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THE MORAL CONSEQUENCES OF ECONOMIC GROWTH

Benjamin M. Friedman

Economic growth has become the secular religion of advancing industrial societies. —Daniel Bell, The Cultural Contradictions of

re we right to care so much about economic growth ate them. But moral thinking, in practically every known Aas we clearly do? For citizens of all too many of culture, enjoins us not to place undue emphasis on our the world’s countries, where is still the norm, material concerns. We are also increasingly aware that the answer is immediate and obvious. But the tangible —industrialization in particular, improvements in the basics of life that make economic and more recently —often brings undesir- growth so important whenever living standards are low— able side effects, like damage to the environment or the greater life expectancy, fewer diseases, less infant mor- homogenization of what used to be distinctive cultures, tality and malnutrition—have mostly been played out and we have come to regard these matters, too, in moral long before a country’s reaches the terms. On both counts, we therefore think of economic levels enjoyed in today’s advanced industrialized econo- growth in terms of material considerations versus moral mies. Americans are no healthier than Koreans or Por- ones: Do we have the right to burden future genera- tuguese, for example, and we live no longer, despite an tions, or even other species, for our own material ad- average income more than twice what they have. Yet vantage? Will the emphasis we place on growth, or the whether our will continue to improve, actions we take to achieve it, compromise our moral and how fast, remain matters of acute concern for us integrity? We weigh material positives against moral nonetheless. negatives. Perhaps because we are never clear about just why I believe this thinking is seriously, in some circum- we attach so much importance to economic growth in stances dangerously, incomplete. The of a rising the first place, we are often at cross-purposes—at times standard of living lies not just in the concrete improve- we seem almost embarrassed—about what we want. Not ments it brings to how individuals live but in how it only do we acknowledge other values; as a matter of shapes the social, political and, ultimately, the moral principle we place them on a higher plane than our character of a people. material well-being. Even in parts of the world where Economic growth—meaning a rising standard of liv- the need to improve nutrition and literacy and human ing for the clear majority of citizens—more often than life expectancy is urgent, there is often a grudging as- not fosters greater opportunity, tolerance of diversity, pect to the recognition that achieving superior growth social mobility, commitment to fairness, and dedication is a top priority. As a result, especially when faster growth to . Ever since the Enlightenment, Western would require sacrifice from entrenched constituencies thinking has regarded each of these tendencies positively, with well-established , the political process of- and in explicitly moral terms. ten fails to muster the determination to press forward. Even societies that have already made great advances The all-too-frequent outcome, in low- and high-income in these very dimensions, for example, most of today’s countries alike, is economic disappointment, and in some Western , are more likely to make still fur- cases outright stagnation. ther when their living standards rise. But when The root of the problem, I believe, is that our con- living standards stagnate or decline, most societies make ventional thinking about economic growth fails to re- little if any progress toward any of these goals, and in flect the breadth of what growth, or its absence, means all too many instances they plainly retrogress. Many for a society. We recognize, of course, the advantages countries with highly developed , including of a higher material standard of living, and we appreci- the , have experienced alternating eras of

THE MORAL CONSEQUENCES OF ECONOMIC GROWTH 15 economic growth and stagnation in which their demo- or pull of public policy—it is important that we take cratic values have strengthened or weakened accord- these moral positives into account. ingly. How the citizens of any country think about eco- Economic Growth or Stagnation? nomic growth, and what actions they take in conse- Especially in a work focused on the positive link quence, are therefore a matter of far broader impor- between economic growth and social and political tance than we conventionally assume. In many countries progress, it may seem strange to think that the United today, even the most basic qualities of any society— States, now so preeminent across the world in economic democracy or dictatorship, tolerance or ethnic hatred terms, faces any significant threat in this regard. One and violence, widespread opportunity or economic oli- country after another—including even and garchy—remain in flux. In some countries where there Singapore, which thus far have hesitated to liberalize is now a democracy, it is still new and therefore frag- politically—has adopted American approaches to the ile. Because of the link between rising or falling living management of its , based on free enterprise, standards and just these aspects of social and political private initiative, and mobile capital. Why would on- development, the absence of growth in so many of what going economic growth not therefore herald an era of we usually call “developing economies,” even though further social and political progress that would rein- many of them are not actually developing, threatens force the openness of American society and otherwise their prospects in ways that standard measures of na- strengthen and broaden American democracy? tional income do not even suggest. The same concern One concern is simply that the robust growth of the applies, albeit in a more subtle way, to mature democ- latter half of the 1990s may prove to have been only a racies as well. temporary interlude, a “bubble,” as many disappointed Even in the United States, I believe, the quality of investors now regard it, between the stag- our democracy—more fundamentally, the moral char- nation that dominated most of the final quarter of the acter of American society—is similarly at risk. The twentieth century and further stagnation yet to come. central economic question for the U.S. at the outset of But even the that the United States experi- the twentyfirst century is whether the nation in the gen- enced in the late 1990s bypassed large parts, in some eration ahead will again achieve increasing prosperity, important dimensions a clear majority, of the country’s as in the decades immediately following World War II, citizens. Jobs were plentiful, but too many provided or lapse into the stagnation of living standards for the poor , little if any training, and no opportunity majority of our citizens that persisted from the early for advancement. 1970s until the early 1990s. And the more important Economic progress needs to be broadly based if it is question that then follows concerns how these different to foster social and political progress. That progress economic paths would affect our democratic political requires the positive experience of a sufficiently broad institutions and the broader character of our society. As crosssection of a country’s population in order to shape the economic historian Alexander Gerschenkron once the national mood and direction. But except for a brief observed, “even a long democratic history does not period in the late 1990s, most of the fruits of the last necessarily immunize a country from becoming a ‘de- three decades of economic growth in the United States mocracy without democrats.’” Our own experience, have accrued to only a small slice of the American popu- as well as that of other countries, demonstrates that lation. Nor was that short period of widespread pros- merely being rich is no bar to a society’s retreat into perity sufficient to allow most American families to rigidity and intolerance once enough of its citizens make up for the or outright de- lose the sense that they are getting ahead. The famil- cline they had endured during previous years. After al- iar balancing of material positives against moral nega- lowing for higher , the average worker in Ameri- tives when we discuss economic growth is therefore can business in 2004 made 16 percent less each week a false choice, and the parallel assumption that how than thirty-plus years earlier. For most Americans, the we value material versus moral concerns neatly maps reward for work today is well below what it used to be. into whether we should eagerly embrace economic With more and more twoearner , and more growth or temper our enthusiasm for it is wrong as individuals holding two jobs, most families’ incomes well. Economic growth bears moral benefits as well, have more than held their ground. However, nearly all and when we debate the often hard decisions that of the gain realized over these last three decades has inevitably arise—in choosing economic policies that occurred only in the burst of strong growth in the late either encourage growth or retard it, and even in our 1990s. Despite mostly low , and some reactions to growth that takes place apart from the push modest growth in the U.S. —

16 SOCIETY • JANUARY/FEBRUARY 2006 and despite the increased prevalence of two-earner fami- were more active and visible than at any time since the lies and two-job workers—the median family’s income 1930s, antigovernment private “militias” flourished as made little gain beyond from the early 1970s never before, and all the while many of our elected to the early 1990s. For fully two decades, most Ameri- political leaders were reluctant to criticize such groups cans were not getting ahead economically, and many of publicly even as church burnings, domestic terrorist those who did were increasingly hard-pressed to sus- attacks, and armed standoffs with law enforcement au- tain even their meager progress. This was not the kind thorities regularly made headlines. Nor was it coinci- of broadly based increase in living standards that we dental that the effort to “end welfare as we know it”— normally conceive as “economic growth.” a widely shared goal, albeit for different reasons among Even for many families in the country’s large middle- different constituencies—often displayed a vindictive class majority, economic prospects have become increas- spirit that was highly uncharacteristic of the United ingly precarious in recent decades. Young men enter- States in the postwar era. ing the American job force in the 1970s started off their With the return of economic advance for the major- working careers earning two-thirds more, on average, ity of Americans in the mid-1990s, many of these de- than what their fathers’ generation had made starting plorable tendencies began to abate. In the 2000 and out in the 1950s. By the early 1990s, young workers 2004 presidential campaigns, for example, neither were starting out at one-fourth less than what their par- antiimmigrant rhetoric nor resistance to affirmative ents’ generation had earned. It is not surprising, there- action played anything like the role seen in the elec- fore, that throughout this period even as they expressed tions in 1996 and especially 1992. While hate groups confidence that the U.S. economy would continue to and antigovernment militias have not disappeared, they expand, Americans in record numbers also said they have again retreated toward the periphery of the nation’s had no sense of getting ahead personally and that they consciousness. Nonetheless, much of the legacy of those feared for their children’s financial future. Even in the two decades of stagnation remains. While it has be- late 1990s, with the surge in both the economy and the come commonplace to speak of the importance of “civil in full bloom, more than half of all Ameri- society,” many observers increasingly question the vi- cans surveyed said they agreed that “The American dream tality of American thought on the attitudes and institu- has become impossible for most people to achieve.” tions that comprise it. Even our public political dis- More than two-thirds said they thought that goal would course has lately lost much of its admittedly sparse become still harder to attain over the next generation. civility, foundering on personal charges, investigations, The disappointment so many Americans felt—and and reverberating recriminations. that many feel today—at failing to achieve greater ad- It would be foolish to pretend that all these disturb- vances is grounded in hard reality, as is the sense of ing developments were merely the product of economic many young Americans that their prospects are poor forces. Social and political phenomena are complex, even at times when the economy is strong. American and most have many causes. In the 1960s, for example, citizens applaud the American economy, especially in conventional thinking in the United States interpreted years when it prospers, yet even then they fear that the the wave of student uprisings on college campuses across end of the American dream lies ahead. They do so be- the country as a protest against the Vietnam War. No cause in the last generation so many have failed to ex- doubt it was, in part. That simple view failed, how- perience that dream in their own lives. ever, to explain why other countries not involved in The consequence of the stagnation that lasted from Vietnam had much the same experience (for example, the mid-1970s until the mid-1990s was, in numerous France, even more so) at just the same time. Thus, po- dimensions, a fraying of the U.S. social fabric. It was litical and social changes that have been under way in no coincidence that during this period popular antipa- the United States in our era have multiple roots as well. thy to immigrants resurfaced to an extent not known in But it would be equally foolish to ignore the effects the United States since before World War II, and in of two decades of economic stagnation for a majority some respects not since the 1880s when intense nativism of the nation’s citizens in bringing about these changes. spread in response to huge immigration at a time of And it would be complacent not to be concerned now protracted economic distress. It was not an accident that that the economy’s prospects are in question once again. after three decades of progress toward bringing the The history of each of the large Western democracies— country’s African-American minority into the country’s the United States, Great Britain, France, and Germany— mainstream, public opposition forced a rolling retreat is replete with instances of just this kind of turn away from affirmative action programs. It was not mere hap- from openness and tolerance, and often the weakening penstance that, for a while, white supremacist groups of democratic political institutions that followed in the

THE MORAL CONSEQUENCES OF ECONOMIC GROWTH 17 wake of economic stagnation and that diminished average incomes have risen during these years. The people’s confidence in a better future. In many parts of specific context of developing economies creates sev- Europe, the social and political consequences of the eral reasons for this to be so. To be sure, there are highly transition from the postwar economic miracle to today’s visible exceptions—China, Singapore, and Saudi nagging “Eurosclerosis” are all too evident. Arabia, to name just a few—and discrete transitions in In some eras, both in our own history and in that of countries’ political systems usually exhibit other com- other countries, episodes of rigidity and intolerance have plexities as well. But taken as a whole, the experience been much more intense and have borne far more seri- of the developing world during the last two decades, ous consequences than anything we have seen recently; indeed since World War II, is clearly more consistent but then some past eras of stagnation or retreat in liv- with a positive connection between economic growth ing standards have been much more pronounced as well. and democratization. At the same time, periods of in For just this reason, concern that the robust expan- the United States and elsewhere, during which most sion many developing countries have enjoyed for some citizens had reason to be optimistic, have also witnessed years may abate is likewise not a matter of economics greater openness, tolerance, and democracy. To repeat: alone. We know that new democracies are fragile de- such advances occur for many reasons. But the effect mocracies. They have neither the appeal of historical of economic growth versus stagnation is an important tradition nor much record of concrete accomplishments and often central part of the story. to give them legitimacy in the eyes of what may still be I believe that the rising intolerance and incivility a skeptical citizenry. Economic growth, or its absence, and the eroding generosity and openness that have often plays a significant role in spawning not only marked important aspects of American society in the progress from dictatorship to democracy but also the recent past have been, in significant part, a consequence overthrow of democracies by new dictatorships. of the stagnation of American middleclass living stan- It is too soon to judge whether the dards during much of the last quarter of the twentieth that beset some of the most successful developing econo- century. If the United States can return to the rapid and mies in and Latin America at the end of the 1990s more broadly based growth that the country experi- marked the beginning of a new era of slower growth— enced during the first few decades after World War II— due, for example, to global excess capacity in many of or, more recently, the latter half of the 1990s—over the industries in which these economies competed. Or time these unfortunate political and social trends will was it merely a warning to avoid risky financing struc- continue to abate. If U.S. growth falters, however, or tures and eliminate wasteful corruption? Either way, if it continues slowly to benefit only a minority of U.S. what should be clear is that the risks these countries citizens, then the deterioration of American society will, face, if their prior growth was disappointing, are as I fear, worsen once more. much political and social as they are economic. The brutal violence that was suddenly inflicted on Indonesia’s Economic Growth and Political Democracy Chinese minority when that country’s economy The importance of the connection between economic stumbled was only one demonstration of the dangers growth and social and political progress, and the con- inherent in falling incomes. For the same reason, the sequent concern for what will happen if living stan- frequently expressed fears of what an economic col- dards fail to improve, are not limited to the United lapse would mean for the still tenuous and highly im- States and other countries that already have high in- perfect democracy in Russia also deserve to be taken comes and established democracies. The main story of seriously. the last two decades throughout the developing world, Concerns of a graver nature surround those “devel- including many countries that were formerly either oping countries” where there is little actual economic member states of the Soviet Union or close Soviet de- development. In much of , but elsewhere as well, pendencies, has been the parallel advance of economic living standards are stagnant or declining. In many such growth and political democracy. As recently as the countries, the familiar claim is that proper institutions— 1970s, fewer than fifty countries had the kind of civil rule of law, transparency, stable government that is not liberties and political institutions that are normally as- corrupt—must be in place before economic advance is sociated with freedom and democracy. However, by the feasible. But if it takes economic growth to make these close of the twentieth century there were nearly ninety. institutions viable (they go along with a democratic Not surprisingly, the countries where this movement society although they are not identical to it), seeking to toward freedom and democracy has been most success- implant them artificially in a stagnant economy is likely ful have, more often than not, been countries where to prove fruitless.

18 SOCIETY • JANUARY/FEBRUARY 2006 The link between economic growth and social and In arguing that rising living standards nurture posi- political progress in the developing world has yet other tive changes in political institutions and social attitudes, practical implications as well. For example, the con- it is important to be clear that practically nobody op- tinuing absence of political democracy and basic per- poses economic growth per se. Rather, a seriously cred- sonal freedoms in China has deeply troubled many ob- ible warning of the end of economic growth would servers in the West. Until China gained admission to prompt real consternation, as indeed occurred in the the World Organization in 2002, these concerns wake of the energy increases of the 1970s and, regularly gave rise in the United States to debate on far more so, during the Depression of the 1930s. whether to trade with China on a “most favored na- tion” basis. These concerns still cause questions about Resistance to Economic Growth whether to give Chinese firms advanced American tech- Greater affluence means, among many other things, nology, or allow them to buy an American oil com- better food, bigger houses, more travel, and improved pany. Both sides in this debate share the same objec- medical care. It means that more people can afford a tive: to foster China’s political liberalization. How to better . It may also mean, as it did in most do so, however, remains the focus of intense disagree- Western countries during the twentieth century, a shorter ment. work-week that allows more time for family and friends. But if a rising standard of living leads a society’s Moreover, these material benefits of rising incomes political and social institutions to gravitate toward open- accrue not only to individuals and their families but to ness and democracy—as the evidence mostly shows— communities and even to entire countries. Greater af- then as long as China continues its recent economic fluence can also mean better schools, more parks and expansion, Chinese citizens will eventually enjoy museums, and larger concert halls and sports arenas, greater political democracy together with the per- not to mention more leisure to enjoy these public fa- sonal freedoms that democracy brings. Since 1978, cilities. A rising average income allows a country to when Deng Xao-Ping’s economic reforms began, the project its national abroad, or send a man to the Chinese have seen a fivefold increase in their mate- moon. rial standard of living. The improvement in nutri- All these advantages, however, lie chiefly in the tion, housing, sanitation, and transportation has been material realm, and we have always been reluctant to dramatic, while the freedom of Chinese citizens to advance material concerns to the highest plane in our make economic choices—where to work, what to buy, value system. Praise for the ascetic life, and admiration whether to start a business—is already far broader than for those who practice self-denial have been continual it was. With continued economic advance (the aver- themes in the religions of both West and East. So, too, age Chinese standard of living is still only oneeighth have warnings about the dangers to man’s spiritual that in the United States), greater freedom to make wellbeing that follow from devotion to and political choices, too, will probably follow. Indeed, luxury, or, in some views, merely from itself. an important implication of the idea that it is in sig- Even the aristocratic and romantic traditions, which rest nificant part the growth rather than just the level of on the clear presumption of having wealth, are none- people’s living standards that matters for this pur- theless dismissive of efforts to pursue it. pose is that the countries in the developing world Furthermore, even when people plainly acknowledge whose economies are actually developing, like China, that more is more, less is less, and more is better, eco- will not have to wait until they achieve Western-level nomic growth rarely means simply more. The dynamic incomes before they experience significant political and process that allows living standards to rise brings other social liberalization. changes as well. More is more, but more is also differ- If this conclusion seems optimistic, that is because it ent. The qualitative changes that accompany economic is. Traditional lines of Western thinking that have em- growth—including changes in work arrangements, in phasized a connection between material progress and power structures, in our relationship to the natural en- moral progress (as the philosophers of the Enlight- vironment—have nearly always generated resistance. enment conceived it) have always embodied a pow- The anti-globalization protests in the streets of Seattle, erful optimism about the human enterprise. The real Genoa, and Washington, D.C., and even on the out- dangers that accompany stagnating incomes notwith- skirts of Davos, reflect a long-standing line of think- standing, many of the predictions as well as the im- ing. plications for public policy that follow from this con- More than two centuries ago, as Europe was em- nection encourage such optimism and are, in turn, barking on its and sustained by it. and his contemporaries were analyzing and celebrating

THE MORAL CONSEQUENCES OF ECONOMIC GROWTH 19 the forces that create “the wealth of nations,” Jean- forests, or coal, or oil reserves, or to deplete the ozone Jacques Rousseau instead admired the “noble savage, or alter the earth’s climate by filling the atmosphere arguing that mankind’s golden age had occurred not with greenhouse gases. While pleas on behalf of bio- only before industrialization but before the advent of logical diversity sometimes appeal to practical notions settled agriculture. Seventy-five years later, as promi- like the potential use of yet-to-be-discovered plants for nent Victorians were hailing the “age of improvement,” medicinal purposes, we also increasingly question our observed the raw hardships that advancing moral right to extinguish other species. Opposition to industrialization had imposed on workers and their the global spread of markets is often couched as much families, and devised an economic theory of how mat- in terms of the moral emptiness of consumerism as in ters might (and in his mind, would) become better, to- the tangible hardships sometimes imposed by world gether with a political program for bringing that sup- and unstable financial systems. posedly better world into existence. Although But if a rising standard of living makes a society Communism is now mostly a relic where it exists at all, more open and tolerant and democratic, and perhaps romantic socialism, combining strains of Marx and also more prudent on behalf of generations to come, Rousseau, continues to attract adherents, as do funda- then it is simply not true that moral considerations ar- mentalist movements that celebrate the presumed pu- gue wholly against economic growth. Growth is valu- rity of preindustrial society. able not only for our material improvement but for The ’s influential “Limits to Growth” how it affects our social attitudes and our political in- report and the “Small is Beautiful” counterculture of stitutions—in other words, our society’s moral charac- the 1970s, the mounting concerns over the impact on ter, in the term favored by the Enlightenment thinkers the environment of economic expansion, especially since from whom so many of our views on openness, toler- the 1980s, and most recently the antiglobalization move- ance, and democracy have sprung. The attitude of people ment mounted in opposition to the World Trade Orga- toward themselves, toward their fellow citizens, and nization and against foreign more generally toward their society as a whole is different when their are all echoes of the same theme, which is thoroughly living standard is rising from when it is stagnant or familiar today. Environmental concerns in particular falling. It is likewise different when they view their have expanded from their initial focus on the air and prospects and their children’s prospects with confidence water to encompass noise pollution, urban congestion, as opposed to looking ahead with anxiety or even fear. and such fundamental issues as the depletion of nonre- When the attitudes of the broad majority of citizens are newable and the extinction of species. In re- shaped by a rising standard of living, over time that cent years, the force of competition in global markets difference usually leads to the positive development and the turmoil of an unsettled world financial system of—to use again the language of the Enlightenment— have inflicted visible hardships on large numbers of a society’s moral character. people both in the developing world and in countries Hence questions about economic growth are not a that are already industrialized, just as they have created matter of material versus moral values. Yes, economic opportunities and given advancement to many others. growth often does have undesirable effects, such as the As in the past, the plight of those who are affected disruption of traditional cultures and damage to the adversely—Indonesians who faced higher environment, and yes, some of these are a proper moral when their plunged, Argentinians who found concerns that we are right to take into account. But their blocked when the country’s banking sys- economic growth bears social and political consequences tem collapsed, textile workers throughout the develop- that are morally beneficial as well. Especially for pur- ing world who cannot compete with low-cost factory poses of evaluating different courses for public policy, in China—has led not only to calls for re- it is important that we take into account not only the form of the underpinnings of economic growth but to familiar moral negatives but these moral positives as outright opposition. well. What marks all these forms of resistance to the un- It is no less essential to understand the proper rela- desirable side effects of economic expansion or of the tionship between public policies and private initiatives globalization of economic growth is that, just as with regarding economic growth. Here, too, positive moral earlier strands of religious thinking, in each case they consequences of rising living standards significantly are accompanied by a distinctly moral overtone. Ever change the story. larger segments of our society accept that it is not just A commonly held view is that government policy economically foolish but is morally wrong for one gen- should try, in so far as it can, to avoid interfering with eration to use up a disproportionate share of the world’s private economic initiative: the expectation of greater

20 SOCIETY • JANUARY/FEBRUARY 2006 is ample incentive for a firm to expand produc- meant rising socially. The resulting opportunity to tion, or build a new factory, while the prospect of higher achieve and advance, Tocqueville observed, created, in wages is likewise sufficient to encourage workers to turn, a sense of obligation to strive toward that end. As seek out training or invest in their own education. The we look back nearly two centuries later, it is also same reasoning applies to private decisions on , selfevident that removing forms of discrimination that starting a new business, or adopting a new technology. once blocked significant segments of the population The best that government can do (so the story goes) is from contributing their efforts has further enabled the minimize the extent to which taxes, or safety regula- American economy to harness its labor resources and tions, or restrictions imposed for the sake of national its brain power. On both counts, the openness of our security, blunt these market incentives. The “right” pace society has helped foster our economic advance. of economic growth is whatever the market—that is, The United States is perhaps the preeminent histori- the aggregate of all private decisions—would deliver cal example of such reciprocity between social and po- on its own. litical openness and economic growth. Taken as a whole, But this familiar view, too, is seriously incomplete. our nation’s history has predominantly been a mutu- To the extent that economic growth brings not only ally reinforcing process of economic advance and ex- higher private incomes but also greater openness, tol- panding freedom. The less fortunate experience of erance, and democracy—benefits we value but that the some other countries, most notably those in Sub-Sa- market does not price—and to the extent that these haran Africa since the end of the colonial period, unpriced benefits outweigh any unpriced harm that suggests the same reciprocity at work but in the op- might ensue, market forces alone will systematically posite direction. Many governments of Sub-Saharan provide too little growth. Calling for government to Africa were at least formally democracies when the stand aside while the market determines our economic colonial powers departed, but in time they became cor- growth ignores the vital role of public policy: the right rupt and oppressive dictatorships. In parallel, what had rate of economic growth is greater than the purely been reasonably functioning economies stagnated and marketdetermined rate, and the role of government then declined. policy is to foster it. While the evidence suggests that economic growth In a country like the United States, there are many usually fosters democracy and all that it entails, it is ways by which the government can foster economic less clear that open societies necessarily experience su- growth, given the political will to carry out such poli- perior economic growth by virtue of their democratic cies. Except for a few years in the late 1990s, we have practice. A mobile society, with opportunity for all, been systematically under-investing in our factories and obviously encourages economic enterprise and initia- productive equipment. Just as important, we under-in- tive. But democracy is often contentious, even chaotic, vest in our nation’s human resources and we misuse and not every aspect of the untidy process of self-gov- what we do invest. Removing these impediments to our ernment is conducive to economic expansion. Experi- growth would be highly desirable. But finding the will ence clearly suggests that the absence of democratic to do so depends, in part, on popular understanding of freedoms impedes economic growth, and that the re- why growth is so important in the first place. sulting stagnation, in turn, makes a society even more intolerant and undemocratic. The evidence to date sug- Economic Growth and Moral Consequences gests that this kind of vicious circle, as has occurred in It would be a mistake, however, to believe that only some African countries, for example, is more powerful market incentives and government economic policies than the analogous virtuous circle in which growth and are important for achieving economic growth and with democracy keep reinforcing each other. it the positive influence on social and political devel- A further potentially important influence on eco- opment that follows from rising living standards. While nomic growth—and one that is especially pertinent to economic growth makes a society more open, tolerant, the argument advanced here about the broader conse- and democratic, such societies are, in turn, better able quences of rising living standards—is a society’s moral to encourage enterprise and creativity and hence to ethic. When people decide how much to save, what achieve ever greater economic prosperity. Alexis de size house to buy, whether to accept a new job, or Tocqueville, visiting the United States in the 1830s, whether to get more education, they normally respond remarked at length on how the openness of this new not just to personal economic incentives narrowly con- democratic society seemed to spur effort: economic strued but to established moral values and social pre- advance was open to all (he was thinking only of white sumptions. Businesses too are rarely the singleminded males), and in a classless society rising economically profit maximizers portrayed in economics textbooks.

THE MORAL CONSEQUENCES OF ECONOMIC GROWTH 21 Whether companies regularly launch new initiatives, them partly on that ground. But, in each case, our soci- whether they act with loyalty to their workers and re- ety also regards these qualities, or actions, as morally spect toward their communities, even whether they obey worthwhile. the law, also reflects the broader culture of which they A hundred years ago, Max Weber argued that what are a part. All societies develop moral norms—against he called “the Protestant ethic”—an ethic in the sense violence, favoring family bonds, against theft, in favor of an inner moral attitude—had importantly spurred of truthfulness—as a partial substitute for what would the development of capitalist economic growth by fos- otherwise be hopelessly pervasive regulation aimed at tering just these aspects of personal behavior. Weber getting people to behave in ways that may be of little overlooked other religious and ethnic groups (Jews and or no direct benefit to themselves but nonetheless make overseas Chinese, to cite just two) who share many of everyone better off. Such norms are no less important the attitudes toward personal behavior, and much of in the economic sphere. the economic success, that he associated with northern Indeed, they may be more so. Laws and regulations European Protestants. Moreover, even for the Euro- are typically less effective when the desired behavior pean Protestants whom Weber studied, there is reason requires taking initiative or action, as opposed to re- to wonder what was influencing what in the rich inter- fraining from unwanted action. Even in highly devel- play between religious and economic developments. oped, well-organized societies, it is far easier to devise Many other influences, of course, quite apart from ethi- laws that discourage murder and theft than laws that cal norms, affect economic growth. But the fundamen- encourage helpfulness to one’s neighbors. Especially tal point remains: that certain characteristics of per- when it comes to the creative impulse that results in sonal behavior are important for economic growth, and enhanced economic , laws and regulations when these characteristics acquire moral status the re- are particularly useless. As we have learned from many sulting ethic encourages people to behave accordingly. countries’ experiences, regulations limiting how much For our society’s moral values to nurture the behav- sulfurous smoke manufacturers can release into the air, ior that spurs its economic growth seems especially apt or restricting the pollutants we can dump into the wa- if, as I argue here, rising living standards, in turn, make ter, are often reasonably effective. By contrast, a law our society more open, tolerant, and democratic. Be- requiring businesses to innovate, or otherwise become cause we value these qualities in moral terms rather more productive, would be pointless. than market terms, market forces on their own produce It is not surprising, therefore, that many cultures, insufficient growth. Some further impetus is required. especially Western societies in the modern era, have Weber argued that familiar moral principles foster eco- developed moral presumptions in favor of precisely nomic growth. My argument here goes further: eco- those aspects of personal behavior that lead to greater nomic growth not only relies upon moral impetus, it productivity and economic growth. Hard work, dili- also has positive moral consequences. That we may gence, patience, discipline, and a sense of obligation to depend at least in part on moral means to satisfy our fulfill our commitments clearly make us more produc- moral ends, even when the link that connects the two is tive economically. Thriftiness fosters saving, which economic, has a particularly satisfying resonance. enhances our productivity by making capital investment possible. Education likewise increases our individual Benjamin M. Friedman is the William Joseph Maier Pro- capabilities as well as our stock of public knowledge. fessor of at Harvard University. This Such behavior brings benefits that accrue directly to article is excerpted from his latest book, The Moral Con- those who conduct themselves in that way, and we value sequences of Economic Growth.

Max Weber More books by and about Max Weber available at www.transactionpub.com

22 SOCIETY • JANUARY/FEBRUARY 2006