The economic cost of religion

The social and economic cost of any policy or event is properly measured by comparison with a situation that would arise under a different policy or circumstance. While this approach is often applied with regard to alternative social or economic policies, it is also possible to apply it in a general way to provide some estimate of the economic impact of certain religious and cultural practices, in comparison with possible alternatives. In an age in which conflicts over political ideology have largely subsided and in which world population mobility has increased, religion and culture now assume a greater prominence as sources of controversy and conflict. In a world of technological and scientific enlightenment, it has therefore become increasingly pertinent to consider what relevance religion and certain religious cultural practises may have to the welfare of the world community.

Per capita income levels differ widely across the regions of the world, as do religions. Most of the world's 6 billion people reside in communities in which some form of religious belief predominates. Of these, Christians and Moslems would be the most numerous, followed by Hindus, Buddhists and perhaps Taoists. While the intensity of adherence to religions also varies widely, it is probably highest amongst Muslims.

Religious beliefs, while persistent, have no rational basis. So although the beliefs of different religions are mutually contradictory, there is no way to evaluate the relative merit of the beliefs themselves. It is possible however to assess the relative impact that different religions and associated cultural practices have on societies. While religions may provide some psychological benefits to individuals, and religious institutions may provide valuable charitable services, there are significant costs that are incurred as a result of religion. Casual observation shows that the nominally Christian world enjoys a high level of development and income, whereas the Moslem world, resource wealth apart, is often characterised by poverty and economic failure. Does religion have any role in providing an explanation these differences?

Historically, empires provided wealth. This was due not only to conquest and exploitation but to the stability of their institutions. After the fall of the Roman empire it took Europe a thousand years to achieve a similar level of development. This period was characterised by religious strife and persecution. Meanwhile at this time, the Moslem world was able to flourish, expanding and achieving high level of technical progress. This success was most likely related to the provision of a stable and equitable environment relatively free from excessive internal conflict.

History shows us that a properly functioning apparatus of state is a necessary condition for the achievement of prosperity. This is not only due to the provision by the state of adequate defence against destruction by external forces. It is also due to the provision of a legal system through which disputes can be resolved without resort to destruction of property. Only then can the wealth acquired through accumulated income adequately be preserved and technical progress encouraged. The importance of religion here is only in the extent to which it assists or hinders the state in its ability to provide a suitable economic development environment.

In this context then, we can begin to consider what effect and relevance religion and associated cultural practices may have on the current geographical distribution of economic development. We may then consider the impact on productivity and income growth. Income and wealth may differ across regions due to different natural resource endowments, constraints due to climate and population as well as the institutional environment. Subject to this, each nation state may be considered to have a certain income growth potential, which may be realised to a greater or lesser extent. In some cases, realised growth may fall short of potential growth due to constraints imposed externally. This is the case for many developing countries, that face inequitable trade barriers imposed against their ability to export agricultural goods. This may well be the biggest single cause of world poverty. However it is also possible for income growth to fall short of potential due to internal policies that are subject to domestic control and are therefore discretionary. It is within this category that religious and cultural constraints on income growth fall.

One of the most obvious economic costs of religion and certain religious cultural practices arise from the absent or reduced contribution of the female labour force. In addition there is the aggregate man-hours lost and labour productivity lost due to futile and unproductive participation in time consuming religious activities. Also significant is the contribution of religion as a cause of disputes, both domestic and international.

Many cultural practices, such as the limitations on the economic participation of women, may not be strictly part of religious dogma, but are nevertheless imposed in the name of religion or are closely associated with religion. They should be included as religious costs. Impacts due to the conflicting role of religious and state institutions are more difficult to measure. In the extreme case of a theocracy, the rule of law may be effective, but the nature of the religious laws imposed may severely limit productivity and innovation. In other cases the rule of civil law is rendered ineffective because of interference in its operation by religious authorities.

It is the nature of some religions in some societies that truth itself is defined by the religion and is institutionally protected from any challenge or question. This was the case in Europe prior to the Renaissance and is also the case in many Islamic societies today. Where scientific inquiry is shunned and truth measured according to religious interpretations of an ancient text, there is an inevitable negative impact on research and innovation. As a result productivity growth suffers, entailing real economic costs.

When truth is allowed to be arbitrarily defined by religion, this may have an additional spill over into society in that the administration of civil justice may become susceptible to corruption. It may at least provide some explanation for the persistence of corruption in highly religious societies, for example Indonesia. In these circumstances, where the efficient rule of law is rendered ineffective, capital investment involves greater risk and the volume of investment and the level of economic development is thus reduced, compared with what would otherwise be the case.

A highly theocratic society is inconsistent with the development of an open society with democratic institutions. This provides another constraint on economic development. This situation may apply not only in Islamic societies but also to those where Confucian philosophy is dominant. Such philosophy may therefore also be considered as a restrictive religious practice. In general, the potential-limiting cost of all these forms of social restrictiveness may be described as innovation inhibition. Historically, religion may have served to enhance the authority of state, thereby assisting stability and wealth creation. It no longer serves any useful function in this role.

While it is not possible to provide a complete historical record of the cost of religion to society, it is possible to use current international financial data in an attempt to infer a quantification of such costs for the contemporary period. Published economic data covering the last several decades may be assembled for cross-country comparison. For this purpose, as a summary measure for comparison, IMF data have been used to rank per capita income by country. The world population of around 6 billion has then been assigned to three income groups. A high-income group of about one billion people includes Europe and North America. A further one billion in a mid–income group includes Eastern Europe and South America The remaining four billion in the low income group include Asia and Africa. Average income growth has also been calculated for each group as shown in Table 1.

On the assumption that Moslem countries are those most afflicted restrictive religious practices with respect to the available labour force, a separate calculation has been performed for these countries. The high income growth rate for the low income world group in Table 1 is mainly due to China’s high growth. The negative growth of high income Moslem countries is contributed substantially by Iraq. From consideration of individual country values, it is apparent that political strife is a key factor in poor growth outcomes.
 
 

Table 1. Population by income group - worldwide
 
    Low income Mid-income High income Total
All countries          
Population Billion persons
3.9
1.0
1.0
5.9
Total income (GDP)  $US billion
2400
3200
26400
32000
Per capita income  $US, annual
600
3200
26400
5500
Average income growth  % real per capital
4.1
1.1
1.8
3.2
           
Moslem countries          
Population Billion persons
0.85
0.12
0.03
1.0
Per capita income $US, annual
570
4000
10600
1300
Average income growth % real per capita
1.4
3.0
-3.0
1.5

Source: International Financial Statistics, IMF, 174 countries, 2000. (CD ROM Sept 2002)

For each income group, the per capita income and population in Table 1 is used as a reference to estimate of the various religious costs relevant for each group, which are shown in Table 2. The cost estimates have been estimated in two parts. The first is an attempt to describe the fixed cost arising mainly from the restricted deployment of labour resources. The second is an annual cost estimate based relative to an assumed per capita income growth differential between the groups, which is due in part to religion-related causes.

Of the 4 billion people in the low-income group, there are 850 million who live in societies where the ability of females to participate in the work force may be limited by religious customs. Of these, perhaps 10% may be females who are subject to this restriction. Hence a figure of 85 million (0.85 billion man-years) is entered as the number of females currently unemployed who may otherwise be engaged in paid employment is a non-restrictive environment. A higher proportion than this may apply in the higher income groups. This provides the major estimate of the global fixed cost of religion. The total income foregone is calculated as using a relevant per capita income discounted by a factor of 0.6, anticipating a lower than average wage rate applicable for female workers. A total cost of $US155 billion is estimated.

An additional cost estimate is provided for lost income due to the diversion of labour resources into unproductive religious observances and lower productivity, both male and female. This leads to a total fixed cost of religion worldwide exceeding $US200 billion.
 
 

Table 2. Estimated cost of religion by income group – worldwide
 
    Low income Mid-income High income Total
Costs of religion - fixed          
Female labour foregone Billion man-years
0.085
0.02
0.005
 
  $US per capita
300
2000
5000
 
  $US billion
25
80
50
155
Lost production due to

religious observances

Billion man-years
0.05
0.004
0.001
 
  $US billion
30
16
10
56
Total fixed costs $US billion
55
96
60
211
           
Cost of religion – annual          
Innovation inhibition Real per capita income growth %
1.0
1.0
0
 
  $US billion
24
32
0
56
Conflicts and defence $US billion
10
20
130
160
Total annual costs $US billion
34
52
130
216

Source: Estimates based on IMF aggregates.

The estimates for the annual cost of religion due to innovation inhibition are based on relative growth assumptions for each group. Growth rates vary widely across countries, for many reasons. India’s long term growth rate, for example, exceeds that of neighbouring Pakistan by 1.7 percent.

A country’s poor income growth performance may be partly related to the inability of the government of that country to provide an economic environment conducive to long term wealth creation, due to the various innovation inhibition causes outlined earlier. Any attempt to assign a value to the growth handicap for this reason is necessarily conjectural. In this exercise, it is assumed that the direct and indirect consequences of religious practices are responsible for growth 1% lower than otherwise would be the case, for both the low and mid-income groups. This factor applied to aggregate income for those groups results in an estimated total cost of $56 billion at current prices.

It is important to note that no attempt has been made here to quantify the accumulated cost of the religion-induced lower than potential income growth, sustained over a long period of time. Only a current day cost comparison is considered, even though the accumulated cost would be substantial and seemingly provides at least part of the explanation of observed geographical differences in income levels. Because this issue is ignored, the cost estimates presented here should be regarded as conservative.

In an additional annual cost item, it has been considered that most of the conflicts around the world currently necessitating or motivating defence expenditure have a religious component. Thus a reasonable proportion of the defence budget should be regarded as a cost of religion. If the world defence budget is conservatively assessed as 2% of GDP, and if 25% of this can be ascribed to defence against religion induced disputes, an estimate of $160 billion results. This defence cost assumption gives rise to the highest component of total annual cost of religion world-wide, which falls mainly on the high income group. The cost of religious conflict to the developing world, while smaller in absolute terms, still represents a far higher proportional cost to those countries relative to their income.

In conclusion, while religious beliefs may be implausible, counter-factual and irrational, and while religious institutions may be immoral, may encourage outdated cultural practices and may stimulate dangerous conflicts, these faults do not entail religion's most serious shortcoming. The main negative impact of religion on the world community today is its enormous economic cost, estimated here to be a fixed cost exceeding $US200 billion, which falls mainly on poor countries, and an annual cost, again exceeding $US200 billion, which falls mainly on the industrialised world. The cost of religion is not just a shameful waste of human potential, but also a waste of economic resources often by those who can least afford it. These are resources that should otherwise be used to improve the human condition.

By highlighting the cost of religion in this way, it is hoped to provide an increased motivation to confront the delusion that is religion. In this regard, it is up to the developed world to set an example that others may follow. To achieve improvement, all that is required is a decision to abandon baseless superstition and to believe that humans alone have the power to determine our own future.

This article was originally published in Australian Humanist, No.68, Summer 2002
(C) Copyright 2003 John L Perkins
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