Linking Economics and Religion

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Linking Economics and Religion

    Free to Choose: Economics and Religion

    Theodore Malloch


    A comparison of this survey‘s general religious freedom scores with the scores of in the

    Heritage Foundation/Wall St. Journal Indices of Economic Freedom shows that religious freedom and economic freedom tend to go together. The countries with the worst records of religious freedom -- Burma, China-Tibet, Eritrea, Iran, Iraq, the Maldives, North Korea, Saudi Arabia, Sudan, Turkmenistan, Uzbekistan --- and, following not far behind them, Afghanistan, Bangladesh, Belarus, China, Cuba, Mauritania, Pakistan, the Palestinian areas, and Vietnam, are by and large also those with terrible economic records. The worst 30 countries in economic freedom in 2007 also scored worst, a 5, 6, or 7, on religious freedom. A similar relation holds at high levels of freedom, and for those countries in the middle. The top 30 countries in the 2007 ranking of economic freedom all scored 1, 2, or 3 on religious freedom.

    There are, of course, exceptions. Hungary is very religiously free, a ‗1,‘ but ranks lower

    on economic freedom, though still more economically free than Italy or France. Saudi Arabia and Bahrain are religiously restrictive but comparatively more open economically. However, there is a basic pattern. As Brian Grim explains in his essay ―Religious Freedom and Socio-

    Economic Wellbeing,‖ the general religious freedom score has a high (0.743) correlation with the economic freedom measure and government regulation of religion (GRI) also has a high (.579) correlation.

    Obviously, societies that are free in one area often tend to be free in others, but this correlation is not merely a reflection of countries‘ records on human rights or civil liberties in

    general since, as Grim also shows, religious freedom scores have dimensions distinct from civil liberties. We find that nations and economies that have religious liberty have greater economic freedom and that countries with more economic freedom also tend to engender more religious liberty. We also find inverse correlations of religious freedom with gross domestic product (

     .251) and the level of earned income for women ( .565) and men ( .535), showing that those

    countries that fail to encourage religious liberty also usually fail to give rise to prosperous economies with economic freedom. Some of these countries may get by on mineral or other wealth, but they usually cannot sustain their economic growth

    Such trends prompt the question of why these indicators are correlated, and whether there is a causal connection. Even apart from the relative degree of government constraint, is there any indication that religious freedom encourages people to take advantage of the opportunities provided by economic freedom? Is there any connection that would encourage people to become entrepreneurs who might benefit themselves, their companies, employees, shareholders, consumers, stakeholders and the entire community by growing enterprises as engines of development? I will suggest that they are linked by spiritual capital and by competition.

Economics and Religion

    In seeking to explain why economic growth and prosperity occur in some places and not others, economists have too often overstressed instrumental economic factors. But such factors are not by themselves enough to explain these phenomena, and other dimensions need to be considered. Michael Porter revolutionized thinking about the sources of competitive economic advantage by moving the discussion away from the abstract level of nations to the level of firms and corporations, a shift in perspective that has greatly enriched thinking about economic

    strategy. A similar shift in perspective is needed in analyses of the sources of prosperity. In addition to more abstract instrumental sources, questions about the ultimate ends of social and economic activity are also critical. The economic productivity of corporations and industries depends, after all, on the innovations, ideas, and habits of individual people. Hence, we might suspect that examining this level of organization would further enrich economic thinking, and this requires us to reflect on the sources of personal commitment, belief, and action. This in turn requires some comments on the nature of democratic capitalism, economic freedom, capital, and human and spiritual capital.

    Several thinkers in the Scottish Enlightenment stressed the notion of a moral sense tied to benevolence and self-love and the right to contract with others. Adam Smith maintained that the desire to engage in a mutually beneficial voluntary exchange of private property is an innate human propensity. According to this view, freedom and responsibility are intrinsic to capital formation: a sense of purpose, moral purpose, can give rise to the formation of every kind of capital, but such purpose can only flourish when it is given freedom, including religious freedom, to do so. Modern commerce grew out of this rich moral tradition and is sustained by it in the spirit and morality of democratic capitalism.

    The concept of economic freedom is considerably younger than that of religious freedom. In the last four decades it has grown out of the writings of notable, mostly neo-classical, economists. Its agreed cornerstones are: personal choice rather than collective action; voluntary exchange coordinated by markets rather than allocation via the political process; freedom to enter and compete in markets; and protection of persons and their property from aggression or harm by others. While there is considerable debate on which specific policies best promote economic freedom, there is broad agreement that controls on government size, expenditures, and taxes, coupled with the right to form enterprises, and a legal structure that provides security of property, are key to its flourishing. Other important features are access to sound money, transparent capital markets, freedom to trade internationally, and minimal regulation of credit, labor, and business, especially entrepreneurship.

    The notion of capital is well understood. Money and other resources can buy tools, pay labor, and build infrastructure, and thereby lead to an increase. To this understanding has been added the notion of human capital, which postulates that human resources, mostly in the form of education and personal betterment, are also key to economic growth and improvement. In recent years, economists and others have begun to argue that for economies to make better use of their reserves, something more is also important -- spiritual capital.

    Lord Keynes, it is said, once remarked that for centuries we had kept religion and business in ―different compartments of the soul.‖ The notion of spiritual capital seeks to break down this wall. It is an identifiable set of concepts, ideas, beliefs, habits, social engagements, and activities that constitute a subset of human and social capital. Specifically, spiritual capital consists of the human and social capital of knowledge and behaviors that have to do with transcendent concepts and ultimate concerns, and is a critical source of innovation in human thought and society. It can also be understood as a dynamic system that contains human and social capital as sub-systems. In other words, as a specific set of knowledge and behavior, spiritual capital is a subset of human and social capital; but from the point of view of dynamics and action, spiritual capital is the comprehensive system containing human and social capital as well as linking them to innovation and to the natural world.

    Max Weber started a debate on the impact of religion on economic attitudes by stressing that religion affects the economy through its influence on individual traits that make people more

    or less economically productive. Today much of the existing evidence in support of this idea is based on cross-country studies that try to distinguish this impact from other factors. Robert Barro and Rachel McCleary have used the World Values Surveys to identify the relationship between ieconomic attitudes and intensity of religious beliefs, controlling for country fixed effects. They

    studied religious and economic attitudes toward cooperation, government, working women, legal rules, thriftiness, and the market economy. They also distinguished between and across religious denominations, and according to whether a religion was dominant in a given country. They found that many religious beliefs were associated with good economic attitudes, where ‗good' is defined as conducive to higher per capita income and growth. These effects differ across religious denominations, but overall, their studies found that Christian religions have been particularly positively associated with attitudes conducive to economic growth.

    The religion market model used by Barro, Becker, and others stresses the effects of competition as well as of the way government interacts with religion and influences participation iiin religion, or even the extent of religious beliefs. Since secularization theories have declined,

    there has also been an attempt to explain the resilience and growth of religion by stressing competition and markets. There is evidence that competition among religious providers leads to a growing market for religion. The greater the diversity and number of religious practices available in a given country, the greater the competition, which in turn promotes greater interaction between religions and a higher quality ―religious product,‖ more religious participation, and the spread of religious belief systems. Government control or monopoly religious systems lead to a low degree of religious pluralism, reduce competition, and lower church attendance.

    One of the most striking conclusions of these studies is that belief in the afterlife, in heaven and hell particularly, is good for economic growth. Of these, fear of hell is by far the most powerful, but all three indicators are considered to have a bigger impact on economic performance than mere church attendance. The economic effects of religion are thus more closely tied to belief than to practice: in fact, there is evidence that too much church attendance can have a negative effect on growth by taking time away from productive activity.

    Economists such as Barro have concluded that religion has a demonstrable effect on economic growth and development. Religion affects outcomes by fostering religious beliefs that influence individual traits such as thrift, a work ethic, honesty, and openness to strangers. Beliefs in heaven and hell affect these traits by creating perceived rewards and punishments that relate to good and bad lifetime behavior. These are facets of spiritual capital, stored up over time in a culture.

    Like other forms of capital, spiritual capital formation depends on delayed gratification. Future benefit is weighed against immediate consumption. In the same way that money capital can accumulate in savings accounts and investments, so too spiritual capital can be built up over time through the habits of the heart and realized in mediating structures such as families, religious institutions, social groups, and schools, as well as in the wider culture. (It should be remembered that when critics complain about the lack of or the unequal distribution of capital in the modern world they too often forget that spiritual capital can be as important as other forms of capital in restoring communities or building nations.)

The Importance of Religious Freedom

    Given the impact of religious beliefs and practices on economic life, we can inquire about what human abilities are stimulated by religious freedom and how they are relevant to economic activities and prosperity. Religious freedom creates the conditions for people (if they wish, and

    many do not) to make their own choices in relation to their ultimate concerns. This freedom highlights personal decisions and increases the stress on individual responsibility for religious commitments, thus increasing the degree to which individuals personally choose, shape, and own their core ideas, concepts, worldviews, habits, virtues, social engagements, and behaviors. In other words, religious liberty and freedom of conscience pose the issues of ultimate meaning at the level of the individual and so tend to foster most intensely the development of what we have here called ―spiritual capital.‖

    Religious liberty and economic freedom draw on and encourage similar traits. New data on economic liberty and religious freedom suggest that religiously free societies encourage entrepreneurs whose new enterprises benefit themselves, their companies, employees, shareholders, consumers, stakeholders and the entire community. In other words, religiously free societies usually display the highest concentration of companies that generate prosperity and broad development. Closed religious systems foul economic development and stunt growth. Closed economic systems are unkind or worse to religious sentiments and practice. Open systems in both areas are necessary to sustain human flourishing. Hence, if we desire more economic freedom and prosperity, then we should have a strategy of promoting religious liberty. If we want economic growth and development, we need to tolerate and permit religious groups and persons to follow their beliefs. Competition for religious activity creates healthy conditions for economic competition and activity.

    This has several implications.

    ; Corporations, whether small or large, national, multinational or digital, exist and operate on

    the basis of trust. Contracts are honored, relationships continued and sales increased only to

    the extent that any given company lives up to its word and on the basis of its earned

    reputation. Companies should therefore uphold economic freedom, realize its links to

    religious freedom, and seek to do business that opens up economies and reinforces religious

    freedom. Businesses need to be willing, alone, in groups, or as blocs, to say to worst regimes,

    change your ways or we will not do business here.

    ; Governments that have made both religious liberty and economic freedom a priority, of

    which there are an increasing number, and not only in developed countries, need to use

    linkage. This has worked in the past against the Soviet Union and South Africa. Bilaterally

    and regionally, countries need to speak, and to back-up their words with decisions on

    investment, trade flows and development assistance, based on hard criteria. ; For too long, international financial institutions, the World Bank Group, the International

    Monetary Fund, and the regional development banks, have rarely linked economic freedom

    and religious liberty. They little study the cultures in which they operate or the religious faith

    traditions of their clients and members. That should change. The World Bank should

    establish in its research department a unit not only on corruption but on this critical linkage

    between economic freedom and religious liberty, and then operationalize the results. Donor

    countries should insist on high standards or pull back on their commitments. ; Integrated global capital markets are increasingly sophisticated and driven by economic

    performance. Sovereign debt is a big business. Banks should make loans based on factors

    that include religious liberty and economic freedom, and their ratings should gage such

    rankings. The world‘s capital markets should be closed off to countries that do not meet

    minimum standards, or, at least, such countries should be forced to pay premiums. Ratings

    agencies could force this issue by reporting hard data on various forms of freedom for each

    country debtor and borrower.

    ; The World Trade Organization and other trading bodies of a regional or bilateral nature need

    to more adequately reflect religious liberty and economic freedom and link the two, as

    treaties allow. Trading with countries that do not respect human rights, in either the religious

    or the economic spheres, should incur penalties. Fines, tariffs, or even economic sanctions

    should be developed and enforced in order to sway public opinion and ultimately change


    ; In the past few decades the emergence and significance of civil society, in the form of

    mediating structures located between the individual and the state, have become prominent.

    Without these little platoons there would be little structure for freedom, civil rights, and

    social advancement. Robert Putnam has argued that non-political organizations in civil

    society are vital for democracy because they build social capital. Moreover, over half of all

    such social capital is religious in origin. Hence, when religious freedom is restricted, then

    civil society is also stifled, and countries are deprived of its creative energies.

    The promotion of spiritual capital requires that a robust variety of religious, and secular, ideas and practices be permitted in society. It requires the give and take of discourse and practice between and across different religious groups, including the ―non-religious.Linking religious

    liberty and economic freedom to form enterprises of lasting value is a cause for humane people, robust economies, and enlightened nations today.

    Dr. Theodore Roosevelt Malloch is Founder and Chairman of the Spiritual Enterprise Institute.

     i Robert J. Barro and Rachel M. McCleary, ―Religion and Economic Growth,‖ American Sociological Review, 68

    (October, 2003), 760-781. See also Robert J. Barro and Rachel M. McCleary, ―Religion and Political Economy in an International Panel,‖ National Bureau of Economic Research, Working Paper No. 8931 (2002). See also Pippa

    Norris and Ronald Inglehart, Sacred and Secular: Religion and Politics Worldwide (New York: Cambridge

    University Press, 2004). ii Gary S. Becker, The Economic Approach to Human Behavior (Chicago: University of Chicago Press, 1978).

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