Economic Freedom Does Not Necessarily Lead to Greater Tolerance

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Differences in race, religion and sexual orientation have erupted in violence around the world recently, making it all too clear that tolerance is an ideal that our societies haven’t fully achieved.

What isn’t well known is that economists have been studying tolerance and its preconditions for many years, discovering some fascinating yet also unsettling truths.

Since the Enlightenment of the 18th century, for example, it’s often been assumed that when you trade with other people you tend to become more tolerant of their differences because mutual understanding increases with greater contact. Furthermore, tolerance is in most people’s individual self-interest because the truly intolerant forgo economic benefits — losing the chance to hire the best workers and to sell to all available customers. For those reasons, as commerce increases and economies grow more sophisticated, discrimination and prejudice should diminish, or so it has been thought.

But is any of that true? Two economists from Sweden, who identify with the Enlightenment tradition, have been testing those claims against the data. They are Niclas Berggren at the Research Institute of Industrial Economics and Therese Nilsson of Lund University. The two scholars have produced a fascinating series of papers on these questions, sometimes writing singly, sometimes together or with the collaboration of a variety of co-authors. Their most notable study is perhaps a paper they wrote together, “Does Economic Freedom Foster Tolerance?”

One of their most striking findings is that societies characterized by greater economic freedom and greater wealth do indeed exhibit greater tolerance toward gay people, a tendency suggesting that gay rights, including gay marriage, will spread globally as national economies liberalize and develop. In other words, if a society allows individuals to engage in consenting capitalist activities with a minimum of legal regulation, we might also expect tolerance of a variety of other choices, including those regarding sexual behavior. Identifying cause and effect can be difficult in such studies, but increases in economic freedom have been associated with increases in this kind of tolerance. Score one for the Enlightenment.

This is no small matter. With the Supreme Court considering legalization of gay marriage throughout the entire United States and not just in the states in which gay marriage is legal now, the paper implies that such a decision would stand on the side of history.

There is a catch, though. This greater tolerance is strongly associated only with certain features of what has often been defined as economic freedom. For example, a smaller government, measured as a share of gross domestic product, is often included in so-called economic freedom indexes as an objective measure of freedom. But the data show that smaller government has a slight negative correlation with tolerance of gay people by heterosexuals. One implication is that many conservatives may be overly preoccupied with the size of government as a measure of how free societies actually are.

On the other hand, the data shows that when a society has impressive scores on property rights security and low inflation — two other components of economic freedom indexes — these characteristics are strongly and positively correlated with tolerance of gays. It’s possible that low inflation, and the behavior of a central bank, are stand-ins for the general trustworthiness of a nation’s government and broader institutions, and such trustworthiness helps foster tolerance.

When we move to racial tolerance, we find similar but much weaker correlations with measures of economic freedom. Perhaps racial prejudices are more deeply ingrained than other sorts of prejudice, although, as one might expect from their Enlightenment orientation, Mr. Berggren and Ms. Nilsson are not themselves convinced such pessimistic conclusions are warranted. Let’s hope they are right, because a recent Gallup Poll showed that while American tolerance toward gays has risen, race relations have worsened. The events in Ferguson, Mo., seem to reflect that sad truth.

Another lesson from this data is that economic forces alone are not all-powerful. Both economic freedom and wealth have much closer associations with tolerance when a society exhibits high levels of trust, as measured by the attitudes that people report when surveyed. In other words, economic freedom, wealth and good human values seem to work together, although the causality is murky. Questions of trust occupy only a secondary position in economics and arguably deserve much more attention.

How can prejudice be dismantled? We are often told that education is an important remedy, yet it does not register as a meaningful factor in the cross-country data in this paper. Higher levels of education simply have not correlated significantly with higher levels of tolerance across countries. Income inequality is also not a significant variable. It would be premature to conclude that education and income have no influence, but we should re-examine the pieties that suggest they are of major importance for tolerance.

Finally, the paper offers an intriguing result drawn from data on Muslims who responded to polling questions around the world: Compared with non-Muslims, they are much less tolerant of gay individuals but no less tolerant of differences across the races.

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