Open Markets Do Not Necessarily Result In Open Minds

The logical extension of free market principles leads us to assume that exposure to a wider variety of stimulae, driven, perhaps, by commercial imperatives should result in greater tolerance of differences.

After all, if society desires bigger markets for its products and services, it should, naturally, be willing to recognize that the customer is always right, even if she is covered in a burqa or exposed in a bikini or smokes cigars or drinks alchohol - or not.

But what we are learning is that the confluence of technology, knowledge and globalization has not resulted in the more tolerant civilization some had envisioned.

Fear of the unfamiliar, of threat to income and safety play a role - and not without reason. But it may also be that it takes us longer to process the information which those differences represent. And that in the intervening interim, we are more like our ancestors on the African savannah than like hipsters with phones plugged in their ears.

We have learned to be cautious because we can no longer trust that all will be well. This may not necessarily be a bad thing. There are plenty who argue that we are moving too fast and society needs time to catch up.And it may also be that our instincts are telling us that all of this openness, in whatever form, may work out fine, but that those advocating for more of it have intuitively opposed the imposition of rules and structures that might help us better navigate the new pathways with a greater, more comforting certainty. JL

Tyler Cowen comments in the New York Times:

As commerce increases and economies grow more sophisticated, discrimination and prejudice should diminish, or so it has been thought.

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.

None of these results should be taken as the final word, but they point in some intriguing directions. Economists respect numbers, but we also ought to do more to recognize the meaning of human values and perceptions. Commercial incentives and wealth matter but they are not decisive. Societies do not build trust automatically and so prejudice does not always fall away. The moral quality of our government, and our governance, is important for the fabric of society at the micro level. And finally, not all kinds of prejudice are affected by the same factors. We may make big progress in one area while standing still or perhaps even moving backward in others.