John Kay: Ethic with a golden touch

By John Kay

Financial Times

Published: December 27 2004

'Do they know it's Christmas?', the charity record from Band Aid that has topped Britain's singles charts over the holidays, reminds us that the rich of the world have been celebrating and the poor have not. This is not because Christmas is a festival of the rich but because it is a Christian festival. The affluent Japanese are the main exception to the general rule that rich countries have a Christian tradition and poor countries mostly do not. The Japanese have not been celebrating Christmas either.

This critique may sound like pedantry of a sort that could be perpetrated only by the kind of people who do not know it is Christmas and spend that day penning columns for the Financial Times. But the observation contains a clue to the causes and cures of world poverty that may be more significant than Band Aid's emotional appeals.

The relationship between religious tradition and economic development was first explored 100 years ago by Max Weber, the German sociologist, who observed the correlation between the Protestant reformation and the growth of modern capitalism. Prosperous countries were mostly Protestant and even in Christian countries with a mixed Protestant and Catholic population - such as the Netherlands, Germany, Switzerland and the US - business was largely controlled by Protestants. In Baden, Weber's home, Protestants averaged almost twice the wealth of Catholics.

The historical origins of the relationship are complex. When Martin Luther began the Reformation by posting his 95 theses on the door of Wittenberg Cathedral, he did not imagine he was posting a capitalist manifesto. Indeed, Luther was actually protesting against the corruption of religion by the market, especially through the sale of indulgences.

These were documents that supposedly could not only relieve the burden of past sins but also provide immunity for sins yet to be committed. The corrupt clerics who hawked these papers are recognisable figures. They were to reappear almost five centuries later as accountants who sold audit opinions and equity analysts who bestowed "buy" recommendations on their banking clients. In both eras, the proceeds of indulgences enriched the sellers and financed the grandiose building plans of their employers. Cathedrals then, trading floors today.

The reformers despised the idleness and greed of worldly priests. In Geneva, John Calvin preached the virtues of austerity and hard work. Switzerland's highly successful capitalist model - very boring and very rich - was moulded there.

Weber gave the language a phrase - the Protestant ethic - that today refers not to religious belief but to workplace behaviour. The Protestant calling, he said, saw "the fulfilment of duty in worldly affairs as the highest form which the moral activity of the individual could assume". In contrast, the monastic life exalted by traditional Catholicism was "the product of selfishness, [of] withdrawing from temporal obligations".

John D. Rockefeller, the US industrialist, would describe his own calling in what may sound like bizarre hypocrisy to a modern ear: "I believe the power to make money is a gift from God . . . to be developed and used to the best of our ability for the good of mankind."

The notion of business as a legitimate, morally demanding profession distinguished the Protestant tradition not only from other modern religions but also from the secular political cultures of ancient Greece and Rome. The ethic that Weber described as the spirit of capitalism was also very distant from today's world of annual bonuses and executive share options. The accumulation of wealth was associated not with greed and excess but industry and sobriety.

There was more to Protestant capitalism than the calling. Modern economic historians such as David Landes have given equal importance to the pluralist character of Protestant thought. The reformers emphasised education for all and seized control of knowledge from the priests. The Catholic tradition, organisationally centralised, stressed obedience to authority; the Protestant ethic was decentralised and free-thinking, especially among sects - such as Quakers and Puritans - that played a disproportionate role in economic life.

The Reformation released the spirit of scientific inquiry and organisational innovation that is fundamental to economic growth. The market economy derives its dynamism from this disciplined pluralism - the process of continuous organisational and technological experiment. Innovations that fail, as they mostly do, are discarded: innovations that succeed are quickly imitated.

Religious observance was already in decline as Weber wrote. But he realised that what mattered was not the content of religious doctrine but the ways in which religious teaching shaped personal values and religious traditions influenced political and economic institutions. As the influence of all religions weakened, the Protestant ethic and the virtues of enlightenment ceased to be the exclusive property of Protestants.

The waning of the political and economic influence of the Catholic church was to be a central fact of modern European economic history. Ireland, Italy, Portugal and Spain all enjoyed rapid growth. Catholic Bavaria would emerge from being one of Germany's poorest provinces to being one of its richest, and the same would be true of Swiss Catholic cantons such as Lucerne and Valais. In the US, Catholics achieved economic power earlier; the business success of the Kennedys led to the election of the first Catholic president. But American Catholicism, it has been said, has always been somewhat Protestant.

Protestant virtues began to encroach on cultures that were not even Christian. Japan would accept pluralism and embrace with astonishing success the notion that wealth creation was a higher form of public service than political or military leadership. Other Asian economies followed.

Prosperity is the product of market institutions in a culture shaped by the values, although not necessarily the beliefs, of the religious Reformation. The spread of these ideas is the most effective means to feed the world.

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