The Spirit of Capitalism, Economic Development, and National Wealth Shawn F. Dorius University of Michigan Wayne Baker University of Michigan Population Studies Center Research Report 12-771 August 2012 Please direct correspondence to: Dorius, Shawn F., Population Studies Center and the Survey Research Center, Institute for Social Research, University of Michigan; 406 Thomson Street, Ann Arbor MI 48103 (e-mail: [email protected]). This research was supported by a National Institute of Child Health and Human Development Training Grant from the Population Studies Center at the University of Michigan (T32 HD007339) and funding from the Population Studies Center small grant initiative. The Spirit of Capitalism, Economic Development, and National Wealth 2 Abstract In both original form and in popular discourse, Weber's classic Protestant Ethic thesis is grounded in the relationship between capitalist values and status attainment. Advocates and opponents of Weber’s thesis have primarily focused on the religious underpinnings of the ‘Protestant Ethic’ at the expense of the ideological dimension Weber saw as the key motivational force behind the rise of contemporary industrial capitalism. By removing the religious dimension, Weber’s thesis becomes a broadly generalizable ‘mobility model’ with potential appeal far beyond the narrow confines of Christian European history. Within a macro- comparative framework, we explore the relationship between capitalist values, capitalist behaviors, and economic development. We use fixed effects regression models to demonstrate a within-country association between values and economic development. We then use structural equation models to test the indirect effect of values on economic development via mediating variables in economic, demographic and social domains. Results suggest that capitalist values are an essential motivating factor in the global diffusion of industrialization and the accumulation of national wealth. Failure to account for the indirect effect of values on capitalist outcomes and to control for socio-economic advantage is likely to obscure the causal effect of values on industrial capitalism. KEY WORDS: Global stratification, Protestant Ethic, Values, Industrialization, Mobility The Spirit of Capitalism, Economic Development, and National Wealth 3 The proving grounds for Weber’s [Protestant Ethic Thesis] are not Prussia or even England, but the Soviet Union, the Far East, the Near East, Africa—in short, the world. (Nelson 1981 [quoted in Hamilton 1991: 353]) INTRODUCTION Just over one hundred years ago, Max Weber developed a causal model linking religion to individual and national mobility. The core of Weber’s thesis, summarized in The Protestant Ethic and the Spirit of Capitalism, is the power of ideas: the rise of ascetic Protestantism provided a set of values and beliefs about work, saving, investment, and the acquisition of wealth that were essential to the rise of modern capitalism. This new ideology, or ‘mental revolution’ (Delacroix 1992), represented a break from the longstanding Christian worldview that saw work as a marker of low class and the possession and acquisition of material goods as a violation of Christian ascetic values. Protestantism fundamentally redefined the meaning of work and savings, whereby hard work was seen as dignified and the accrual of material goods was believed to be an indicator of salvation. In other words, Christian asceticism, or the belief that giving away ones wealth was a mark of true religion, gave way to a radical new ideology where the amassing of wealth was a mark of true religion. This, in turn, motivated Protestant adherents to engage in a host of new behaviors that ultimately ushered in the industrial revolution and a period of economic growth never before seen in human history. Thus, the rise of Protestantism gave certain European nations a “first mover” advantage that facilitated their rapid economic development and affluence. Combined with his General Economic History and Economy and Society, it is clear that Weber recognized that religious ideas were only one part of a unique combination of conditions and chain of factors that gave rise, over centuries, to modern capitalism (Collins 1980; Swedberg 1998:17-21). And yet, among all of his ideas, it is The Protestant Ethic thesis that has achieved “quasi-sacred status in the social sciences” and continues to exert significant influence over mainstream culture in many countries (Delacroix and Neilson 2001: 510). Not surprisingly then, Weber’s mobility model in The Protestant Ethic and the Spirit of Capitalism has been subjected to a diverse set of empirical tests, including research at both the micro and macro-level, in contemporary and historical contexts, in regional studies of select European states and the whole of Europe, and across a wide range of disciplines including social stratification, religious studies, The Spirit of Capitalism, Economic Development, and National Wealth 4 organizational behavior, and psychology, to name a few. Simply put, Weber’s thesis “has been served with every kind of sauce’ (Delacroix and Neilson 2001: 510). Beyond anecdote, quantitative evidence for the Protestant Ethic thesis has been surprisingly hard to come by: So difficult in fact, that Iannaccone (1992: 1474) concluded that “the most noteworthy feature of the Protestant Ethic thesis is its absence of empirical support.” For example, Delacroix and Neilson (2001) found no Protestant/Catholic differences on measures of industrialization in historical Europe. Sanderson et al. (2011) also did not find Protestant/Catholic differences in economic growth among European states during the centuries around the birth of industrialization. Cavalcanti et al. (2007) found that differences in religious beliefs between Protestants and Catholics might explain why Northern Europe industrialized before Southern Europe, but religion does not explain why Europe developed before Latin America. Using contemporary survey data, Norris and Inglehart (2004) show that Protestant- majority countries have the weakest work ethic values, compared to other religious-majority countries. Micro-level empirical tests have not fared better.1 The paucity of empirical support has led some to conclude that The Protestant Ethic thesis is merely a “beloved myth” (Delacroix and Neilson 2001). We are not yet ready to agree that Weber’s Protestant Ethic thesis is simply a beloved myth. Instead, we argue that with certain modifications, a revised version of his thesis is relevant today. We need to first reorient the focus of empirical research away from 17th century Europe to the contemporary world (e.g. Norris and Inglehart 2004). This reorientation shifts from questions about the origins of capitalism to the relationship between values, behaviors and economic development in the contemporary world. Second, researchers must separate religion per se from capitalist values (Warner 1970). Weber himself speculated that any historical association between Protestantism and economic development was likely to diminish or disappear altogether once capitalism took hold as the dominant mode of production, since, at that point, capitalism was likely to rest on mechanical, and not religious, foundations (Weber 1992). Instead of searching for quantitative evidence of Weber’s thesis in religious differences, the focus should be on the values that facilitate the expansion of contemporary capitalism, such as hard work, thrift, and savings. And third, we suggest that one of the most promising contemporary tests of Weber’s theory is not in the association between religion and national wealth – what Delacroix and Neilsen (2001) referred to as the ‘outer linkage’— but rather among the several inner The Spirit of Capitalism, Economic Development, and National Wealth 5 pathways, such as the relationship between capitalist values and behaviors and between behaviors and measures of capitalism (look ahead to Figure 1). Using a macro-comparative framework, we explore the relationship between capitalist values, capitalist behaviors, and cross-national variation in measures of industrial capitalism. We use fixed effects and structural equation models to demonstrate a robust contemporary association between capitalist values and industrialization in economic, social, demographic, and technological domains. Our results suggest that the values and beliefs of capitalism are an essential motivating force in the global development of industrial capitalism and the accumulation of national wealth in the contemporary world. In particular, we find that change in capitalist values is positively associated with change in savings rates, educational attainment, and innovation and are negatively associated with change in household consumption and fertility rates within countries. And further, we find that these same values have a conditional, indirect effect on measures of industrialization via mediating variables. By linking capitalist values in a causal chain to industrialization and national income, we hope to provide new insights into Weber’s original thesis and to encourage future micro and macro-level mobility studies to give greater attention to the motivating role of values in economic behaviors. REFORMULATING WEBER’S CAUSAL MODEL Despite the widespread lack of empirical support for Weber’s original argument, its central ideas continue to have broad appeal and remain a potent force in the psychology of the average individual (Fine 1983). Perhaps the greatest strength