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The popes versus the free market

'The pope vs the free market', by Chris JohnstonPope 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 DuncanDr 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. 

Topic tags: great recession, great depression, Pope Pius XI, Quadragesimo Anno, encyclical, pope benedict



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Existing comments

Rudd is saying similar things to you, but is being attacked for it by propagandists including journalists in The Australian, and the opposition leader. It seems that everyone wants a free market with minimal restraints, but obviously different people have different ideas of what these restraints should be. Some would like the ability to exploit others economically, so whatever 'minimal restraints' they specify will presumably be designed specifically to create and maintain a class of people they can exploit economically.

richard | 02 April 2009  

One would expect the Pope to attack 'Managerial Economism' as was done in Laborem Exercens and other encyclicals because it is the philosophic base of the neoconservative greed culture. Economism ought to give way to humanism (properly understood) and the Managerial dominance of commercial society ought to be replaced with a recognition that all human participation in commerce should predominate without intervention by a managerial class.

jim macken | 02 April 2009  

Can anyone explain to me the difference between neo-liberal and neo-conservative? I can readily see the difference between liberalism and neo-liberalism. Liberalism was developed by Paine, Locke, Mill et al, as a counter of individual freedom against Hobbes's Leviathan, whereas neo-liberalism proclaims the right of giant corporations to crush individuals (and the natural world) for the sake of the common good as expressed by the CEO's bonus.

Neo-conservatism proclaims the right of giant armies and their accompanying corporations (Halliburton, Blackwater et al) to crush individual nations (and the natural world) for the sake of the common good as expressed by the freedom to consume (as much petroleum as one can afford), be silent, and so on.

The problem is the existence of giant corporations that naturally emerge out of the processes of free markets, then go on to pervert that market, by methods that include but are not limited to, sweet deals with governments (eg Carbon Pollution Reduction Schemes, in which pollution-minimising actions by individual citizens only go to decreasing the proce of carbon emission permits for said corporations).

The pope's on to something here ...

David Arthur | 02 April 2009  

Why don't we look at concrete examples of free market capitalism? By far the most free market economy in the 20th century was the British colony of Hong Kong,in the era from the 1950s till it was handed back (against the locals' wishes, of course) to communist China in the 1990s. With no natural resources except a wonderful harbour, continually flooded with penniless refugees from communism (swimming to freedom through shark-infested waters), little Hong Kong rose via free trade and minimal taxes and regulation (zilch labour regulations) from rank underdeveloped status to overcome resource rich Australia's per capita income by the 1990's.

I recall too that the citizens of this haven of 'greedy' capitalism also generously gave more money per head to the Ethiopian famine appeal of the early '80s than Australia. According to the models espoused by the know-all anti-capitalists, laissez-faire Hong Kong should have been a disaster for most of its citizens. It was a bastion of prosperity.

When the dogmatic communists eventually took over, they were not so stupid as to kill off this goose that laid the golden egg. Oh that 'experts' in development economics and Catholic social justice theory today were half as wise.

Hugh | 04 April 2009  


One swallow does not make a summer!

Phil Smith | 07 April 2009  

And by the way, Hugh, the proximity of Big Brother and its ties to HK ensure that Hong Kong capitalism behaves itself.

Phil Smith | 07 April 2009  

As a humanistic economist I have long appreciated the ideas developed in the Catholic Church’s writings, especially the papal encyclicals and Bruce Duncan’s article on the forthcoming encyclical is something I look forward to. In this note I want to focus on the writings of Pope John Paul II.

Redemptor Hominis (1979) was John Paul’s first encyclical. In it he launched a devastating critique of the world economic system. Two targets were selected: consumerism and expenditures on armaments. In both cases the large corporations had an important role to play. Corporations encourage people to spend on what one economic historian in the twenties called ‘futilities’, doing so mainly through advertising. In doing so, John Paul continued the opposition to the corporations which was a feature of Pope Leo XIII’s social encyclical Rerum Novarum and Pius XI’s Quadragesimo Anno (1931). This continuation of the attack on the corporations makes me think of them as a papal nemesis and I think there is more to come! As for the criticism of armaments we may note that the corporations benefited greatly in their participation in the production process!

If Benedict XVI has focused on recommending the control of consumerism, armaments and the corporations he will have served us well in controlling greenhouse emissions. We must wait and see.

Then we can consider restructuring the world economy along the lines suggested by the Catholic Social Teaching.

Ken Thomas | 13 April 2009  

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