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More freedom means greater prosperity

A new causal model reveals the harmful effects that imbalances of power in society can have on societal welfare

In an empirical study using data from 85 countries, Wolfgang Scholl (Humboldt-Universität zu Berlin) and Carsten Schermuly (SRH University Berlin) have uncovered not only why the gross domestic product (GDP) and social welfare are greater in democratic industrialised societies compared to autocratic countries of the former Eastern Bloc and global South, but also why there are distinct differences even within Europe, from Scandinavia to southeastern Mediterranean countries.

The greater the imbalances of power and the lower effective usable liberties are, the more people with power use their position for self-enrichment or even corrupt purposes. As a result, not only does the economy take a hit as measured by the GDP, but so too does the welfare of broad segments of the population that live in that country. Unlike other studies, this study measured welfare not as a subjective perception of happiness but rather in terms of the distribution of life expectancy, education and income.

The authors tested and confirmed these relationships using a complex causal model. Many economists, such as Acemoglu & Robinson in "Why nations fail", have identified formal institutions such as democratic elections and policies as restraining corruption. In contrast, the new model highlights the role of cultural practices such as freedom and the balance of power, which are not yet secured by the formal institutions. The conclusions are substantively similar, whereby the model quantitatively specifies the "failure of nations" and the causes.

Further, the study is the first to address the question of how corruption and the GDP are related: how does corruption impact economic success (the GDP), do poor economic conditions increase the tendency towards corruption and are there reciprocal effects? All three notions have been put forth in previous research and have not been explained using conventional methods. The causal model is the first to do so and the result: there is just one – and indeed very strong – negative effect of corruption on the GDP.

It is interesting that other cultural attributes also come into play: for example, colonialism affects the economic strength of a country well beyond the point of independence. At the same time, greater gender equality has a direct benefit on societal welfare.

The study, which was published in the Journal of Business Ethics, reveals that democratic culture must continue to be enhanced and expanded, especially in the face of populist and extremist trends. Universal human rights must be defended and discrimination on the basis of gender or background must be combated. Strengthening opportunities for political involvement and improving the balance of power in political and economic spheres are directly related to the welfare of a nation's citizens.

More information

Scholl, W. & Schermuly, C. C. (2018, online first). The impact of culture on corruption, gross domestic product, and human development. Journal of Business Ethics. https://doi.org/10.1007/s10551-018-3977-0

Contact

Prof. i.R. Dr. Wolfgang Scholl
Institute for Psychology
Tel.: 030 2093-9355
schollwo@hu-berlin.de

Hans-Christoph Keller
Spokesperson for the Humboldt University in Berlin
Press and Public Relations Manager
Tel.: 030 2093-2332
hans-christoph.keller@hu-berlin.de

 

 

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