This week we’re asking our associated economics scholars to examine the relationship between religious freedom and economic development. Specifically, we ask if religious repression is linked to underdevelopment and poverty. Respondents also explore the opposite phenomenon, namely, if robust religious freedom leads to economic flourishing and prosperity.

By: Ilan Alon

Despite the evident role of religion in society and its impact on political, economic, and social life, research on the topic is practically nil in areas outside religion and politics. Economists in particular have been criticized for often ignoring the role of culture in favor of material explanations and are now being encouraged to pay more attention to the “spiritual” realm of the economy and other elements of culture, such as an “enterprising spirit.” Indeed, “spiritual capital” is hard to measure, but luckily institutional proxies exist—freedom of consciousness or freedom of religion—which can be seen as an antecedent of “spiritual capital” development. 

In a 2005 study, my colleague Gregory Chase and I examined the possible relationships that exist between and among economic freedom, political freedom, religious freedom, and individual prosperity, measured by purchasing power parity (PPP) per capita GDP. Religious freedom contributed above and beyond political and economic freedoms to prosperity in a large cross-section of society. 

This finding, of course, begs the question: why should religious freedom affect economic prosperity? Several pathologies have been suggested, and I will briefly examine below what I believe to be some of the more promising arguments. 

One is institutions. Religious freedom correlates closely with civic, political, and economic freedom, making it an integral part and a building block of what we consider a liberal democracy. We can breakdown institutions into formal and informal governing mechanisms. Religious freedoms, for example, can divide, on the one hand, into government regulations and, on the other hand, into to social attitudes towards religious minorities, for example. 

Institutions further divide into regulatory, normative, and cognitive aspects. While regulations need little explanation, normative and cognitive dimensions relate to socially created expectations and shared conceptions of reality, respectively. This distinction is important with respect to religious freedom because government policy can actually run ahead or behind social norms and collective understanding of religious toleration and discrimination. 

Religious freedom in the USA, for example, is not only constitutionally mandated, but it is also part of citizens’ conceptions of natural human rights, and the social norm is acceptance of the cultural other. In America, to infringe on someone’s religious liberties is not only illegal, but also socially and morally unacceptable. While religious freedom is necessary for the proper functioning of democracies and free markets, it is not a sufficient condition. 

Relating to institutional similarities, religious freedom contributes to economic growth through trade and investment. Religious freedom and religious diversity affect foreign direct investment: countries that are instuitionally similar are more likely to trade with and invest in one another. Religious freedom is foundational for these institutional similarities. 

Lack of religious freedom can lead to religious fractionalization and conflict. Disenfranchised religious minorities may form militias to protect their rights, properties, or national identity. Destabilizing terrorist groups may emerge from repressed religious minorities. Tit for tat killings of the religious other can lead to outright civil war and regional conflict. Religious repression, therefore, can lead to higher levels of country and political risks. Those risks are detrimental to economic growth because they limit investment and raise the cost of capital for the borrowing country. 

Religious freedom promotes religious plurality/diversity. Diversity fosters creativity, innovation, entrepreneurship and, in turn, economic development. Societies that welcome people of diverse backgrounds, including religious backgrounds, tend to attract more talent. In the Soviet Union, there was a quota on the number of Jews allowed in elite universities and government bodies. Religious minorities suffered repression, leading to suboptimal allocation of human capital resources. This limitation made Jews feel unwelcome and not fully integrated into the society. As a result, when the Soviet Union opened under Mikhail Gorbachev, millions of educated Jews fled to Western Europe, America, and Israel. This massive emigration was a brain drain for the Soviet Union and a brain gain to the receiving countries. Israel’s “start-up nation” story was partly due to the influx of educated immigrants with technical and engineering degrees from the Soviet Union. 

Religious freedom promotes religiosity because competition by religious associations increase the market for religious services. The marketization of religion means that more segments of society are given a larger set of options to express their religiosity. Regardless of the religion type, at its core religiosity preaches morality, doing the right thing, and charity. Religions typically ask people to delay immediate gratification for salvation. Religious organizations teach people business skills that are transferable to alternative economic uses. Being accountable to a higher being also means that the threshold level for appropriate behavior, fairness, and justice may be higher than minimum mandated by law. Thus, religiosity may contribute to a more just and sustainable economic development. 

In short, religious freedom promotes economic activity both directly through institutions and indirectly through religious diversity and religiosity. In Liberty of Conscience (1943), Henry Robinson equated religious freedom to private property or enterprise. In this way, spiritual capital is as important an institutional predictor to economic wealth as financial, natural, and human capital. Robinson concluded that economic ruin will come to those nations which seize the property or exile citizens over their religious beliefs. Let history be a lesson and let us choose freedom and toleration in all areas of social life, including liberty of consciousness, so that the “invisible hand” and prosperity can symbiotically co-exist. 

Ilan Alon is the George D. and Harriet W. Cornell Chair of International Business and director of the China Center at Rollins College, specializing in international business management and marketing, with an emphasis on China.

This piece was originally authored on May 9, 2014 for the Religious Freedom Project at Georgetown’s Berkley Center for Religion, Peace, and World Affairs.