Paul Romer agrees that culture matters, and that culture is hard to change, but he also believes that changing the formal rules can lead to big changes, an in North vs. South Korea:
There are many statistical measures of the large difference in the quality of life between the North and the South. One gripping visual indication comes from a satellite picture of the Korean peninsula at night. Compared to its neighbors, North Korea (outlined for clarity) seems like a black hole. South Korea, which looked like the North within living memory, is now a sea of lights.
Until the end of World War II, the North and South shared a common set of formal and informal rules, first as an independent nation, then under occupation by the Japanese. When the allies disarmed the occupying Japanese forces, Russia set up one system of government above the 38th parallel. The U.S. set up a different one below this arbitrary line on a map.
Officials then were very pessimistic about the prospects for both the North and South. One of the great surprises of the last half of the 20th century is the extent to which South Koreans prospered under their new government. The difference compared to the North and what could have been, is very revealing. As the economists Daron Acemoglu, Simon Johnson, and James Robinson have written, “Korea was split into two, with the two halves organized in radically different ways, and with geography, culture and many other potential determinants of economic prosperity held fixed. Thus any differences in economic performance can plausibly be attributed to differences in institutions.”
The circumstances in post WWII Korea were truly exceptional. Fortunately, few people today will live through a time when an army forces out an occupying power and fosters an entirely new system of government.
Romer recommends charter cities as the alternative to invasions by rival superpowers.