tradition
  • Preservation of faith
  • Fulfilling social obligations

Correlates of Orientation

Long-term Orientation Characteristics:

• Good and evil are relative and can change over time.
• Superior individuals adapt to circumstances.
• Emphasis on humility and learning from other countries.
• Traditions are seen as adaptable.
• Integration of opposing truths is possible.
• Problem resolution often involves common sense and the middle way.

Short-term Orientation Characteristics:

• Good and evil are absolute and unchanging.
• Superior individuals maintain consistency.
• Positive self-image is pursued.
• Traditions are viewed as sacred.
• Contradictions are seen as unresolvable.
• More fundamentalist views, including religious and ideological.

Measuring Orientation

• No absolute standards; uses an index (Long-term Orientation Index - LTO).
• Scale from 0 (short-term orientation) to 100 (long-term orientation).

Examples of Country Scores

High LTO Countries:

• Japan
• China
• Germany
• Russia
• Netherlands
• France
• Italy
• Sweden (borderline)

Low LTO Countries:

• Britain
• India
• Israel
• United States
• Mexico
• Australia
• Nigeria
• Egypt and other Islamic countries (very low LTO)

Correlations with Societal Factors

• Education:
  • Long-term oriented societies score higher in mathematics but rate results lower.
  • Short-term oriented societies score lower but overrate results.
• Savings and Investment:
  • Long-term oriented societies have a higher savings rate and more investment funds.
  • Short-term oriented societies have lower savings and investment funds.
• Business Practices:
  • Long-term oriented companies focus on market share and long-term profits.
  • Short-term oriented companies prioritize quarterly results and immediate profits.
• Investor Preferences:
  • Long-term oriented investors prefer family businesses and real estate.
  • Short-term oriented investors prefer stocks and mutual funds.
• Economic Growth:
  • Long-term oriented poor countries grow faster than short-term oriented poor countries.
  • No difference in growth rates for wealthy countries.

Stability of Scores Over Time

• Values transferred from parents to children; little change over a lifetime.
• Research indicates no worldwide shift in values for the long-term vs short-term dimension over 30 years.
• Technological changes impact habits and practices differently across societies.

Conclusion

• Long-term orientation significantly influences economic development, particularly in poorer countries.