By: Luigi Zingales

August 2, 2004, The Edge Singapore

Economists, sociologists and political scientists have long been interested in explaining the economic success of certain countries and the persistent poverty of others.

The first, and most famous example, is the German sociologist Max Weber. In his 1905 treatise, "The Protestant Ethic and the Spirit of Capitalism", Weber attributes the emergence of capitalism to the Protestant doctrine of salvation and concept of good works.

Though the original debate centred on the economic virtues of Protestantism versus Catholicism, today's debate encompasses the economic effect of all major religions.

In a new study, "People's Opium? Religion and Economic Attitudes", Luigi Zingales, a professor at the University of Chicago Graduate School of Business, Luigi Guiso of the University of Sassari, Italy, and Paolo Sapienza of Northwestern University's Kellogg School of Management take a new approach to answering the question of whether religion has an impact on a country's economic development.

Previous research on this topic has focused on cross-country studies. The problem with this approach, however, is the difficulty of distinguishing between effects that are specific to religion and those that are specific to the country.

Zingales, Guiso and Sapienza's new approach focuses on the differences in religion within a given country, pooled across 66 countries. In doing so they eliminate the spurious effect of other environmental variables and can focus on the link between religion and attitudes, such as trust, that have been found to be conducive to economic growth.

The authors find that religious beliefs are generally associated with "good" economic attitudes, where "good" is defined as attitudes conducive to higher per capita income and growth. Religious people tend to trust others more, trust the government and legal system more, are less willing to break the law, and are more likely to believe that markets' outcomes are fair. There are exceptions, however. Religious people tend to be more racist and less favourable to the rights of working women.

Of the six major religious denominations represented in the survey (Catholicism, Protestantism, Judaism, Islam, Hinduism, and Buddhism), the authors find that overall, Christian religions are more positively associated with attitudes conducive to economic growth, while Islam is more negatively associated.

World values

The authors based their study on data from the World Values Survey, a collection of surveys administered to a representative sample of people in 66 countries from 1981 to 1997, coordinated by the Institute for Social Research at the University of Michigan. The surveys contain information about demographics (sex, age, education) and self-reported economic characteristics (income, social class). These data allow the authors to control for differences in individual characteristics. The survey also included answers to specific questions about religion, political preferences and economic attitudes, including religious affiliation, intensity of beliefs (frequency of attending religious service), and whether or not the person was raised religiously.

The authors analysed how religion in general, independent of denomination, affects six groups of variables: 1) attitudes towards trust and cooperation; 2) attitudes towards working women; 3) attitudes towards the government; 4) attitudes towards legal rules; 5) attitudes towards the market economy and its fairness; and 6) attitudes towards thriftiness.

On average, the authors find that religion is positively associated with attitudes conducive to free markets. Both a religious upbringing and active religious participation increase trust towards government institutions and markets. However, being religious is also linked to greater intolerance towards others and a more conservative attitude towards working women.

Results are generally the opposite for self-proclaimed atheists: They are more tolerant of others; less trusting of the government and the police; have more progressive attitudes towardss working women; trust the legal system less; are more willing to break the law; and have worse attitudes towards the market and its perceived fairness.

Spectrum of beliefs

In terms of economic impact, the three most relevant attitudes are: the degree to which people are willing to accept inequality (for example, in income) in order to provide better incentives; the degree to which people are willing to support private over public ownership; and whether people think competition is good.

The authors find that the six denominations differ most in their position on the trade-off between income equality and incentives. Catholics and, to a greater extent, Muslims and Jews are biased in favour of income equality, while Protestants, Hindus and Buddhists are more in favour of incentives.

Religious denominations also differ in their attitude towards private ownership. Buddhists, Catholics, Protestants and Hindus support private ownership more than the average non-religious person. In contrast, Muslims show considerably less support for private ownership.

Regarding competition, Buddhists, Jews, Catholics and Protestants support competition, while religious Muslims and Hindus are strongly opposed to competition.

In addressing attitudes about poverty, the authors find that religious people of all denominations except Buddhism are more inclined to believe that the poor are lazy and lack willpower, rather than being shortchanged by society.

In sum, Buddhism seems to promote the most positive attitudes towards the free market system, with Christian religions following. Muslims and Hindus showed the most negative attitudes towards the free market system.

Free markets

Based on their findings, the authors suggest that religious beliefs may explain why capitalism spread so successfully in East Asia (where Buddhism prevails), while finding less support in Islamic countries.

For most of the religious denominations represented in the survey, religion is not necessarily a hindrance to building support for a market economy. For example, it does not seem that the relative underdevelopment of Catholic versus Protestant countries is due to Catholicism itself. However, as Zingales notes, the religion that stands out in many dimensions is Islam, because Muslims tend to be opposed to many aspects of the free market system, including private property, granting incentives, competition and tolerance of women's participation in the workforce.

With regard to current events, Zingales observes, "If we go by these results, I think the Americans trying to build a market-based democracy in Iraq should be prepared for a wild ride."

- Capital Ideas, reprinted with permission from Chicago Graduate School of Business.

Luig Zingales is Robert C McCormack Professor of Entrepreneurship and Finance at the University of Chicago Graduate School of Business.