WHU General

Is There a Correlation Between Freedom and Prosperity?

Prof. Dr. Markus Rudolf explains interesting findings in the context of the Koblenz Days of Democracy from the perspective of a statistician

Were democratic systems more successful in fighting the Corona pandemic than non-democratic ones? Did the successful fight against the pandemic also have an impact on the economic success of nations? Are democracies, in principle, richer than authoritarian-run states? In which systems are people happier? And does happiness perhaps also have something to do with religion?

Statistician and Dean of WHU - Otto Beisheim School of Management, Prof. Dr. Markus Rudolf, uses mathematical models to get to the bottom of such seemingly philosophical questions and finds astonishing correlations. The World Happiness Index 2020, for example, shows that people in predominantly Protestant countries feel significantly happier than those in more Catholic countries. At the top of the list are Finland, Denmark, and Switzerland - which was originally Calvinist. People are, statistically speaking, happiest here.

Rudolf also finds a clear connection between democracies and prosperity. For even though centralist-led China is still on a strong economic upward trend, its average annual per capita income is only $15,886, compared with $114,298 for democratic leader Luxembourg. In addition, there is an obvious correlation between prosperity, democracy, and the feeling of happiness. People in China are much better off today than they were a few decades ago, but they are not – according to the available statistics - particularly happy. It stands to reason that this could be due to their lack of freedom in the country's non-democratic system.

However, the fact that money makes people happy is only true to a certain extent, says Rudolf, who refers to a study by Nobel Prize winners in economics Daniel Kahneman and Angus Deaton. From an average annual income of USD 70,000-90,000, it would not matter whether or not one earned more. Happiness would not increase any further with an increase in salary.

Also surprising for the attendees of the lecture, who could participate either at the WHU campus in Vallendar or online on September 28, 2021, was the fact that annual hours worked seem to correlate negatively with economic prosperity. Contrary to what the majority of participants might have suspected, Germans, for example, work the least in Europe and are far outstripped by the Greeks. According to Rudolf, the reason for this is probably the generous vacation time that legislators allow German employees. "This shows that economic success is a question of labor costs and productivity. Because economies with high labor costs have to find ways to become more efficient," shared Rudolf, explaining the phenomenon.

During the Corona pandemic, however, China's authoritarian system, with its consistently freedom-restricting measures, was the most successful at handling the crisis. Australia and New Zealand, which were at least outwardly rigorous, were also able to keep infection rates very low. Accordingly, whether a system is democratic or not makes no difference in such crisis situations.

"These correlations might not always stand up to rigorous scientific scrutiny," Rudolf acknowledged. "They are also not meant to be entirely serious, but they can certainly be thought-provoking." Attendees took these correlations as just that, contributing numerous questions and comments to spark conversation the end of the event.