Weber considered the Protestant work ethic the foundation of modern capitalism. The chapter extends Weber’s theory by arguing that states with predominantly Roman Catholic, Eastern Orthodox, and Muslim populations have had a stronger inclination toward underdevelopment and dictatorship than states with Protestant or Jewish majorities. This is the case because their respective religious collectives (monastery, tariqa) promote the hierarchical provision of common goods at the expense of market incentives. The chapter defines the aforementioned three religions as collectivist, in contrast to Protestantism and Judaism, which are defined as individualist. The chapter provides a historical overview that designates the Jewish kibbutz as the collective of democracy and the Eastern Orthodox monastery as the collective of dictatorship. Focusing on collectivist economies, it is revealed that modernization, as a credible commitment to the improved future provision of public goods, occurs when the threat of a radical government is imminent and when the leader has high extraction of rents from the economy. The emergence of radical governments is more likely in collectivist than in individualist economies. Historical illustrations from collectivist economies include the Russian Revolution, the Islamic Revolution in Iran, and the postwar welfare state in Western Europe.
The chapter analyses the effects of religious identity – defined both as personal identification with a religious tradition and evaluation of a central religious institution – on attitudes toward centralization. It explores whether religious citizens are more likely to evaluate their government positively than atheists. It also tests whether adherence to conservative norms of governance lead to a positive evaluation of government. Surveys conducted in Russia and Israel provide a mosaic of three major world religions – Judaism, Christianity, and Islam. The information gathered provides a study of the role of the Russian Orthodox Church, the Chief Rabbinate in Jerusalem, the Jerusalem Islamic Waqf, and the Greek Orthodox Church of Jerusalem toward the centralized provision of public goods. The study finds strong support for the proposition that religious identity and conservative norms of governance reinforce positive evaluations of government. It also reveals that personal religious identity increases positive attitudes toward local government, while institutional religious identity consolidates positive perceptions of government at both central and local levels.
The Genesis of Democracy and Dictatorship
The very existence of public debt presupposes an ethical commitment by current governments to fulfil the undertakings of predecessors – or at least a belief among potential bondholders that such a commitment exists. This commitment should not be confused with electoral ‘promises’, which serve a different (weak signalling) function: the ‘political obligations’ associated with public debt are stronger than those associated with electoral promises. There is, moreover, an ethical dimension to electoral behaviour: individual voters’ ethical commitments play a role in their choosing how to vote – a more significant role than ethical commitments play in market choices. This ethical dimension may conceivably overcome the interest-based incentive nations have in free-riding on global climate deals. But that is more likely to be so if emission-reduction policies are financed out of public debt. However, debt-financing is a disappearing option, because in most countries debt is at levels that are inhospitable to further increase.
The chapter argues that religion matters for the provision of public goods. Three normative foundations of Eastern Orthodox monasticism with strong economic implications are identified: (1) Solidarity; (2) Obedience; and (3) Universal discipline. A public goods game with a three-tier hierarchy is proposed and solved, in which these norms are modeled as treatments. Obedience and universal discipline facilitate the provision of threshold public goods in equilibrium, whereas solidarity does not. Empirical evidence is drawn from public goods experiments run with regional bureaucrats in Tomsk and Novosibirsk, Russia. The introduction of the same three norms as experimental treatments produces different results. The study finds that only universal discipline leads to the provision of threshold public goods, whereas solidarity and obedience do not. Unlike in Protestant societies, in Eastern Orthodox societies free-riding occurs at lower rather than higher hierarchical levels. Successful economic reforms in Eastern Orthodox countries start with the restructuring of the middle- and lower-ranked public sectors. Authoritarian persistence is defined by the commitment of the dictator to overprovide public goods.
Andrea Rieck and Ludger Schuknecht
Unhealthy and potentially unsustainable debt dynamics have been affecting advanced as well as developing economies. In this chapter we take stock of government obligations and private debt that could migrate to public balance sheets. We analyse different approaches to dealing with debt overhangs which have been pursued at various times. Building on past experiences, we discuss institutional mechanisms to achieve and preserve debt sustainability. Strong rules and institutions, clear accountability and credible enforcement procedures are essential to regain fiscal discipline and avert a potential future systemic fiscal crisis. We reject implicit or outright default as an acceptable way out of debt. Instead, we advocate strengthening national and international institutional underpinnings in order to ensure that contracting parties are able and willing to serve the commitments they have made.
Ernesto Longobardi and Antonio Pedone
This chapter deals with the issue of sovereign debts in the Eurozone. After a brief discussion of the reasons for their reduction, the different strategies used in the past to this end are considered. It is argued that they are either not viable today or can assure only limited results. Thus, the policy of accumulating primary surpluses seems the only practicable one. However, the alternative of restructuring has been investigated with growing attention. Two distinct perspectives have been followed. On one side, a number of proposals deal with the issue of existing debt. There are reasons to doubt that they are substantially different from the policies currently followed. On the other side, several projects are aimed at establishing a permanent insolvency mechanism for sovereigns, with the purpose of making effective the no bail-out principle. The question is raised as to whether they are feasible in the absence of any element of fiscal union.
There is a public debate and large body of politico-economic literature discussing the design of fiscal rules and other instruments of fiscal governance assumed to prevent solvency problems and bailouts of countries. Essentially and implicitly, this literature discusses the issue of how to regulate the ‘demand side’ of the ‘market’ for sovereign bailouts. This chapter complements this strand of research by discussing the possibilities and limitations of regulating the ‘supply side’ of this market (namely, governments, central banks, and international organizations in their role as potential rescuers). Thinking about the governance of this market makes sense because well-intentioned sovereign bailouts may have serious side-effects, such as the ‘moral hazard problem’ and the ‘soft budget constraint problem’. Finally, it is discussed whether the citizens of potential ‘rescuer-jurisdictions’ should get the opportunity to vote in a binding referendum on whether ‘to bail out, or not to bail out?’
Fabrizio Balassone, Sara Cecchetti, Martina Cecioni, Marika Cioffi, Wanda Cornacchia, Flavia Corneli and Gabriele Semeraro
The unchecked build-up of imbalances during the 2000s exposed the euro area to the risk of sudden stops. Such risk materialized in 2009–10 and its consequences were amplified by the absence of adequate institutions. Europe embarked on a thorough process of reforming its economic governance. We review the measures taken concerning sovereigns and banks since 2010 and discuss possible ways forward on both fronts. We argue that, while significant progress has been achieved, a lot of ground remains to be covered. In general, reforms have favoured risk reduction over risk sharing. As a result, in the face of exceptional circumstances, the euro area is not equipped with the fiscal tools necessary for macroeconomic stabilization; moreover, banking union lacks common financial backstops. Only further risk (and sovereignty) sharing can avoid harmful pro-cyclical excesses.