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: sdorius@umich.edu). 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 of Weber’s argument is that it formulated a

causal model and nested it within a compelling and intuitive narrative of individual and national

mobility. The narrative agrees with a number of historical facts (see Samuelsson et al. 1993 for a

skeptical perspective), largely avoids many of the more complex structural factors affecting

mobility, pedestalizes Protestantism, and offers a simple explanation for individual and national

income inequality.

At one level, says Coleman (1990: 6), Weber’s thesis is a simple macrosociological

proposition: “The religious ethic which characterized those societies that become Protestant in

the Reformation (and particularly those that were Calvinistic) contained values that facilitated

the growth of capitalist economic organization.” This proposition is illustrated in Figure 1.a,

which shows a direct macro-to-macro relationship. But Weber goes further, Coleman (1990)

The Spirit of Capitalism, Economic Development, and National Wealth 6 notes, arguing that Calvinism produced the value system that facilitated the rise of capitalism.

According to Weber, this new ideology emphasized work as a calling, thrift and savings as a way

of life, and the investment of profits into further business development. In combination with

other factors, once this “spirit of capitalism” began to pervade economic life, industrial

capitalism was born and ushered in a period of economic growth never before seen in human

history.

This argument departs from the simple macrosociological proposition and, Coleman (1990)

argues, requires three propositions. As illustrated in Figure 1.b, the first proposition links

changes in the religious sphere to values at the individual level. This macro-to-micro relationship

indicates that the religious value system of Protestantism produced capitalist values in

individuals. The second proposition relates capitalist values to certain kinds of economic

behaviors. This proposition remains at the micro level, that is, the level of individuals, their

values, and their actions. The third proposition makes the micro-to-macro transition, where

“some sort of combined or aggregate effect of the economic behavior of many individuals in

bringing about capitalistic behavior is proposed” (Coleman 1990: 9). This proposition is where

Colman faults Weber for failing to provide an answer. However, Swedberg (1998: 131) argues

that Weber’s analysis of the “sect” specifies the mechanism by which “the social structure of the

sect” enabled the spirit of capitalism and associated behaviors to “harden into a collective

mentality” and capitalist economic organization.

The many empirical studies that fail to support Weber’s thesis examine the

macrosociological proposition that specifies a direct effect between religion and economic

organization and outcomes. Delacroix and Neilson (2001), for example, gave primary attention

to the ‘outer linkage’ (Figure 1.a, dotted line in Figure1.b) between Protestantism and national

wealth, reasoning that if each of the inner-linkages asserted by Weber’s theory were correct, we

should find a positive correlation between Protestantism and measures of national wealth (see

also Sanderson et al. 2011). Norris and Inglehart (2004) likewise ignored mediating variables

when they used contemporary data to compare mean scores on various work ethic scales to

levels of the Human Development Index. But Coleman’s formulation of Weber’s causal

argument indicates that the effects of religion and the spirit of capitalism are indirect, making it

necessary to examine the ‘inner linkages’ (Figure 1.b). This is the orientation we take in our

theorizing and analysis.

The Spirit of Capitalism, Economic Development, and National Wealth 7

Figure 1. Two Illustrations of Weber’s Causal Model

a. Macrosocial proposition: Calvinism encourages capitalism

b. Macro- and micro-level propositions: effects of religious doctrine on economic organization

Source: Figures 1.1 and 1.2 (revised) in Colman (1990: 6, 8).

We focus on the extent to which capitalist values explain economic behaviors and economic

outcomes in the contemporary world. Since the spirit of capitalism has “escaped the cage”

(Weber 1992: 124), we no longer need to focus on historically Protestant counties versus other

countries. Rather, we can examine changes in capitalist values within countries around the world

and the economic behaviors associated with capitalism, regardless of the religious composition

of a country. In Weber’s view, people who came to value hard work, thrift, and savings were at

greater ‘risk’ of curtailing discretionary spending, increased savings, and reinvestment of profits

into activities that would lead to larger future returns. Thus, societies that value thrift and savings

should, on average spend less and save more than societies that place lower value on these

behaviors. Specifically, we hypothesize the following.

(outer linkage)

Religious values of a

society

Economic organization of a society

Protestant Religious doctrine

Capitalism

The Spirit of Capitalism, Economic Development, and National Wealth 8 Hypothesis 1: An over-time increase in capitalist values is associated with higher savings rates and lower consumption rates within countries.

Modernization theorists, governments around the world, governmental organizations such as

the United Nations and the World Bank, and a host of non-governmental actors comprising the

world polity have, in recent history, promoted a mobility model for individuals and nations. This

mobility model (hereafter referred to as the modernization mobility model) is based on a range of

micro and macro-level causal associations and normative statements which include, for example,

the belief that societal development is good and attainable, the economic, political, social and

cultural institutions endemic to modern societies are more rational, and therefore more desirable,

than other types of institutions, and that development is a continuum in which the countries of

North and West Europe are the most ‘developed’ and other nations reside at various locations

below or behind European nations on the continuum (Thornton 2001). ‘Modern societies’ are

characterized by high income and education, high rates of urbanization, low fertility and

mortality, broad protections for individual freedoms and liberties, and extensive technological

infrastructure (e.g. roads, ports, and power grids). Thus, the modernization mobility model

espouses causal links between education, fertility, mortality, national wealth, technological

innovation, and sundry freedoms and legal protections and ascribes normative value to many

features of modern societies.

Acceptance of the modernization mobility model among elites and the reification of many of

its elements in world cultural scripts have contributed to, for example, the global diffusion of a

western-style mass education system (Meyer, Ramirez, and Soysal 1992), family planning

programs (Roberts 2009), a wide range of programs aimed at improving nutrition, eradicating

infectious diseases, and otherwise reducing mortality rates at all ages, and sundry programs

explicitly focused on the social and economic development of poor nations, including the

protection and expansion of individual rights (Pegram 2010). Further, developmental thinking,

by which we mean acceptance of the developmental paradigm embodied in modernization

theory, has become widely diffused and many of its central elements are taken as fact by

ordinary people all around the world. Survey research indicates that people in settings as diverse

as Argentina, Egypt, Nepal, Iran, China, and the United States share remarkably similar beliefs

about the relationship between education, fertility, technology, and economic development. For

The Spirit of Capitalism, Economic Development, and National Wealth 9 example, sizable majorities of people in these and other surveyed countries believe fertility

decline is causally associated with better living standards and higher educational attainment that

societies actively engaged in these ‘modern’ institutional practices will become richer and more

technologically advanced (Thornton et al. 2012: Table 4). It also appears that belief in the

developmental paradigm has motivated individuals to implement many of its causal assumptions

in their own lives, since people who report the strongest belief in the developmental paradigm

also have, on average, the highest educational attainment and household income levels, and the

lowest fertility rates in their respective countries (Thornton et al. 2012).

That people around the world not only accept the developmental paradigm as good and

obtainable, but appear to be actively engaging in behaviors for the express purpose of achieving

individual and societal development has direct bearing on this research since the modernization

mobility model and Weber’s own thesis place ideational factors (attitudes, values, and beliefs) as

causally prior to the kinds of behaviors and economic outcomes we are interested in here. Both

models also place economic development as the endpoint in a causal chain linking values,

behaviors, and economic outcomes. Perhaps the biggest difference between the two models

involves the intermediary variables. For Weber, capitalist behaviors include curtailment of

discretionary spending, increased savings and investment (Hypothesis 1), and keener attention to

capitalist economic activities such as entrepreneurship and innovation (see Hypothesis 3 below).

Modernization theory has traditionally identified educational attainment and fertility declines,

among other things, as primary correlates of economic development, and empirical studies

support their arguments.2 Therefore, we hypothesize that:

Hypothesis 2: An over-time increase in capitalist values is associated with a decrease in fertility and an increase in educational attainment within countries.

For more than 50 years economists have documented a positive association between

innovation and economic growth (Krugman 1991; Romer 1986; Solow 1956). Weber’s thesis

suggests that the spirit of capitalism was at least partly responsible for a host of innovations that

gave rise to modern industrial capitalism. Societies infused with the spirit of capitalism were

seen as more likely to promote and reward innovations that maximized profits, providing the

essential economic incentive for the institutions and behaviors of mass production and

The Spirit of Capitalism, Economic Development, and National Wealth 10 consumption that have come to define contemporary industrial societies (Ferguson 2011). If a

causal association between the spirit of capitalism and innovation exists in the contemporary

world, then we expect societies in which capitalist values are widespread to be more innovative

than similar societies placing lower priority on capitalist values. Specifically, we hypothesize

that:

Hypothesis 3: An over-time increase in capitalist values is associated with an increase in innovation within countries.

Finally, we examine the indirect effect of capitalist values on industrialization. Following

Weber, we expect that values have an indirect effect via mediating economic behaviors such as

savings and consumption. Following the developmental paradigm, we also expect that capitalist

values have an indirect effect on industrialization via mediating social behaviors such as

education attainment and fertility. Specifically, we hypothesize:

Hypothesis 4: After controlling for socioeconomic advantage, capitalist values will have an indirect, positive effect on industrialization and national wealth through mediating behaviors.

Hypothesis four differs from the other hypothesis in two important ways. In the first three

hypotheses, we have posited direct causal relations meant to explain within-country variation in a

range of outcomes. In contrast, hypothesis four posits an indirect set of causal relations meant to

explain between-country variation in response variables. The differences between the two sets of

model results are important because, taken together, they allow us to test a key finding of

modernization theory that economic development leads to change in value priorities (Inglehart

and Baker 2000). If Weber was correct on his point that capitalist values are the upstream cause

of economic development and modernization theorists are correct that economic development

leads to change in value priorities (e.g. materialist post-materialist values), then we should

expect to find a negative correlation between values and industrial capitalism when studying

between-country effects, but a positive association between values and industrial capitalism

within countries. Of course, a number of other factors contribute to change in value orientations,

but in this research we are not primarily interested in the origins of particular values, but rather,

the consequences of capitalist values on industrialization.

The Spirit of Capitalism, Economic Development, and National Wealth 11 DATA AND METHODS

Data

Since no single survey contains all the data needed to test our hypotheses concerning the link

between capitalist values, economic and social behaviors, industrialization, and national wealth,

we collected individual and national-level data from various sources, which are detailed in Table

1. Measures of capitalist values come from the World Values Survey (WVS) cumulative file,

and, with the exception of data on patent filings, all other variables in our models were extracted

from the World Bank’s World Development Indicators. In the case of patents, data come from

World Intellectual Property Organization.

The WVS, which surveys the opinions of people from a large number of countries, is one of

the richest and most cross-nationally diverse sources of information on people’s attitudes, beliefs

and values across a broad range of topics and as such, has been used extensively in previous

research (CITES). Data collection is carried out in waves spanning about four years and

currently covers a time-span of more than 30 years. Wave one corresponds to the years 1981-

1984, wave two corresponds to the period 1989-1993, wave three covers the years from 1994-

1998, and waves four and five correspond to 1999-2004 and 2005-2008, respectively. The WVS

employs a repeated cross-sectional design of representative random samples3 and so the panel

was unbalanced, with some countries contributing as many as four observations and other

countries only a single national observation. Since the unbalanced nature of the panel is not

random—rich countries are overrepresented and poor, agrarian societies are underrepresented—

we constructed a variable that weighted countries inversely to the occasions of measurement in

the WVS. Countries with four occasions of measurement were assigned a weight of one.

Countries with only a single occasion of measurement were assigned a weight of four, and so on.

Unless otherwise noted, all report results are duly weighted.

Capitalist values. We constructed a measure of capitalist values using a subset of items

from the WVS. Respondents from more than 80 countries spanning four waves of the WVS were

asked the following question: “Here is a list of qualities that children can be encouraged to learn

at home. Which, if any, do you consider to be especially important? Please choose up to five.”

The rotated list of qualities included: good manners, politeness and neatness, independence, hard

work, honesty, feeling of responsibility, patience, imagination, tolerance and respect for other

The Spirit of Capitalism, Economic Development, and National Wealth 12 people, leadership, self-control, thrift saving money and things, determination and perseverance,

religious faith, unselfishness, obedience, and loyalty.4 Respondents only indicated whether or not

each of the qualities were among their five most important, but did not otherwise rate or rank the

items.5 From among the 16 child qualities, two that are particular well-suited for our purposes

are hard work and thrift saving money and things. We elected to report results from an additive

scale that combined the two values into a single dichotomous variable where one identified

people who selected both hard work and thrift/savings, and zero identified respondents who

selected only one, the other, or neither of the two capitalist values. In unreported analysis

(available upon request), we tested the measures separately and found that, compared to hard

work, the value of thrift and savings was not as strongly associated with the other of variables in

the models. Throughout the remainder of the paper, we refer to this measure as ‘capitalist values’

(Guiso, Sapienza, and Zingales 2003) to simplify discussion, though they might be accurately

described as values that are conducive to capital accumulation (e.g. economic and human capital)

in the contemporary world economy.

Aggregated to the national level, this measure represents the percentage of respondents who

selected both values and can be interpreted in similar fashion to aggregated values from previous

research (seem for example, Fuwa 2004), namely, as a measure of mass values, or, more

specifically, as an indicator of the pervasiveness of a capitalist value-orientation in each society.

With this approach, our measure not only represents a more conservative assessment of the

prevalence of capitalist mass values, but might also be viewed as a pure measure of the ideology

Weber described as embodying the spirit of capitalism.

The most recent wave of the WVS contains a subset of value items from perhaps the most

well-tested values scale for comparative research (Shalom Schwartz 1992) as well as several

measures of beliefs about work, which we used to establish the validity of our own measure.

Three indicators from the Schwartz’s scale (being successful, getting rich, and having a good

time) and two measures of work beliefs (‘people who don’t work turn lazy’ and ‘work should

always come first’) were conceptually similar to the ideational orientation described in Weber’s

theory. Factor analysis of the six measures among a subset of 45 countries in which all six

measures were asked produced a single latent factor with loadings ranging from .51 to .78

(‘having a good time’ being negatively correlated with the other indicators). These correlations

are well within acceptable ranges and provide support for the use of the child quality questions as

The Spirit of Capitalism, Economic Development, and National Wealth 13 measures of a capitalist value orientation. Capitalist mass values were also unconditionally

correlated with national characteristics in the expected direction, according the modernization

theory, and provide additional positive support for the validity of our measure: Higher levels of

support for hard work, thrift and savings were negatively correlated with size of service

economy, education levels, GDP per capita, life expectancy, and measures of globalization.

Dependent variables. Our primary dependent variable is industrialization. In

preliminary analysis, we tested two commonly used measures of industrialization, including

share of the labor force in industry and logged CO2 emissions per capita. Since results were

similar for both measures, we elected to only report results for CO2 emissions (µ = 5.9, σ = .96)

because of its more extensive geographic and temporal coverage compared to the other

measures.6 While much of Weber’s theorizing in the Protestant Ethic thesis was about the

relationship between Protestantism and industrial capitalism, he was also concerned with the

impact of values on between-nation variation in economic development and national wealth. We

use log-transformed GDP per capita in constant 2000 USD (PPP) as a measure of national

income (µ = 8.5, σ = 1.3).

Mediating variables. We measured savings and consumption behaviors using gross

national savings rate per capita (µ = 19.4, σ = 11.8) and household consumption as a share of

GDP (µ = 66.6, σ = 16.6), respectively.7 The log transformed sum of resident and non-resident

patent applications measures innovation (µ = 6.8, σ = 2.5). Educational attainment, measured in

average completed years in the population (µ = 6.7, σ = 2.91), and the total fertility rate (µ = 6.7,

σ = 2.9), were employed as measures of social and demographic behavior likely to be associated

with capitalist values.

Missing data. Eighty-six countries contributed at least one societal-level measure of

capitalist values for a total 171 country-year observations, but a number of these societies were

missing data on many or all of the other variables. Puerto Rico and Taiwan, for example, are

treated as independent societies in the WVS but are not recognized as such by most international

statistical repositories. We used linear mean interpolation to fill inter-temporal missing data for

each country’s data series in order to take advantage of the largest possible share of the countries

containing measures of capitalist values. For example, if we had estimates of GDP per capita in

Afghanistan in 1990 and 1992, we filled the missing 1991 data point with the linear mean of the

The Spirit of Capitalism, Economic Development, and National Wealth 14 1990 and 1992 income estimates. Following this strategy for all variables that exhibited a high

degree of inter-temporal stability, we were able to retain 65 countries containing 80 percent of

the world’s people.

Models. As with most macro-level research, small sample sizes and unbalanced panel data

create a number of difficulties for regression analysis, including a heightened risk of biased

slopes due to influential observations, weak statistical power, and greater risk of committing a

type II error. We took several steps to account for each in our analysis. First, we treated each

country-year case as a unique observation in order to achieve the largest possible sample size.

We then used panel corrected, robust standard errors and t-statistics to account for intra-country

correlation of errors. Third, we report model coefficients and standard errors, but also report p-

values as large as .10 to highlight associations that might otherwise be dismissed as statistically

trivial, though substantively important (Ziliak and McCloskey 2008). We also employed model-

based weights that adjusted regression slopes for the effect of influential observations. And

finally, we employ two different modeling strategies—one focused on within-country

associations and the other focused on between-country associations—and a wide range of

variables, reasoning that if we can find support for Weber’s thesis with both modeling strategies

and across a range of domains and variables, we can improve our confidence in the results, even

with the small sample size.

In the first approach, we test for an association between change in mass values and capitalist

outcomes within countries using standard, fixed-effects regression as follows:

Yjt = αt + αj + ΣβkXjt + εjt (a)

where, Yij is the value of one of our several response variables for country j at time t

(industrialization, income, etc.), αt is a time varying intercept which captures differences between

occasions of measurement that are invariant across countries, k indexes measured independent

variables, αi is the fixed intercept for each country, and εjt is a random disturbance term for

country j at time t. In the case of αj, the absence of the subscript for t indicates that αj does not

change over time. Put another way, αj represents all time-invariant characteristics of countries

that are correlated with Yjt. In the cross-national context, αj includes a number of likely causes of

variation in Yjt, such as cultural and historical factors (e.g. majority religion, modal language,

colonial heritage, founding date), geographic and ecological characteristics (e.g. major world

The Spirit of Capitalism, Economic Development, and National Wealth 15 region, coastal access, distance to major trade centers, natural resource deposits), and political

institutions (e.g. democracy, former communist nation, private property protections). Insofar as

these and other national characteristics are time-invariant, they are differenced out of the model.

The upside of this approach is that we have effectively controlled for a large number of

unobserved factors likely to be associated with Y, giving us a great deal more confidence that our

models do not suffer from unmeasured variable bias. A drawback of the fixed effects model is

that we have removed all of the between-country variation in X and Y, meaning that the

estimated slopes only measure the average within-country correlation between change in X and

change in Y. For this reason, we supplement our fixed effects analysis with additional models

that explain between-country variation in our response variables.

We use robust standard errors in all fixed effects models to account for the within-country

correlation of errors and to ensure that the standard errors do not depend on the ‘compound

symmetry’, or equal correlations, assumption (Allison 2005). In unreported analysis (available

upon request), we estimated population-averaged random effects models in which we defined a

first order autoregressive error term to account for the declining over-time, within-panel

correlations and the results were broadly similar to the fixed effects results we report here. We

retained all countries in our fixed effects models, including those with a single observation

because even though countries with only one observation will not contribute any information to

the slope coefficients, they still provide information about the intercept (α0), the variance

components (αj, εjt), the between-country R2, the overall R2, and the correlation between αj and

βk.

Estimating fixed effects regressions on the observed WVS data is a potential challenge since

we only have a maximum of four observations per country. Recall, however, that our

observations of capitalist values are not annual: Gaps between observations are typically four or

more years in length. If we assume that within-country change in values is an approximately

linear function of time, then we can use linear mean imputation to fill missing values between

observed occasions of measurement and extend the average time series from a minimum of just

two country-years to seven or more observations per country.8 This, in turn, increases the

statistical power of our models, giving us more precise estimates, and also allows us to estimate

models in which we use time-lagged measures of capitalist values. In unreported analysis

The Spirit of Capitalism, Economic Development, and National Wealth 16 (available upon request), we estimated models that used only observed capitalist values and the

substantive results were virtually identical to those reported here.

In our second modeling strategy, we use structural equation models (SEM) to explore the

indirect effect of capitalist values on contemporary industrial capitalism. SEMs are particularly

desirable since they allow us to simultaneously estimate the full set of causal associations

explicated in Weber’s original thesis. A potential limitation of using path models on our data is

that we have imposed strong causal assumptions on data that are essentially cross-sectional. We

do this because the theories we are testing are explicit about the causal order of the relations in

the model, and because people all around the world appear to believe there is a causal ordering

between values, behaviors, and economic development. We do, however lag all variables by one

year over the next most endogenous variable in the path model so as to correctly order temporal

causality. In the following path model, for example,

Capitalist values (t-2) behaviors (t-1) Industrialization (t)

where capitalist values are measured at time t-2, behaviors are measured at time t-1, and

industrialization is measured at time t. All estimation was conducted in Stata 12.9

RESULTS AND DISCUSSION

As a starting point for our analysis, we first consider the global distribution of capitalist

values, which indicates that countries where people are most likely to prioritize the kinds of

values Weber identified as embodying the spirit of capitalism – hard work, thrift, savings – are in

Eastern Europe and Asia (see Figure 2). Russia and China boast the highest percentages of

people who rank hard work and saving money among the most important qualities for children to

learn. More than 40 percent of respondents in current and former communist countries such as

Russia, China, Vietnam, Belarus, and Romania value both hard work and thrift saving money.

Compare these figures with Northern Europe, where less than five percent of respondents in

Norway, Sweden, and Finland identified these same values as important. Overall, the spirit of

capitalism is strongest in East and South Europe and in Asia, but much weaker in the Western

Hemisphere and in North and West Europe.

The Spirit of Capitalism, Economic Development, and National Wealth 17

Table 1. Variables, scales, and sources

Construct Variable label Scale Source

Hard work Important child qualities: hard work 0=Not imp, 1=Imp World Values Survey

Thrift Important child qualities: thrift, saving money and things

0=Not imp, 1=Imp World Values Survey

Capitalist values Hard work + thrift and savings 1=Yes to both hard work & thrift; 0=other (yes to neither, or one, but not both)

Derived

Income class World Bank income classification 1=Low inc, 5=High inc World Bank

Religion Majority religion Dummy variables CIA World Factbook

Income GDP per capita Logged constant 2000 USD (PPP) World Development Indicators

Industrialization CO2 emissions per capita Logged emissions World Development Indicators

Education Average years of completed education Years World Development Indicators

Savings Gross savings (% of GDP) Percentage World Development Indicators

Consumption Household consumption (% of GDP) Percentage World Development Indicators

Innovation Total resident and non-resident patent filings

Logged filings World Intellectual Property Organization (WIPO)

Fertility Total fertility rate Births World Development Indicators

The Spirit of Capitalism, Economic Development, and National Wealth 18

Percentage who valuehard work, thift and savings<10%10-19%20-29%30-39%>39%Not in WVS

NOTES: Graphed estimates are country averages over all occasions of measurement (n=86). SOURCE: World Values Survey.

Figure 2. The global distribution of capitalist values

The Spirit of Capitalism, Economic Development, and National Wealth 19

Figure 2 also indicates that prevalence of capitalist values is lowest in Catholic and Protestant

majority countries, including the Western Hemisphere and much of Europe, and highest in

Buddhist and Hindu majority countries. Similarly, Figure 2 indicates that the wealthiest societies

have, on average, the lowest capitalist value prevalence rates, while poor and middle income

countries have, on average, much higher prevalence rates. Indeed, Protestant majority countries

have the lowest average rates of capitalist values, followed by Catholic and Muslim majority

nations (see Figure 3). Eastern religions, Eastern Orthodox and ‘other’ religious majority nations

have, on average, the highest prevalence rates, where, for example, fully 79 percent of people in

the Orthodox Christian country-group identify hard work as an essential quality in children. The

value of thrift and savings, at 55 percent, is greatest in Buddhist majority countries, and lowest in

Protestant majority counties (28 percent).

Grouping countries according to World Bank income classifications further illuminates

unevenness in the global distribution of capitalist values. High income countries have, on

average, lower prevalence rates of capitalist values than less affluent nations, while countries in

the lowest income class have the highest prevalence rates. In fact, over seventy percent of

respondents in poor countries espouse hard work, compared to just over 40 percent in the high-

income country-group.

This simple, descriptive view of the contemporary world offers little support for Weber’s

original thesis, consistent with the findings of previous studies. A closer look at the relationship

between capitalist values and two measures of industrial capitalism does little to counter

speculation that Weber may have been incorrect in his assertion about the relationship between

religion and capitalism, but also incorrect about the relationship between values and capitalism.

In Figure 4, we regressed log transformed GDP per capita and CO2 emissions per capita on

capitalist values to assess their direct effect on national wealth and level of industry. In both

cases, the correlation is negative and statistically significant, meaning that, on average, the richer

or more industrialized a nation, the lower the prevalence of capitalist values in that society.

Based on Figures 2-4, it may be tempting to conclude that Weber’s thesis regarding a link

between religion, capitalist values and industrial capitalism is incorrect. In fact, using similar

data and countries, Norris and Inglehart (2004) reached broadly similar conclusions.

The Spirit of Capitalism, Economic Development, and National Wealth 20

46

28

13

47

32

15

47

39

21

59

39

23

77

44

35

64

55

35

0

10

20

30

40

50

60

70

80

90

Per

cent

age

of p

opul

atio

n es

pous

ing.

..

Protes

tant

Catholi

cOthe

r

Muslim

Orthod

ox C

hristi

an

Buddh

ist

By majority religionHard work Thrift & savings Hardwork &

thrift/savings

44

34

17

57

38

23

63

38

24

73

37

25

0

10

20

30

40

50

60

70

80

90

Per

cent

age

of p

opul

atio

n es

pous

ing.

..

High

Upper-

Middle

Lower-

Middle

Low

By income classHard work Thrift & savings Hardwork &

thrift/savings

NOTES: Here is a list of qualities that children can be encouraged to learn at home. Which, if any, do you consider to be especially important?Please choose up to five. SOURCES: World Values Survey, CIA World Factbook, and World Bank.

Figure 3. Worldwide prevalence of capitalistic values of hard work, thrift and savings

The Spirit of Capitalism, Economic Development, and National Wealth 21

ALB

ALB

ARG

ARGARGARG

ARM

AUS

AUS

AUS

AZE

BFA

BGD

BGD

BGR

BGR

BIHBIH

BLR

BLR

BRABRA

BRA

CANCAN

CHECHE

CHE

CHL

CHLCHL

CHL

CHN

CHN

CHN

CHN

COLCOLCOL

CYP

CZECZE

DEU

DEU

DOM

DZA

EGY

EGY

ESPESP

ESP

ESP

EST

ETH

FIN

FIN FRAGBR

GBR

GEO

GEO

GHA

GTM

HKG

HRV

HUN

IDN

IDN

IND

IND

IND

IND

IRN

IRN

IRQ IRQ

ISR

ITA

JOR

JOR

JPNJPN JPN

JPN

KGZ

KOR

KOR

KOR

KOR

LTU

LVA

MAR

MAR

MDAMDA

MDA

MEX MEX

MEXMEX

MKD MKD

MLI

MYS

NGANGANGA

NLDNOR

NOR

NZL

NZL

PAKPAK

PERPER

PER

PHL PHL

POL

POL

ROU

ROU

RUS

RUS

RUS

RWA

SAU

SGP

SLV

SVKSVK

SVN

SVNSWE

SWE

SWE

THA

TTO

TUR

TUR TUR

TUR

TZA

UGA

UKR

UKR

URYURY

USA

USAUSA

VENVEN

VNM

VNM

ZAF ZAF ZAF

ZAF

ZMB

6

7

8

9

10

11

GD

P pe

r cap

ita (l

og)

0 10 20 30 40 50 60Proportion that value hard work, savings, and thrift

Slope = -.027(.006)Income

ALB

ALB

AND

ARGARG

ARG

ARG

ARM

AUS

AUSAUS

AZE

BFABGD

BGD

BGRBGR

BIH

BIHBLR

BRA

BRABRA

CANCAN

CHECHE

CHE

CHL

CHL

CHLCHL

CHN

CHN CHN

CHN

COLCOL

COL

CYP

CZE

DEU

DEU

DOM

DZA

EGY

EGY

ESP

ESP

ESPESP

EST

ETH

FIN

FIN

FRA

GBRGBR

GEO

GEO

GHA

GTM

HKG

HRV

HUN

IDNIDN

INDIND

INDIND

IRN

IRN

IRQ IRQ

ISR

ITA

JOR

JOR

JPNJPN JPN JPN

KGZ

KOR

KORKOR KOR

LTULVA

MARMAR

MDA

MDA

MDA

MEX MEXMEXMEX

MKDMKD

MLI

MYS

NGA

NGA

NGA

NLD

NOR

NOR

NZLNZL

PAKPAK

PERPER

PER

PHL PHL

POL

POL

POL

ROUROU

RUSRUS

RWA

SAU

SGP

SLV

SVKSVN

SVN

SWE

SWESWE

THA

TTO

TUR

TURTUR

TUR

TZAUGA

UKR

UKR

URY

URY

USAUSAUSA

VEN

VEN

VNM

VNM

ZAFZAF

ZAF

ZAF

ZMB

ZWE

4

4.5

5

5.5

6

6.5

7

7.5

8

CO

2 em

issi

ons

per c

apita

(log

)

0 10 20 30 40 50 60Proportion that value hard work, savings, and thrift

Slope = -.011(.004)Industrialization

NOTE: Estimates are weighted by inverse of the occassions of measurement. Robust standard errors in parenthesis.

Figure 4. Industrial capitalism and capitalist values

The Spirit of Capitalism, Economic Development, and National Wealth 22

In Table 2, we report results of fixed effects models in which seven response variables are regressed on capitalist values (Hypotheses 1-3). The outcomes, which cover a wide range of domains, provide a broad-based contemporary test of Weber’s mobility model. The top most panel reports results for models in which each of seven response variables are regressed on capitalist values in the same year. Implicit with this approach is that a unit change in values has an instantaneous effect on change in the outcome variable, when, in practice, there is likely to be a time lag between changes in X and change in Y (Alderson 1999). The lower two panels, in which the response variables are regressed on capitalist values lagged by five (βkjt-5) and ten years (βkjt-10), account for the possibility of a lagged effect of change in values on change in Yjt.

The most important conclusion to be drawn from the model results in Table 2 is that change in capitalist mass values is associated with change in the response variables in the expected direction and at acceptable significance levels for all seven outcome variables. Some of the effects are small and others moderate, but in every case, change in values was correlated with change in the response variables, just as predicted by theory. Considering how many time-invariant country-level characteristics have been conditioned out of the model by the fixed effect estimator, we interpret the slopes as substantively meaningful and strong evidence for Weber’s central argument. The top panel of Table 2 indicates that capitalist values were associated with six of the eight outcome variables in the expected direction and at acceptable levels of statistically significance (p<.05). The effect of values on savings and consumption rates increased markedly in magnitude and statistical significance when we used a five-year lagged measure of capitalist values.10 Using the ten-year lagged measure of values increased the size and magnitude of the saving and consumption rate slopes even more, where, for example, a one-percent increase in capitalist mass values is associated with a third of a percent increase in gross national savings rates (.29) and about a third of a percent decrease in household gross consumption rates (-.27). In the case of the United States, which had an estimated GDP per capita of $43,000 in 2008, a one percent increase in the percentage of Americans espousing capitalist values leads to approximately $1250 increase in savings and about a $1200 decrease in household consumption. Net of time-invariant national characteristics, a one percent increase in capitalist mass values was associated with a one unit increase in patent filings (exponent(.037) = 1.04), with a .02 decrease in the total fertility rate, and a .04 year increase in educational attainment. Importantly, even the ‘outer linkage’ associations between values and industrialization and national income were positive and statistically significant. In fact, values explain about 12 percent of the variation in our measure of industrialization and slightly less than 20 percent of the within-country variation in logged GDP per capita.

The Spirit of Capitalism, Economic Development, and National Wealth 23

Table 2. Fixed effects regressions of capitalist values on capitalist outcomes

Savings Consumption Innovation Fertility Education Industrialization Income Capitalist values (no lag) 0.054 -0.028 0.034** -0.017*** 0.041*** 0.005* 0.014** (0.070) (0.057) (0.011) (0.004) (0.010) (0.002) (0.004) Country-years (countries) 549 (77) 571 (80) 526 (66) 607 (84) 560 (77) 582 (83) 587 (81) R2 (within-country) 0.025 0.038 0.194 0.306 0.163 0.087 0.211 ρ 0.86 .95 .96 .99 .98 .99 .99 Capitalist values (5-year lag) 0.122 -0.125+ 0.037*** -0.017*** 0.032** 0.005* 0.014** (0.097) (0.071) (0.010) (0.003) (0.009) (0.002) (0.004) Country-years (countries) 302 (42) 307 (45) 294 (43) 319 (46) 301 (42) 311 (44) 311 (44) R2 (within-country) 0.025 0.038 0.194 0.306 0.163 0.087 0.211 ρ .84 .96 .98 .99 .98 .99 .99 Capitalist values (10-year lag) 0.466** -0.375** 0.059*** -0.013** 0.036** 0.008 0.014+ (0.160) (0.108) (0.013) (0.004) (0.012) (0.006) (0.008) Country-years (countries) 129 (24) 130 (25) 125 (24) 131 (26) 127 (24) 130 (25) 130 (25) R2 (within-country) 0.244 0.276 0.399 0.261 0.337 0.120 0.172 ρ .93 .98 .99 .99 .99 .99 .99 + p<0.10, * p<0.05, ** p<0.01, *** p<0.001 Notes: Robust standard errors in parenthesis. Estimates are based on linear mean imputed estimates of capitalist values. Intercepts suppressed. Estimates are weighted by the inverse of the occasions of measurement. Analysis done in Stata12 using xtreg, fe. By 'imputed data', we mean that linear mean imputation was used to fill inter-temporal missingness (e.g. T1 and T3, but not T2). Hausman tests indicated that the random effects model was preferred over the fixed effects model for savings, consumption rates, and fertility rates. We elected to reported fixed effects results for all models in order to keep the results more strictly comparable and because unreported analysis of the random effects models produced substantively similar results.

The Spirit of Capitalism, Economic Development, and National Wealth 24

As we discussed earlier, neither religion nor values were theorized to have a direct effect on

industrialization or national wealth. Instead, values were viewed as the upstream cause of

particular kinds of behaviors, which, in turn, were expected to facilitate economic development.

We next test for an indirect effect of values on industrialization via mediating variables

(hypothesis 4). We do this in two steps. In the first, we demonstrate the conditioning effect of

GDP per capita and educational attainment on the relationship between values and four

behavioral variables associated with industrial capitalism and one measure of industrial

capitalism. This step is important because some have suggested that one reason previous research

has failed to find support of Weber is because economic development led to change in values

(Inglehart and Norris 2004). If rich countries once valued hard work, thrift and savings but

economic success led to a shift in values (value change hypothesis), then a model in which we

control for socioeconomic advantage should confirm a conditional correlation between capitalist

values and behaviors conducive to industrialization. In the second step, we model the indirect

effect of values on industrialization using structural equation models.

Table 3 reports the conditional effect of values on five outcomes associated with industrial

capitalism and one measure of industrial capitalism based on OLS regression analysis.11 The first

two rows report slopes and standard errors for the bivariate association between capitalist values

and the six outcomes, the third and fourth rows report coefficients and standard errors after

controlling for GDP per capita, and the fifth and sixth rows contains results after controlling for

GDP per capita and educational attainment. The results provide further support for the mobility

model and for the value change hypothesis in all five domains. Fertility rates (β = -.02, p < .01)

and industrialization (β = -.01, p<.10) were unconditionally correlated with capitalist values in

the expected direction, and savings rates (β = -.17, p<.01), household consumption rates (β = -

.19, p<.01), patent filings (β = -.03, p<.05), and educational attainment (β = -.04, p<.001) were

associated with capitalist values at acceptable levels of statistical significance and in the

expected direction once we controlled for socioeconomic characteristics. In short, once we

account for cross-national differences in income and education, the association between capitalist

values and capitalist behaviors is in the expected direction for each of the five behavioral

variables and we have established an ‘outer linkage’ association between capitalist mass values

and industrialization.

The Spirit of Capitalism, Economic Development, and National Wealth 25

Table 3. Unconditional and conditional direct effects of values on capitalist outcomes

Savings Consumption Innovation Fertility Education Industrialization Effect of capitalist values

Unconditional 0.051 0.059 -0.001 -0.015** -0.004 -0.011+

(0.059) (0.103) (0.014) (0.007) (0.021) (0.006)

Controlling for GDP per capita 0.113+ -0.128 0.028* -0.034*** 0.040*** 0.008*

(0.065) (0.087) (0.013) (0.006) (0.010) (0.003)

Controlling for GDP and education 0.171** -0.168+ 0.029* -0.027*** .. 0.005+

(0.064) (0.085) (0.013) (0.006) .. (0.003)

Country-years 136 141 135 147 147 144 + p<.10, * p<0.05, ** p<0.01, *** p<0.001

Notes: Reported coefficients and robust standard errors (in parenthesis) are for capitalist values. All other coefficients are suppressed. Estimates are weighted by the inverse of the occasions of measurement and by the relative influence of the observation on the slope (e.g. outlier, leverage).

The Spirit of Capitalism, Economic Development, and National Wealth 26

We next report standardized coefficients for a structural equation model that tests the

conditional association between capitalist values and industrialization via four mediating

variables. We have suppressed the causal pathways from the conditioning socioeconomic

variables to the four mediating variables (savings, consumption, and fertility and innovation) and

for the correlation of the errors of savings and consumption rates in Figure 5 to simplify

interpretation of the model and highlight the central pathways by which values affect

industrialization. We retained the conditioning pathways from education and GDP per capital to

values because it shows that educational advantage was positively correlated with contemporary

capitalist values, net of wealth advantage.xii The positive correlation between years of education

and capitalist values suggests that net of national wealth, the Western-style mass education

system that has blanketed the world in recent decades is a primary vector for the diffusion of

capitalist thinking and values.

As we asserted in hypothesis 4, and in agreement with results presented in Tables 2 and 3, we

find that capitalist values were positively associated with savings and innovation and negatively

associated with consumption and fertility rates, net of socioeconomic advantage. All pathways

from values to industrialization were significant except through innovation, but even there, the

coefficients were in the predicted direction. Summing up the several pathways through which

values effect industrialization (see Table 4), we find that in standardized units, the total effect of

capitalist values on industrialization was .23 (p<.001). To put the magnitude of this effect into

perspective, consider the size of the effects of human capital accumulation and innovation on

industrialization, both viewed as significant predictors of economic development. The total,

conditional effect of education on industrialization through the several mediating variables

(values, savings, consumption, and fertility rates) was .14 (p=.12) and the conditional effect of

innovation on industrialization was .16 (p=.10). In both cases, capitalist values were a stronger

predictor of industrialization. Overall model fit was acceptable (standardized root mean residual

= .07 and coefficient of determination = .82), and slightly less than two-thirds of the variation in

industrialization (1 - .40 = .60) was explained but the model. Similar results were produced when

data were unweighted.xiii

The Spirit of Capitalism, Economic Development, and National Wealth 27

Table 4. Total effects on industrialization

β z-values p-value Consumption -0.65 -7.24 0.000 Income 0.48 5.34 0.000 Fertility -0.30 -4.92 0.000 Capitalist values 0.23 4.27 0.000 Savings -0.21 -1.94 0.052 Innovation 0.164 1.64 0.100 Education 0.14 1.55 0.120 Notes: Reported coefficients (standardized) are for the model estimated in Figure 4.

Income (t-1)

Industrialization (t+2)

1 .4Consumption (t+1)

2 .59

Fertility (t+1)

3 .47

Innovation (t+1)

4 .76

Capitalist values (t)

5 .71

Education (t-1) Savings (t+1)

6 .86

.67

-.65

-.3

.16

-.21

-.25

-.35

.12-.71

.38.27

Figure 5. The indirect effect of capitalist values on industrialization

Model fit: SRMR = .067; coefficient of determination = .815; n = 119

NOTES: Standard errors are robust. Reported coefficients are standardized and weighted. All equations significant.Savings rates, consumption rates, and TFR conditioned on education and GDP per capita. Patents conditioned onGDP per capita. Errors for savings and consumption rates correlated. Conditioning pathways supressed to highlight essential theoretical pathways.

The Spirit of Capitalism, Economic Development, and National Wealth 28 CONCLUSION

We have argued that empirical tests of Weber’s thesis regarding individual and national

mobility should be reoriented from the past to the present and should give attention to secular

values that embody the spirit of capitalism instead of Protestant values per se. We hypothesized

that quantitative support for Weber’s thesis was most likely to be found in value orientations,

rather than in religion, at least at the national level. Our analysis largely confirmed key assertions

of Weber’s thesis. We found that, net of socioeconomic advantage, societies that place high

value on hard work, thrift, and savings are more innovative, more educated, have higher savings

rates, have lower consumption rates and fertility rates, and are more industrialized.

Our analysis provided support for the association between values and savings and

consumption rates, innovation, demographic behaviors, education, industrialization, and national

wealth in the theorized directions within countries and sensitivity analysis confirmed that these

findings were robust to a number of alternate model specifications, measures of industrialization,

and weighting schemes. We also found that capitalist values are associated with a large number

of mediating variables in four distinct domains and path models confirmed an indirect effect of

mass values on industrialization via the theorized mediating variables, net of socio-economic

advantage.

One of our goals was to draw attention to the motivational role of values in cross-national

studies of economic development and income inequality. To this end, we provided quantitative

support for Weber’s central argument about the relationship between values and industrialization

using a variety of mediating variables and modeling strategies. It is important to note that we

have only documented a positive effect of capitalist values on mobility at the national level. Left

unanswered is whether or not our proposed model also holds for micro and meso-level

associations.

The findings from this research also shed light on the value-change hypothesis of

modernization theory in which economic development leads to change in value priorities

(Inglehart and Baker 2000). Recall that capitalist values were negatively correlated with

industrialization and national income (Figure 3) and yet in Table 2 we demonstrated an

unconditional positive association and in Table 3, we showed a conditional positive association

between values and these same outcomes. The difference between the results in Figure 1 and

The Spirit of Capitalism, Economic Development, and National Wealth 29 Tables 2 and 3 are important because, taken together, they square with the value-change

hypothesis. If economic develop does, in fact, contribute to change in values, then we would

expect to find a positive within-country association between values and economic development

and a negative association between countries. But, once we control for the effects of current

levels of income and education, the association between values and economic develop should be

positive. And that is precisely what we found here.

Our findings also shed light on the rigidity of the global stratification system. Had we not

found a positive association between values and economic outcomes, we might speculate that the

stratification system is simply too rigid and exploitive to reward poor, but hard working, nations

with upward mobility. This is so because economic outcomes, while partly the result of

motivational factors such as attitudes, values, and beliefs, are also heavily conditioned by other

national characteristics and the larger social system of action such as position in the world

political economy (Mahutga and Smith 2011), factor endowments (Sokoloff and Engerman

2000), institutions (Acemoglu, Johnson and Robinson 2002), and geography (Gallup and Sachs

1999; Krugman 1991). Instead, we have shown that societies in which capitalist values are rising

are not only more likely to experience rising educational attainment and saving rates and declines

in consumption and fertility rates but are also more likely to experience industrial expansion and

income growth. This suggests that the global stratification system is not so rigid as to fully

cancel out the positive effects of hard work, thrift, and savings on economic development.

Weber claimed that “the spirit of religious asceticism…has escape from the cage. But

victorious capitalism, since it rests on mechanical foundations, needs [Protestantism’s] support

no more” (Weber, 1992: 124). Once firmly grounded, the spirit of capitalism was expected to

decouple from its religious origins and become a self-perpetuating economic model, rather than a

set of religious beliefs particular to a single region and religious group. Our research suggests

Weber was indeed correct on this point. Belief in key elements of Weber’s mobility model is

widely shared in diverse countries around the world (Thornton et al. 2012). Insofar as the spirit

of capitalism includes valuing hard work, thrift, and savings and engaging in rational behaviors

believed to cause upward mobility, one might conclude that not only did it escape from the cage,

but proceeded to engulf virtually the whole world.

The Spirit of Capitalism, Economic Development, and National Wealth 30 REFERENCES

Acemoglu, Daron, Simon Johnson and James A Robinson. 2002. “Reversal of fortunes: Geography and institutions in the making of the modern income distribution”. Quarterly Journal of Economics 117(4): 1231-94.

Alderson, Arthur S. 1999. “Explaining Deindustrialization: Globalization, Failure, or Success?” American Sociological Review 64(5): 701-721.

Allison, Paul. 2005. Fixed Effects Regression Methods for Longitudinal Data Using SAS. Cary, NC: SAS Institute.

Alwin, Duane F. 2007. Margins of Error: A Study of Reliability in Survey Measurement. John Wiley & Sons, NJ: 398 pp.

Barro, Robert J. 2001. “Human capital: Growth, history, and policy-a session to honor Stanley Engerman”. American Economic Review. 91(2): 12-17.

Blau, Gary & Jack Ryan (1997). On measuring work ethic: A neglected work commitment facet”. Journal of Vocational Behavior. 51(3): 435-448.

Bouma, Gary D. 1973. “Beyond Lenski: A critical review of recent “Protestant Ethic” research”. Journal for the Scientific Study of Religion 12(2): 141-55.

Cameron, A. Colin and Pravin K Trivedi. 2005. Supplement to microeconometrics: Methods and applications. Cambridge University Press, NY: 895 pp.

Cavalcanti, Tiago V. Stephen L. Parente, and Rui Zhao. 2007. “Religion in macroeconomics: a quantitative analysis of Weber’s thesis”. Economic Theory, 32(1):105–123.

Collins, Randall. 1980. “Weber’s Last Theory of Capitalism: A Systematization.” American Sociological Review 45: 925-942.

Coleman, James S. 1990. Foundations of Social Theory. Cambridge, MA: Harvard University Press Crenshaw, Edward, Ansari Ameen and Matthew Christenson. 1997. "Population Dynamics and Economic

Development: The Differential Effects of Age-Specific Population Growth Rates on Per Capita Economic Growth in Developing Countries, 1965 to 1990." American Sociological Review 62: 974-84.

Delacroix, J. and Neilsen, Francois. 2001. “The Beloved Myth: Protestantism and the Rise of Industrial Capitalism in Nineteenth-Century Europe.” Social Forces 80(2): 509-553.

Ditz, Gerhard W. 1980. “The Protestant ethic and the market economy” Kyklos, 33(4): 623-57. Dorius, Shawn F. 2008. “Global demographic convergence? A reconsideration of changing

intercountry inequality in fertility”. Population and Development Review 34: 519-537. Dorius, Shawn F. and Glenn Firebaugh. 2010. “Trends in Global Gender Inequality”. Social

Forces 88: 1941-1968 Fine, Reuben. 1983. “The protestant ethic and the analytic ideal”. Political Psychology 6(2): 245-64. Firebaugh, Glenn. 2003. The New Geography of Global Income Inequality. Cambridge and London:

Harvard University Press. Furguson, Niall. 2011. Civilization: The west and the rest. Penguin Press: 432 pp. Fuwa, Makiko. 2004. “Macro-level gender inequality and the division of household labor in 22

countries”. American Sociological Review 69(6): 751-67. Gallup, John L, Jeffrey D Sachs and Andrew Mellinger. 1999. “Geography and economic development”

Center for International Development at Harvard University Working Paper Series No 1.

The Spirit of Capitalism, Economic Development, and National Wealth 31 Glenn, Norval D. and Ruth Hyland. 1968. “Religious preference and worldly success: Some evidence

from national surveys”. American Sociological Review 32: 73-85. Goesling, Brian and Glenn Firebaugh. 2004. “The trend in international health inequality,”

Population and Development Review 30: 131–146. Guiso, Luigi & Sapienza, Paola & Zingales, Luigi, 2003. "People's opium? Religion and economic

attitudes," Journal of Monetary Economics 50(1): 225-282. Iannaccone, Laurence R. 1998. “Introduction to the economics of religion”. Journal of Economic

Literature. 36: 145-96. Inglehart, Ronald and Wayne E. Baker. 2000. “Modernization, cultural change, and the persistence of

traditional values”. American Sociological Review. 65(1): 19-51. Krugman Paul. 1991. “Increasing returns and economic geography”. Journal of Political Economy. 99(3):

483–99. Lenski, Gerhard 1961. The religious factor: A sociological study of religion's impact on politics,

economics, and family life. Doubleday & Co, NY: 381 pp. Romer, Paul. 1986. “Increasing returns and long-run growth”. Journal of Political Economy 94(5): 1002-

37. Mahtgu, Matthew C. and David A Smith. 2011. “Globalization, the structure of the world economy and

economic development”. Social Science Research 40(1): 257-72. Meyer, John W, Francisco O Ramirez, and Yasemin Soysal. 1992. “World expansion of mass education,

1870-1980.” Sociology of Education 65: 128-49. Nelson, Benjamin. 1981. On the Roads to modernity: Conscience, science, and civilizations in Max

Weber I: Critical Assessments. (Ed) Peter Hamilton.2009. Taylor & Francis, NY: 1664 pp. Neumayer, Eric. 2004. “HIV/AIDS and cross-national convergence in life expectancy,” Population and

Development Review 30: 727–742. Norris, Pippa and Ronald Inglehart. 2004. Sacred and secular: Religion and politics worldwide.

Cambridge University Press: Cambridge 329 pp. Pegram, Thomas. 2010. “Diffusion across political systems: The global spread of national human rights

institutions”. Human Rights Quarterly 32(3): 729-760. Roberts, Wade. 2009. “World society, family planning programs and the health of children”.

International Journal of Sociology and Social Policy. 29( 7/8): 414-25. Samuelson Kurt and Donald C Coleman. Religion and economic action: The Protestant Ethic, the rise of

capitalism, and the abuses of scholarship. University of Toronto Press: 157 pp. Sanderson, Stephen K., Seth B Abrutyn, Kristopher R. Proctor. 2011. “Testing the Protestant Ethic thesis

with quantitative historical data: A research note”. Social Forces 89(3): 905-11. Schwartz, Shalom H. 1992. “Universals in the content and structure of values: Theoretical advances and

empirical tests in 20 countries”. Advances in Experimental Social Psychology 25: 1-65. Sokoloff, Kenneth L and Stanley L Engerman. 2000. “History lessons: Institutions, factor endowments,

and paths of development in the new world”. Journal of Economic Perspectives 14(3): 217-32. Solow, Robert M. 1965. “A Contribution to the theory of economic growth,” Quarterly Journal of

Economics 70(1): 65-94. Swedberg, Max. 1998. Max Weber and the idea of economic sociology. Princeton, NY: Princeton

University Press.

The Spirit of Capitalism, Economic Development, and National Wealth 32 Thornton, Arland. 2001. “The Developmental Paradigm, Reading History Sideways, and Family

Change.” Demography 38(4): 449-65. Thornton, Arland, Georgina Binstock, Kathryn M. Yount, Mohammad Jalal Abbasi-Shavazi, Dirgha

Ghimire, and Yu Xie. 2012. “International fertility change: New data and insights from the developmental idealism framework”. Demography 49(2): 677-698.

Warner, R. Stephen. 1970. “The role of religious ideas and the use of models in Max Weber’s comparative studies of non-capitalist societies”. The Journal of Economic History 30(1): 74-99.

Weber, Max. 2002 [1905]. The Protestant ethic and the spirit of capitalism. (Trans. & ed) Peter Baehr and Gordon C Wells. Penguin Books: 266 pp.

Williamson, Jeffrey. 1998. “Growth, distribution, and demography: Some lessons from history”. Explorations in Economic History 35: 241-71.

Stephen T. Ziliak and Deirdre N. McCloskey. 2008. The Cult of Statistical Significance. Ann Arbor, MI: University of Michigan Press.

The Spirit of Capitalism, Economic Development, and National Wealth 33

Table A1. Country-level descriptive statistics

Country (obs.) Capitalist values (%)

GDP per cap ($)

CO2 per cap (metric tons)

Education (years)

Country (obs.)

Capitalist values (%)

GDP per cap ($)

CO2 per cap (metric tons)

Education (years)

Albania (2) 37.4 4658 0.9 9.9

Kyrgyzstan (1) 38.3 1651 1.1 8.7 Algeria (1) 11.2 6344 2.9 7.3

Latvia (1) 36.4 6407 3.8 9.0

Andorra (1) 15.6 .. 7.4 ..

Lithuania (1) 35.6 8472 4.3 9.3 Argentina (4) 8.8 10001 3.9 8.7

Macedonia (2) 12.8 6936 6.1 ..

Armenia (1) 31.3 1919 1.1 10.4

Malaysia (1) 24.1 11996 6.8 9.8 Australia (3) 9.6 26075 16.8 11.5

Mali (1) 34.4 913 0.0 1.7

Azerbaijan (1) 42.9 1948 3.8 ..

Mexico (4) 13.6 11053 3.9 7.4 Bangladesh (2) 17.3 940 0.2 4.3

Moldova (3) 38.7 2047 1.9 9.2

Belarus (2) 44.7 5383 8.2 ..

Morocco (2) 23.3 3449 1.4 4.3 Bosnia & Herz (2) 21.5 4881 5.1 ..

Netherlands (1) 12.7 36238 10.2 10.9

Brazil (3) 17.5 7940 1.8 5.9

New Zealand (2) 13.1 22838 8.0 12.2 Bulgaria (2) 40.0 8357 6.4 9.5

Nigeria (3) 6.5 1436 0.5 3.2

Burkina Faso (1) 37.9 1038 0.1 1.3

Norway (2) 1.6 44061 9.0 11.7 Canada (2) 14.3 34089 17.1 11.6

Pakistan (2) 35.0 1818 0.7 3.8

Chile (4) 8.5 9723 3.5 9.0

Peru (3) 10.5 6268 1.2 8.4 China (4) 49.7 2764 3.2 6.8

Philippines (2) 23.7 2667 1.0 8.2

Colombia (3) 5.8 7025 1.6 6.8

Poland (3) 6.4 10780 9.4 9.2 Croatia (1) 18.6 10932 4.1 8.1

Puerto Rico (2) 8.7 .. .. ..

Cyprus (1) 21.7 24953 7.4 9.4

Romania (2) 44.6 8069 4.5 9.9 Czech Repub (2) 39.3 16205 13.3 11.2

Russia (3) 51.1 11118 13.5 10.4

Dominican Repub (1) 5.3 4735 2.2 6.4

Rwanda (1) 17.7 918 0.1 3.7 Egypt (2) 7.6 4679 2.4 6.4

Saudi Arabia (1) 17.4 19768 14.5 7.4

El Salvador (1) 10.4 5087 1.0 6.4

Singapore (1) 25.0 37776 10.1 8.2 Estonia (1) 27.7 8334 13.3 10.6

Slovakia (2) 37.0 12619 8.8 10.7

Ethiopia (1) 28.7 751 0.1 2.3

Slovenia (2) 14.9 19726 7.6 11.3 Finland (2) 5.0 26661 11.2 9.3

South Africa (4) 17.5 8170 8.9 7.8

France (1) 28.5 30055 6.0 10.0

Spain (4) 13.6 23605 6.9 8.5 Georgia (2) 25.9 3261 1.0 ..

Sweden (3) 2.5 28954 6.0 11.1

Germany (2) 10.7 30347 10.4 10.7

Switzerland (3) 14.4 34159 5.6 9.7 Ghana (1) 14.5 1304 0.4 6.9

Taiwan (2) 31.2 .. .. ..

The Spirit of Capitalism, Economic Development, and National Wealth 34

Guatemala (1) 9.7 4062 1.0 4.0

Tanzania (1) 47.0 894 0.1 4.8 Hong Kong (1) 0.0 35678 6.0 9.9

Thailand (1) 9.9 7249 4.2 7.1

Hungary (1) 13.9 12644 5.9 10.9

Trinidad & Tobago (1) 19.3 22619 26.1 9.4 India (4) 34.6 1752 1.1 4.1

Turkey (4) 21.9 9729 3.3 5.9

Indonesia (2) 33.4 2960 1.4 5.6

Uganda (1) 8.6 789 0.1 4.4 Iran (2) 21.9 8894 6.1 7.7

Ukraine (2) 39.2 4786 7.5 10.7

Iraq (2) 7.7 3085 3.6 5.4

United Kingdom (2) 9.7 30204 9.2 9.1 Israel (1) 4.4 22623 10.2 11.2

United States (3) 17.0 38527 19.3 12.8

Italy (1) 17.0 28280 8.0 9.2

Uruguay (2) 8.2 9530 1.8 7.9 Japan (4) 12.5 28161 9.4 10.7

Venezuela (2) 17.8 9750 5.9 5.7

Jordan (2) 8.3 4269 3.5 8.6

Viet Nam (2) 46.7 2000 0.9 5.6 South Korea (4) 43.3 17550 8.4 10.7

Zambia (1) 16.3 1242 0.1 6.7

24.9 .. .. .. Zimbabwe (1) 17.2 .. 1.0 7.1

Notes: Reported estimates are averaged over all observation, by country.

The Spirit of Capitalism, Economic Development, and National Wealth 35 Notes

1 Lenski’s (1961) Detroit Area Study of Protestant/Catholic differentials in labor market outcomes produced mixed results. Early on, he found tacit support for Weber’s thesis, but later work (Glenn and Hyland 1967) showed that the minor Protestant-Catholic differences had disappeared (see Bouma 1973, for a more thorough review of quantitative tests of the Protestant Ethic thesis). 2 Consistent with modernization theory, structural models identify human capital stocks as one of the essential factor endowments, or assets, nations can leverage to improve the standards of living of their citizens (Barro 2001). Now that mass education and fertility and mortality declines have become nearly universal and global facts of life (Dorius 2010, 2012; Goesling and Firebaugh 2004; Neumayer 2004), investments in education and conscious efforts to reduce fertility and mortality (contraception, immunization, etc.) represent more universal and rational behaviors in which both rich and poor people can engage. Structural models confirm an association between population structure and economic growth (Crenshaw, Ameen, and Christenson 1997). The link between fertility rates and national income is typically measured using the dependency ratio under the assumption that economic growth tends to be greater in societies with few dependents relative to workers (Firebaugh 2003; Williamson 1998). The same is true with fertility, where delaying and/or reducing fertility is positively associated with educational attainment and higher incomes, both at the individual and societal level. 3 In a limited number of countries, quota samples were used and in some cases, the sample was more urban and educated than the country as a whole. 4 After the first wave of the WVS, politeness and neatness, honesty, patience, leadership, self-control, and loyalty were dropped. 5 Under optimal conditions, we would have used one of the many protestant ethic scales developed from previous research. Since no such scale was included in the WVS, we considered a number of alternative measures of attitudes, values, and beliefs that appeared to be related to concepts described by Weber. In the end, we elected to use the child values of hard work and thrift best since they clearly measured three of the four agreed-upon dimensions (belief in hard work and asceticism /saving) and possibly a third (leisure avoidance) of the Protestant Ethic thesis identified from previous research (Ditz 1980; Blau and Ryan 1997). 6 The path model (Figure 4) did not appreciably change when we used percentage of labor force in industry. We also tested models in which we substituted share of labor force in agriculture and service sector for measures of industrialization with the expectation that capitalist values would be negatively associated with agriculture and uncorrelated with size of service economy. Our assertions were validated in replication models. The total effect of values on share of labor in service was negative , though not statistically significant and share of labor in the service sector was uncorrelated with capitalist values. 7 Our measures of savings and consumption are not exactly equivalent to one another. Much like our measures of values and educational attainment, household consumption per capita is an aggregated measure of individual (household) level behaviors. Savings, on the other hand, measures gross national income less total consumption, plus net transfers and so also capture state-level behaviors. 8 Fifty-three countries have at least two measurements of capitalist values, of which 44 report monotonic change in values. The correlation between mass capitalist values in wave 4 and wave 5 of the world values survey (the two waves containing the largest number of countries of any two waves) is .91. The correlation between waves 3 and wave 4, at .89, is only slightly smaller. This would suggest that linear mean imputation of missing values between observed values is likely to produce reasonably accurate estimates since correlations are so high. 9 We tested all models using listwise deletion, and we did so with and without data weights. The substantive results were unchanged. The only place in which our models were not validated through alternate model specifications was when we used maximum likelihood with missing values imputation on the full panel of 86 countries. In that case,

The Spirit of Capitalism, Economic Development, and National Wealth 36

values were uncorrelated with national wealth or industrialization (though not negatively correlated, as in the case with most previous research). Many of the mediating relationships were, however, supported by models based on fully imputed data. 10 In unreported analysis, we replicated the models in Table 2 using constant samples and arrived at the same conclusions we have reported here, that lagged capitalist values are better predictors of change in savings and consumption rates than cross-sectional measures. 11 We pooled country-year observations and used panel corrected standard errors. The pooled OLS regression estimates are consistent and efficient, so long as the error term is uncorrelated with the regressors, and the random effects model is preferred over the fixed effects model (Cameron and Trivedi 2005). xii Even though income and education are strongly correlated, they explain unique variation in capitalist values. Tests for multi-collinearity were negative. xiii We tested all models using listwise deletion, and we did so with and without data weights. The substantive results were unchanged. The only place in which our models were not validated through alternate model specifications was when we used maximum likelihood with missing values imputation on the full panel of 86 countries. In that case, values were uncorrelated with national wealth or industrialization (though not negatively correlated, as in the case with most previous research). Many of the mediating relationships were, however, supported by models based on fully imputed data.