Business, Finance & Economics

Did Martin Luther's reformation 500 years ago leave its mark on today's eurozone budget crisis?

All Saints Church.jpg

The door on the side of All Saints' Church in Wittenberg, Germany. In 1517, Martin Luther nailed his 95 Theses here sparking the Reformation. The original door was destroyed in a fire, but this black bronze door marks the historical spot.

Credit:

Creative Commons/Wiki Media

If you’re on the hunt for a last minute Halloween costume, consider donning monkly garb and paying homage to legendary German priest and religious reformer Martin Luther.

October 31st marks the anniversary of Luther issuing his 95 Theses against the Catholic Church, which triggered the Protestant Reformation. 500 years and many battles over the Bible later, economists are wondering if Martin Luther may have had something to do with the modern-day battle over budget deficits.

I like to blame Luther for the occasional budget negotiation gridlock in my home, where my Finnish husband laments pricey purchases by declaring, “It hurts my Protestant heart.”

This from a man who has not attended church in decades.

In personal and professional dealings, the idea of a Protestant ethos remains a deep-rooted notion, even among secular Finns. And it occasionally rears its head in politics. When asked why Finland followed the rules of EU membership that Greece flouted, Finnish foreign minister Erkki Tuomioja replied, “Our Lutheran morality, if you will.”

A similar sentiment holds true in Germany, where the word for debts (“Schulden”) is the same as the word for guilt or sin. All the more fitting since German Chancellor Angela Merkel — the leading figure in the quest to resolve Europe’s debt debacle — is the daughter of a preacher. A Protestant preacher.

A quick look at a map reveals that the eurozone crisis falls roughly along religious dividing lines, with Catholic southern European countries such as Italy and Spain faring far worse than the Protestant northern countries like Finland and Germany.

Cultural forces can be important in explaining how an economy works, how an economy performs.”

Luigi Guiso, an economist with the Einaudi Institute for Economics and Finance in Rome, added that economists have traditionally shied away from using cultural factors, like religion, to explain economic outcomes, in part because they lacked data to generate testable hypotheses. Others have long assumed that in an increasingly secular Europe, religion would now be irrelevant to economic analyses.

But over the past decade, new methods and large quantities of microdata from sources such as the World Values Survey and the European Social Survey have made it possible for economists like Guiso to analyze how culture and religion have shaped economies over long periods of time.

Based on such data, Guiso says that in Europe, “there is a difference between Catholics and Protestants, even in personal economic performance. The question is why, and the typical and predominant explanation is the one by Weber.”

As in Max Weber, the German sociologist and economist who coined what is commonly — and incorrectly — known as the Protestant Work Ethic.

Sascha Becker is a professor of economics at the University of Warwick and deputy director of the Centre for Competitive Advantage in the Global Economy. Becker is quick to clarify that Weber never actually used the term “work ethic.“

Rather, Weber spoke of a Protestant ethic, the most common interpretation being that Protestants work harder, are more frugal and are better at building capital than their Catholic counterparts.

To get beyond the gross generalizations, Becker and his colleagues dove deep into centuries of German tax records and census data. “Germany is a nice laboratory to study these issues,” says Becker, since the country’s mix of Protestant and Catholic areas dates back five centuries to the Protestant Reformation.

Becker’s work confirms a longstanding economic gap — German Protestants out-earn German Catholics. But his research suggests that the Protestant ethic might be better described as the Protestant education ethic.

That’s because Martin Luther inadvertently spread literacy and education through his quest to get his followers to read the Bible — women, as well as men. 

“This is a time when literacy rates were around 1 percent for the population at large,” says Becker, “and there is Martin Luther who says that every town should have a girls’ school.”

As literacy and education rates among Protestants rose, they began out-earning their Catholic counterparts. Five centuries after Luther, that earning gap persists.

Becker cautions against connecting the dots too closely between his findings and Europe’s current economic situation. Catholic Austria and Poland are faring relatively well at the moment, while Protestant Sweden and Finland faced major economic crises in the early 90s.

Still, he says, the education gap between Protestants and Catholics suggests a way forward for Europe.

“Now, in Europe and [in the] eurozone, we are concerned with fixing long-term issues and trying to fix public budgets,” says Becker, “but it would be unwise to cut education at all levels, because we need educated people to keep up our innovation capacity.”

And while there’s no shortage of Catholic schools and universities around the world, Guiso explains that, “there is no norm in the Catholic Church that tells parents, ‘You have to educate your kids.’”

For Protestants, he notes, the onus of educating children lies with parents.

Europe’s economic crisis has also led many to fear that the eurozone will split apart. But Guiso sees the crisis as an opportunity for the EU to further integrate and establish institutions where Europe’s religious, cultural, linguistic and regional diversity can be fully represented and better mediated.

“When there is cultural heterogeneity, the chances that there is a clash across cultures is a real possibility,” says Guiso. The more diverse a population, the more important it is to have a Parliament or an equivalent political institution to manage the major challenges.

In the wake of the recent US government shutdown, just don’t look to the United States Congress as a model of how to do so.