Chapter 3 Outline

Religious and Ethical Systems

Religion may be defined as a system of shared beliefs and rituals that are concerned with the realm of the sacred.¹⁶ Ethical systems refer to a set of moral principles, or values, that are used to guide and shape behavior. Most of the world's ethical systems are the product of religions. Thus, we can talk about Christian ethics and Islamic ethics. However, there is a major exception to the principle that ethical systems are grounded in religion. Confucianism and Confucian ethics influence behavior and shape culture in parts of Asia, yet, as we shall see, it is incorrect to characterize Confucianism as a religion.

The relationship between religion, ethics, and society is subtle, complex, and profound. While there are thousands of religions in the world today, four dominate--Christianity, Islam, Hinduism, and Buddhism (see Map 3.1). We review each of these, along with Confucianism, focusing on their business implications. Perhaps the most important business implications of religion center on the extent to which different religions shape attitudes toward work and entrepreneurship and the degree to which the religious ethics affect the costs of doing business in a country.

Christianity

Christianity is the most widely practiced religion in the world. About 1 billion people, approximately 20 percent of the world's population, identify themselves as Christians. The vast majority of Christians live in Europe and the Americas, although their numbers are growing rapidly in Africa. Christianity grew out of Judaism. Like Judaism, it is a monotheistic religion (monotheism is the belief in one god). A religious division in the 11th century led to the establishment of two major Christian organizations--the Roman Catholic church and the Orthodox church. Today the Roman Catholic church accounts for over half of all Christians, most of whom are found in Southern Europe and Latin America. The Orthodox church, while less influential, is still of major importance in several countries (e.g., Greece and Russia). In the 16th century, the Reformation led to a further split with Rome; the result was Protestantism. The nonconformist nature of Protestantism has facilitated the emergence of numerous denominations under the Protestant umbrella (e.g., Baptist, Methodist, Calvinist).

Economic Implications of Christianity: The Protestant Work Ethic

Some sociologists have argued that of the two main branches of Christianity--Catholicism and Protestantism--the latter has the most important economic implications. In 1904, a German sociologist, Max Weber, made a connection between Protestant ethics and "the spirit of capitalism" that has since become famous.¹⁷ Weber noted that capitalism emerged in Western Europe. He also noted that in Western Europe:

Business leaders and owners of capital, as well as the higher grades of skilled labor, and even more the higher technically and commercially trained personnel of modern enterprises, are overwhelmingly Protestant.¹⁸

Map 3.1 see

World Religions

Source: Map 17, John L. Allen, Student Atlas of World Geography, Dushkin/McGraw-Hill, p. 34.

According to Weber, there was a relationship between Protestantism and the emergence of modern capitalism. Weber argued that Protestant ethics emphasize the importance of hard work and wealth creation (for the glory of God) and frugality (abstinence from worldly pleasures). According to Weber, this was the kind of value system needed to facilitate the development of capitalism. Protestants worked hard and systematically to accumulate wealth. However, their ascetic beliefs suggested that rather than consuming this wealth by indulging in worldly pleasures, they should invest it in the expansion of capitalist enterprises. Thus, the combination of hard work and the accumulation of capital, which could be used to finance investment and expansion, paved the way for the development of capitalism in Western Europe and subsequently in the United States. In contrast, Weber argued that the Catholic promise of salvation in the next world, rather than this world, did not foster the same kind of work ethic among members of the Catholic religion.

There is also another way in which Protestantism may have encouraged capitalism's development. By breaking away from the hierarchical domination of religious and social life that characterized the Catholic church for much of its history, Protestantism gave individuals significantly more freedom to develop their own relationship with God. The right to freedom of form of worship was central to the nonconformist nature of early Protestantism. This emphasis on individual religious freedom may have paved the way for the subsequent emphasis on individual economic and political freedoms and the development of individualism as an economic and political philosophy. As we saw in Chapter 2, such a philosophy forms the bedrock on which entrepreneurial free market capitalism is based.

Islam

With close to 1 billion adherents, Islam is the second largest of the world's major religions. Islam dates back to 610 ad when the prophet Mohammed began spreading the word. Adherents of Islam are referred to as Muslims. Muslims constitute a majority in more than 35 countries and inhabit a nearly contiguous stretch of land from the northwest coast of Africa, through the Middle East, to China and Malaysia in the Far East.

Islam has roots in both Judaism and Christianity (Islam views Jesus Christ as one of God's prophets). Like Christianity and Judaism, Islam is a monotheistic religion. The central principle of Islam is that there is but the one true omnipotent God. Islam requires unconditional acceptance of the uniqueness, power, and authority of God and the understanding that the objective of life is to fulfill the dictates of his will in the hope of admission to paradise. According to Islam, worldly gain and temporal power are an illusion. Those who pursue riches on earth may gain them, but those who forgo worldly ambitions to seek the favor of Allah may gain the greater treasure--entry into paradise. Other major principles of Islam include: (1) honoring and respecting parents, (2) respecting the rights of others, (3) being generous but not a squanderer, (4) avoiding killing except for justifiable causes, (5) not committing adultery, (6) dealing justly and equitably with others, (7) being of pure heart and mind, (8) safeguarding the possessions of orphans, and (9) being humble and unpretentious.¹⁹ There are obvious parallels here with many of the central principles of both Judaism and Christianity.

Islam is an all-embracing way of life governing the totality of a Muslim's being.²⁰ As God's surrogate in this world, a Muslim is not a totally free agent but is circumscribed by religious principles--by a code of conduct for interpersonal relations--in social and economic activities. Religion is paramount in all areas of life. The Muslim lives in a social structure that is shaped by Islamic values and norms of moral conduct. The ritual nature of everyday life in a Muslim country is striking to a Western visitor. Among other things, Muslim ritual requires prayer five times a day (it is not unusual for business meetings to be put on hold while the Muslim participants engage in their daily prayer ritual), demands that women should be dressed in a certain manner and subordinate to men, and forbids the consumption of either pig meat or alcohol.

slamic Fundamentalism

The past two decades have witnessed a surge in what is often referred to as "Islamic fundamentalism."²¹ In the West, Islamic fundamentalism is often associated in the media with militants, terrorists, and violent upheavals, such as the bloody conflict occurring in Algeria or the killing of foreign tourists in Egypt. This characterization is at best a half-truth. Just as "Christian fundamentalists" in the West are motivated by sincere and deeply held religious values firmly rooted in their faith, so are "Islamic fundamentalists." The violence that the Western media associates with Islamic fundamentalism is perpetrated by a very small minority of "fundamentalists" and explicitly repudiated by many.

The rise of fundamentalism has no one cause. In part it is a response to the social pressures created in traditional Islamic societies by the move toward modernization and by the influence of Western ideas, such as liberal democracy, materialism, equal rights for women, and by Western attitudes toward sex, marriage, and alcohol. In many Muslim countries, modernization has been accompanied by a growing gap between a rich urban minority and an impoverished urban and rural majority. For the impoverished majority, modernization has offered little in the way of tangible economic progress, while threatening the traditional value system. Thus, for a Muslim who cherishes his traditions and feels that his identity is jeopardized by the encroachment of alien Western values, Islamic fundamentalism has become a cultural anchor.

Fundamentalists demand a rigid commitment to traditional religious beliefs and rituals. The result has been a marked increase in the use of symbolic gestures that confirm Islamic values. Women are once again wearing floor-length, long-sleeved dresses and covering their hair; religious studies have increased in universities; the publication of religious tracts has increased; and more religious orations are heard in public.²² Also, the sentiments of some fundamentalist groups are increasingly anti-Western. Rightly or wrongly, Western influence is blamed for a whole range of social ills, and many fundamentalists' actions are directed against Western governments, cultural symbols, businesses, and even individuals.

In several Muslim countries, fundamentalists have gained political power and have used this to try to make Islamic law (as set down in the Koran--the bible of Islam) the law of the land. There are good grounds for this in Islam. There is technically no distinction between church and state in Islam. Islam is not just a religion; it is also the source of law, a guide to statecraft, and an arbiter of social behavior. Muslims believe that every human endeavor is within the purview of the faith--and this includes political activity--because the only purpose of any activity is to do God's will.²³ (Muslims are not unique in this view; it is also shared by some Christian fundamentalists.)

The fundamentalists have been most successful in Iran, where a fundamentalist party has held power since 1979, but they also have a growing influence in many other countries, such as Algeria, Egypt, Pakistan, and Saudi Arabia. The accompanying Country Focus profiles the rise of Islamic fundamentalism in Saudi Arabia. The concern is that fundamentalist forces in Saudi Arabia may gain power and turn their back to the West in general and the United States in particular, which has been a long-standing ally of the country. Given the importance of Saudi Arabia as a source for oil, the economic ramifications of such a shift in geopolitics are serious.

Economic Implications of Islam

Some explicit economic principles are set down in the Koran.²⁴ Many of the economic principles of Islam are pro-free enterprise. The Koran speaks approvingly of free enterprise and of earning legitimate profit through trade and commerce (the prophet Mohammed was once a trader). The protection of the right to private property is also embedded within Islam, although Islam asserts that all property is a favor from Allah (God), who created and so owns everything. Those who hold property are regarded as trustees who are entitled to receive profits from it, rather than owners in the Western sense of the word, and they are admonished to use it in a righteous, socially beneficial, and prudent manner. This reflects Islam's concern with social justice. Islam is critical of those who earn profit through the exploitation of others. In the Islamic view of the world, humans are part of a collective in which the wealthy and successful have obligations to help the disadvantaged. Put simply, in Muslim countries, it is fine to earn a profit, so long as that profit is justly earned and not based on the exploitation of others for one's own advantage. It also helps if those making profits undertake charitable acts to help the poor. Furthermore, Islam stresses the importance of living up to contractual obligations, of keeping one's word, and of abstaining from deception.

Given the Islamic proclivity to favor market-based systems, Muslim countries are likely to be receptive to international businesses so long as those businesses behave in a manner that is consistent with Islamic ethics. Businesses that are perceived as making an unjust profit through the exploitation of others, by deception, or by breaking contractual obligations are unlikely to be welcomed in an Islamic state. In addition, in Islamic states where fundamentalism is on the rise, it is likely that hostility to Western-owned business will increase.

One economic principle of Islam prohibits the payment or receipt of interest, which is considered usury. To the devout Muslim, acceptance of interest payments is seen as a very grave sin. Practitioners of the black art of usury are warned on the pain of hellfire to abstain; the giver and the taker are equally damned. This is not just a matter of theology, in several Islamic states, it is also becoming a matter of law. In 1992, for example, Pakistan's Federal Shariat Court, the highest Islamic law-making body in the country, pronounced interest to be un-Islamic and therefore illegal and demanded that the government amend all financial laws accordingly.²⁵

On the face of it, rigid adherence to this particular Islamic law could wreak havoc with a country's financial and banking system, raising the costs of doing business and scaring away international businesses and international investors. To skirt the ban on interest, Islamic banks have been experimenting with a profit-sharing system to replace interest on borrowed money. When an Islamic bank lends money to a business, rather than charging that business interest on the loan, it takes a share in the profits that are derived from the investment. Similarly, when a business (or individual) deposits money at an Islamic bank in a savings account, the deposit is treated as an equity investment in whatever activity the bank uses the capital for. Thus, the depositor receives a share in the profit from the bank's investment (as opposed to interest payments). Some Muslims claim this is a more efficient system than the Western banking system, since it encourages both long-term savings and long-term investment. However, there is no hard evidence of this, and many believe that an Islamic banking system is less efficient than a conventional Western banking system.

Hinduism

Hinduism has approximately 500 million adherents, most of whom are on the Indian subcontinent. Hinduism began in the Indus Valley in India over 4,000 years ago, making it the world's oldest major religion. Unlike Christianity and Islam, its founding is not linked to a particular person. Nor does it have an officially sanctioned sacred book such as the Bible or the Koran. Hindus believe that there is a moral force in society that requires the acceptance of certain responsibilities, called dharma. Hindus believe in reincarnation, or rebirth into a different body after death. Hindus also believe in karma, the spiritual progression of each person's soul. A person's karma is affected by the way he or she lives. The moral state of an individual's karma determines the challenges they will face in their next life. By perfecting the soul in each new life, Hindus believe that an individual can eventually achieve nirvana, a state of complete spiritual perfection that renders reincarnation no longer necessary. Many Hindus believe that the way to achieve nirvana is to lead a severe ascetic lifestyle of material and physical self-denial, devoting life to a spiritual rather than material quest.

Economic Implications of Hinduism

Max Weber, who is famous for expounding on the Protestant work ethic, also argued that the ascetic principles embedded in Hinduism do not encourage the kind of entrepreneurial activity in pursuit of wealth creation that we find in Protestantism.²⁶ According to Weber, traditional Hindu values emphasize that individuals should not be judged by their material achievements, but by their spiritual achievements. Indeed, Hindus perceive the pursuit of material well-being as making the attainment of nirvana more difficult. Given the emphasis on an ascetic lifestyle, Weber thought that devout Hindus would be less likely to engage in entrepreneurial activity than devout Protestants.

Mahatma Gandhi, the famous Indian nationalist and spiritual leader, was certainly the embodiment of Hindu asceticism. It has been argued that the values of Hindu asceticism and self-reliance that Gandhi advocated had a negative impact on the economic development of post-independence India.²⁷ But one must be careful not to read too much into Weber's arguments. Today, millions of hardworking entrepreneurs form the economic backbone of India's rapidly growing economy.

Hinduism also supports India's caste system. The concept of mobility between castes within an individual's lifetime makes no sense to Hindus. Hindus see mobility between castes as something that is achieved through spiritual progression and reincarnation. An individual can be reborn into a higher caste in his next life if he achieves spiritual development in this life. In so far as the caste system limits individuals' opportunities to adopt positions of responsibility and influence in society, the economic consequences of this religious belief are bound to be negative. For example, within a business organization, the most able individuals may find their route to the higher levels of the organization blocked simply because they come from a lower caste. By the same token, individuals may get promoted to higher positions within a firm as much because of their caste background as because of their ability.

Buddhism

Buddhism was founded in India in the sixth century bc by Siddhartha Gautama, an Indian prince who renounced his wealth to pursue an ascetic lifestyle and spiritual perfection. Siddhartha achieved nirvana but decided to remain on Earth to teach his followers how they too could achieve this state of spiritual enlightenment. Siddhartha became known as the Buddha (which means "the awakened one"). Today Buddhism has 250 million followers, most of whom are found in Central and Southeast Asia, China, Korea, and Japan. According to Buddhism, life is comprised of suffering. Misery is everywhere and originates in people's desires for pleasure. These desires can be curbed by systematically following the Noble Eightfold Path, which emphasizes right seeing, thinking, speech, action, living, effort, mindfulness, and meditation. Unlike Hinduism, Buddhism does not support the caste system. Nor does Buddhism advocate the kind of extreme ascetic behavior that is encouraged by Hinduism. Nevertheless, like Hindus, Buddhists stress the afterlife and spiritual achievement rather than involvement in this world.

Because Buddhists, like Hindus, stress spiritual achievement rather than involvement in this world, the emphasis on wealth creation that is embedded in Protestantism is not found in Buddhism. Thus, in Buddhist societies, we do not see the same kind of cultural stress on entrepreneurial behavior that we see in the Protestant West. But unlike Hinduism, the lack of support for the caste system and extreme ascetic behavior suggests that a Buddhist society may represent a more fertile ground for entrepreneurial activity than a Muslim culture.

Confucianism

Confucianism was founded in the fifth century bc by K'ung-Fu-tzu, more generally known as Confucius. For more than 2,000 years until the 1949 communist revolution, Confucianism was the official ethical system of China. While observance of Confucian ethics has been weakened in China since 1949, over 150 million people still follow the teachings of Confucius, principally in China, Korea, and Japan. Confucianism teaches the importance of attaining personal salvation through right action. Confucianism is built around a comprehensive ethical code that sets down guidelines for relationships with others. The need for high moral and ethical conduct and loyalty to others are central to Confucianism. Unlike religions, Confucianism is not concerned with the supernatural and has little to say about the concept of a supreme being or an afterlife.

Economic Implications of Confucianism

There are those who maintain that Confucianism may have economic implications that are as profound as those found in Protestantism, although they are of a somewhat different nature.²⁸ Their basic thesis is that the influence of Confucian ethics on the culture of Japan, South Korea, and Taiwan, by lowering the costs of doing business in those countries, may help explain their economic success. In this regard, three values central to the Confucian system of ethics are of particular interest--loyalty, reciprocal obligations, and honesty in dealings with others.

In Confucian thought, loyalty to one's superiors is regarded as a sacred duty--an absolute obligation that is necessary for religious salvation. In modern organizations based in Confucian cultures, the loyalty that binds employees to the heads of their organization can reduce the conflict between management and labor that we find in class-conscious societies such as Britain. Cooperation between management and labor can be achieved at a lower cost in a culture where the virtue of loyalty is emphasized in the value systems.

However, in a Confucian culture, loyalty to one's superiors, such as a worker's loyalty to management, is not blind loyalty. The concept of reciprocal obligations also comes into play. Confucian ethics stress that superiors are obliged to reward the loyalty of their subordinates by bestowing blessings on them. If these "blessings" are not forthcoming, then neither will be the loyalty. This Confucian ethic exhibits itself in Japanese organizations in the concept of lifetime employment. The employees of a Japanese company are loyal to the leaders of the organization, and in return the leaders bestow on them the "blessing" of lifetime employment. The business implications of this cultural practice have been touched on earlier in this chapter. Specifically, the lack of mobility between companies implied by the lifetime employment system suggests that over the years managers and workers build up knowledge, experience, and a network of interpersonal business contacts. All of these can help managers and workers perform their jobs more effectively and cooperate with others in the organization. One result is improved economic performance of the company.

A third concept found in Confucian ethics is the importance attached to honesty. Confucian thinkers emphasize that, although dishonest behavior may yield short-term benefits for the transgressor, in the long run dishonesty does not pay. The importance attached to honesty has major economic implications. When companies can trust each other not to break contractual obligations, the costs of doing business are lowered. Expensive lawyers are not needed to resolve contract disputes. In a Confucian society, there may be less hesitation to commit substantial resources to cooperative ventures than in a society where honesty is less pervasive. When companies adhere to Confucian ethics, they can trust each other not to violate the terms of cooperative agreements. Thus, the costs of achieving cooperation between companies may be lowered in societies such as Japan relative to societies where trust is less pervasive.

For example, it has been argued that the close ties between the automobile companies and their component parts suppliers in Japan are facilitated by a combination of trust and reciprocal obligations. These close ties allow the auto companies and their suppliers to work together on a range of issues, including inventory reduction, quality control, and design. It is claimed that the competitive advantage of Japanese auto companies can in part be explained by such factors.²⁹