Today, I’d like to discuss a couple of correlations in areas where I wouldn’t expect to observe them.  One is the positive correlation between free markets and civic virtue, and the other is the negative correlation between economic growth and birth rates (at least for advanced countries.)

1. Back in 2008, I wrote a paper entitled “The Great Danes.”  I argued that countries with a high level of civic virtue tend to have the freest economies.  More specifically, I looked at various indices of “economic freedom” that had the size of government removed.  I wasn’t interested in the amount spent of social welfare programs, rather my focus was on other aspects of free markets, such as free trade, deregulation, rule of law, lack of price controls, privatization, etc.  In a surprising coincidence, the world’s number one free market by this definition turned out to be Denmark.  And it turns out that Denmark also tends to top indices of civic virtue (an ambiguous concept that includes things like lack of corruption.)

A recent paper by Leandro Prados de la Escosura developed a similar approach to economic freedom:

Assessing economic liberty and its dimensions is hampered by unavoidable discretional decisions in the choice and transformation of variables (de Haan 2003). A widely shared view is that the more a society relies on the market and the less on government intervention, the larger its economic freedom. However, freedom of economic activity implies “freedom under the law, not the absence of all government action” (Hayek 1960: 193). In fact, the government, as a provider of protection to the individual from coercion, is essential for economic liberty (Friedman 1962). It is the nature of government action, rather than how active the government is, that is at stake. Hence, the size of government should not be considered a dimension of economic freedom.

I wasn’t surprised to see Denmark come in number one in his ranking of economic freedom—I had produced a similar result.  I was surprised to see that Denmark’s leadership went back at least as far as 1850:

Of course Denmark is just one country, but when looking across all developed countries I found strong evidence that economic freedom was positively correlated with civic virtue. Perhaps that should not be viewed as a surprise, but I must have read dozens of left wing intellectuals assert with confidence that free markets make people more selfish and corrupt.

I suspect the causation goes in both directions.  Free markets make people more honest for reasons discussed in Deirdre McCloskey’s Bourgeois Virtues, and civic virtue makes it easier to set up a free and transparent economic policy regime that doesn’t favor particular special interest groups.

As an aside, I recently read a book written in the early 1800s, which discussed the dramatic arts.  The author (August Wilhelm Von Schlegel) had this to say about cultural differences in Europe:

Intrigue in real life is foreign to the Northern nations, both from the virtues and defects of their character; they have too much openness of disposition, and too little acuteness and nicety of understanding.  . . . In the North, life is wholly founded on mutual confidence.

Clearly this sweeping statement involves plenty of hyperbole, but it does suggest that even 200 years ago certain “Nordic” cultural traits were already apparent.

2.  Some thoughts on a second interesting correlation were triggered by this tweet:

Younger readers who are impressed by this growth spurt might be interested in knowing that Politano’s graph doesn’t even include the heyday of Korean growth, which occurred during the 1970s and 1980s.  In the 30 years between 1960 and 1990, Korea went from being one of the poorest countries on Earth to being a successful middle-income country.  By the time South Korea hosted the Olympics in 1988, it was already viewed as an impressive success story.  Unless I’m mistaken, Korea’s growth over the past 60 years is the most impressive in the entire world.

So what does all of this have to do with “non-obvious correlations”?  It turns out that South Korea leads the world in another significant category; it has the world’s lowest birth rate (0.78 children per woman.)

You might think that this correlation is not so surprising, as we all know that richer countries tend to have lower birth rates.  But that’s not the point I’m making here.  Korea is not unusually rich, it is unusually fast growing. 

I understand why a rich country might be expected to have a low birth rate.  Among developed economies, however, there is actually very little correlation between birth rate and GDP/person.  The US and Northern Europe have slightly higher birth rates than Mediterranean countries and East Asia, and are also a bit richer.  But even if it were true that richer countries had lower birth rates, why would you expect very low birth rates in fast growing countries that are not unusually rich?

As with the Denmark “coincidence” discussed above, this is not just a correlation involving one country.  Next to South Korea, places like Taiwan, Singapore, China and Hong Kong have the world’s lowest birth rates, and are also the fastest growing economies since 1960.

I have no explanation for this pattern, but I suspect that there is something in Korean culture that helps to explain both the birth rate and the rapid economic growth.  To be clear, I don’t believe that culture is the only factor explaining economic growth (a quick look at North and South Korea dispels that theory), but culture may be correlated with certain traits that boost growth, such as willingness to work hard and sacrifice for future benefit.  For instance, South Korean students are known to study unusually hard to achieve academic success.  South Korea maintained a 6-day workweek until 2004, and Koreans still work more hours per year than workers in other advanced countries. Perhaps that drive to succeed in some way pushes a country toward a lower birth rate.

Alternatively, the causation might go from growth to culture.  Perhaps the rapid growth causes such extreme societal change that traditional cultural traits emphasizing the importance of big families get brushed aside.

Any other theories?

PS.  What other surprising correlation are out there?  It occurs to me that America’s most productive city (San Francisco) is also perhaps its worst governed city.  Is there a causal story there?  That correlation is clearly not true at the international level.  Switzerland is both richer and better governed than Somalia.