September 16, 2009

The popes versus the free market, Bruce Duncan , republished from Vol 19 No 6 > April 02, 2009

'The pope vs the free market', by Chris Johnston

Pope Benedict's new social encyclical is finished and will be released in May. It will commemorate Paul VI's 1967 document on the development of peoples, and address the great global problems of hunger and gross poverty, climate change, human rights, nuclear weapons and disarmament, violence, fundamentalism and peace.

The encyclical has been delayed two years because of the need for Benedict to respond to the global financial crisis and the 'Great Recession'. He is likely to reiterate themes from Pope Pius XI's 1931 encyclical, Quadragesimo Anno, in response to the Great Depression. Many aspects of Pius' encyclical are relevant to the current crisis.

The Wall Street collapse of 1929 triggered the Great Depression which left a third of workers unemployed in many countries, and resulted in the rise of dictatorships in Europe, notably the Nazis in Germany.

The current economic crisis has different origins, beginning with the collapse of often fraudulent financial markets, with the collusion or blindness of business leaders and bankers, regulators, sections of the media and some politicians.

In addition, proponents of the neo-liberal economic ideology, with its inflated belief in free markets and minimal regulation, proclaimed that the rules of economics had changed. This belief helped undermine moral judgment in business circles and among investors, who were drawn into this giant bubble economy.

Various commentators warned against this corrosion of ethical standards, and forecast the inevitable collapse of this financial bubble (see Peter Hartcher's 2005 Bubble Man: Alan Greenspan & the Missing 7 Trillion Dollars), but regulators did not listen.

What will Benedict say about the current 'Great Recession' which is causing such growing distress?

First, he does not have to reinvent the wheel. Modern Catholic social writings have long insisted that economics must be directed to serve the good of everyone, not just the rich. Pius XI was particularly strong on this, though Benedict will also draw from later reflection, especially by Popes Paul VI and John-Paul II.

Second, Benedict will insist that the principles of equity, participation and social justice, as well as freedom and enterprise, are essential for a just economic system. He will attack the collapse of ethical standards, but is also likely to criticise the concentration of economic power in the hands of a relatively small number of people, institutions and companies.

Third, he will strongly critique the contemporary free-market ideology of neo-liberalism which encouraged a 'greed is good' mentality in sections of the business culture, resulting in the corrosion of due diligence in financial markets and by regulators.

As recent events have shown, the values of social justice and good governance need to be strongly reaffirmed throughout the international economy. The lessons from the Great Depression need to be learned all over again. The whole economic edifice relies on moral foundations — of honesty, transparency and social responsibility. The very word 'credit' derives from the Latin word meaning to believe or trust.

Pius XI attacked the vast inequalities of wealth and the greed of unchecked competition, for which Pius blamed 'liberalism'. The term did not mean, as it might today, a philosophy of individual economic responsibility based on fairness and social justice. Far from it. Pius understood economic liberalism to mean domination of the economy by rich and powerful elites who claimed the vast inequality of wealth was the consequence of inevitable economic laws.

Pius rejected this liberal ideology which considered the economic order as absolutely free and independent, and which claimed free markets would of themselves produce the best outcomes. Pius also opposed the minimalist role that liberalism assigned the State as the mere guardian of law and order.

Instead, Pius insisted the State must preserve public wellbeing and private prosperity, especially by protecting the poorer classes and wage-earners. He called for a more equitable distribution of wealth to meet the needs of all. He also advised that wage contracts be modified somewhat by a contract of partnership so employees could participate in the ownership or management, or in some way share in the profits.

Benedict will not of course oppose free market economies, but he will urge that they be better regulated and ensure an equitable distribution of wealth and opportunities. The problem, unsurprisingly, is in the details of how to regulate the economy, and especially special interest groups, to ensure fair and just social outcomes.

All democracies face the demanding task of finding the right balance, but Benedict will warn they will not succeed unless they are committed to the values of social justice and participation.

-Bruce Duncan

Dr Bruce Duncan CSsR teaches in the social justice program at Yarra Theological Union and has been appointed the first director of the Yarra Institute for Religion and Social Policy at Box Hill.

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