Religion is good for business

The fear of eternal damnation may be the key to a robust economy.

In fact, where a large percentage of a country's population believes in hell, some economists have found a link to less corruption and a higher standard of living, according to a recent report by the Federal Reserve Bank of St. Louis.

The idea is nothing new.

Adam Smith, the 18th century Scottish economist and philosopher, argued that a society infused with religious beliefs would be less inclined to devote its resources to determining an individual's or firm's business ethics — "what economists call the credit or default risk associated with lending to an unknown individual," according to Kevin Kliesen, author of the report and an economist at the St. Louis Fed.

Kliesen also cites Alexis de Tocqueville, who held that "a religious country lessened its dependence on the public sector, which not only left a larger amount of resources for the private sector but enhanced the country's moral fiber."

Even former Federal Reserve Chairman Alan Greenspan once argued that recent transgressions in the financial markets have "underscored the fact that one can hardly overstate the importance of reputation in a market economy."

"Rules cannot substitute for character," Greenspan said in a 2004 speech. "In virtually all transactions, whether with customers or with colleagues, we rely on the word of those with whom we do business.

"Even when followed to the letter, rules guide only a few of the day-to-day decisions required of business and financial managers. The rest are governed by whatever personal code of values that managers bring to the table."

Reputation and trust, Greenspan added, were such "valued assets in freewheeling 19th-century America that the penalty of breaking this trust was so severe that economic commerce was to a large extent self-regulating."

Kliesen backs that logic, stating that corruption and graft — which tend to increase economic inefficiencies — act as taxes on economic growth.

"The point of the article was to show that there is some belief among economists both historically and present that these so-called noneconomic factors have some effect on an economy's . . . performance across time," Kliesen said. "The issue is, how much weight do you place on these things?"

While economic growth is ultimately a function of population growth rates and labor productivity, Kliesen said, some economists believe traditional theories do not go far enough in explaining patterns of economic growth.

Robert Barro and Rachel McCleary of Harvard University are among those who have turned their research to noneconomic factors, such as religion, to explain economic growth.