Economics and religion

1. Economics and religion

2. Religion and Economy (Mc Cleary and Barrow)‏ • Religion interacts with economic activity is can be views as both • Dependent variable • And Independent variable. • Religion as dependent variable • Secularization model • Extreme view: religious beliefs reflect fear:

3. Climate Fluctuations and Witch Hunt in Geneva (1520-1770)‏ יגוהיה, אם שמוע תשמעו אל-מצוותיי, אשר אנוכי מצווה אתכם, היום לאהבה את ה' אלוהיכם, ולעובדו, בכל לבבכם, ובכל-נפשכם.  ידונתתי מטר-ארצכם בעיתו, יורה ומלקוש; ואספת דגנך, ותירושך ויצהרך.  טוונתתי עשב בשדך, לבהמתך; ואכלת, ושבעת.  טזהישמרו לכם, פן יפתה לבבכם; וסרתם, ועבדתם אלוהים אחרים, והשתחוויתם, להם.  יזוחרה אף ה' בכם, ועצר את-השמיים ולא-יהיה מטר, והאדמה, לא תיתן את-יבולה; ואבדתם מהרה, מעל הארץ הטובה, אשר ה', נותן לכם. דברים י"א: י"ג-י"ז.

4. Religion as dependent variable • Rational maximization models (Azzi and Ehrenberg, 1975)‏ • Material utility in current world, unearthly utility in the next world / salvation. • Practicing religion is a time intensive. Wage increase reduces practicing. • Time discount: older people will spend more time on practicing because the next world is looming.

5. Religion as a dependent variable • Religion Market Model: Finke and Stark (1992)‏ • Focus on supply of religious services. • State religion lead to monopoly that supplies low quality and high price services. • No formal state religion leads to competition in this market and opens the door for religious entrepreneurs. • The contest between the US and Europe. • High religious participation rate in the US and activity “fits the market.” • Where does ME stand in this model? • Orthodox vs. Sufi approaches.

6. Negative association with GDP. • Positive association with state religion. • Pluralism related to participation in ceremonies but not with personal belief. • Muslims tend to believe in hell and afterlife

7. Religion as an Independent variable • Some religions induce work ethics / literacy • Weber (1905): the protestant Ethics. • Becker and Woessmann (2007). Was Weber Wrong? A Human Capital Theory of Protestant Economic History • Botticini and Eckstein (2005). Judaism stresses learning of holy scripts, and thus gave Jews competitive advantage in urban trades, and induced them to abandon agriculture.

8. Religion as an Independent variable • Social capital perspective • Networking during regular religious activities provide information. • enforcement mechanisms such as excommunication • Affects the behavior / utility of the believers • Social services – e.g charity (zakat) • one of the Islam. According to some views a Muslim must contribute 2.5% of his wealth every year. • Charity is particularly important in volatile economies e.g. Rural economies that depend on climate. So becoming a member in a “club” with insurance could the a rational choice not the result of fear and ignorance.

9. Religion as an Independent variable • Belief in hell is positively associated with growth. • Attendance negatively associated with growth. • Fits Weber and not the networking approach • In col. 3 Islam has no impact, adverse impact only when controlling for religious vars.

10. End of Introduction

11. To what extent these models relevant for Islam? • Islam, like Judaism, are based not only on beliefs and practicing. • They provide a framework that govern many aspects of human activity. • Christianity was established under Roman Empire' • Islam as a state and religion at the same time. No separation between “state” and “church”. • They also include laws that govern economic activities.

12. Why is the ME Economically Underdeveloped Timur Kuran

13. Main argument • Around 1000 AD the Middle East was a developed region. • Yet, it failed to undergo the institutional development that Europe did. At 1800 AD Islamic commercial institutions were similar to those eight centuries earlier. • This paper points on institutions that hindered economic development, including: • Islamic law of inheritance. • Lack of corporations in sharia. • The waqf (pious foundation). • Initially these institutions were not obstacles for economic development. Later on, these institutions had an adverse role.

14. Background: Path Dependence • Past decisions affect the trajectory of the economy and create a lock-in situation. • Lock-in situations occur when • there is a large fixed cost and increasing returns to scale /positive externalities, which make a switch to more efficient trajectory un-profitable. • Some pressure groups block efficient changes because of their private interests. • Common dimension of path-dependency: • Technology. • Institutions.

15. Technological Path Dependence • Communication signals (cellular etc.)‏ • Mac vs. PC • Typing technology: the keyboard (QWERTY)‏ • Fitted the old typing machines. • Not efficient for computer typing • Switching costs are large because people are used to the previous system.

16. Institutional Path Dependence • Institutions are rules / equilibria. • Switching rules / equilibria • should be coordinated. • Likely to be costly. • May harm some players. • Therefore, some economies may be locked-in an inefficient equilibrium.

17. Institutional Features of the Islamic ME Difficult to pool resources for large scale long term enterprises • Egalitarian inheritance system. • No long living corporations. Partnerships were practically limited in scope and to a single mission. • No banks, only dubiously legal money lending between individuals. • Weak property rights and arbitrary taxation. • Provision of public goods by funds privately endowed for eternity to Waqfs. • Legal Pluralism, and minorities' ability to choose legal system. Weak incentives Inflexibility of supplied PG Advantage of minorities

18. Comparison to the “West” • Unequal inheritance laws facilitated accumulation of lands and capital. • The Catholic Church and Christian orders, cities, universities were incorporated from the High Middle Ages onwards. • Provisioned secular and religious public goods. • Starting from the 16th century commercial corporations were based in this legal concept but opt to make profits. • Long Political struggle for limiting ruller's ability to abuse property rights (e.g. The glorious revolution, 1688)‏