Faith, Hope and the Free Economy

Catholicism is compatible with capitalism, not the overmighty state

A financial crisis may not seem like a good moment to be defending the market economy. Indeed, various Anglican Church leaders have spoken out strongly against what they see as unregulated financial markets in the wake of the financial crash. Sometimes, however, we can jump to hasty conclusions when we are amid a crisis. After all, the causes of the Great Depression were not properly understood until well over 30 years after the event.

Although it is important for Christian perspectives on economic matters to be placed in the context of the signs of the times, there are enduring principles and strands of analysis that need discussion and that should always be kept in mind by those commenting on specific events. This article examines the general perspective that Catholic social teaching takes on socialism and capitalism.

Socialism certainly gets a rough ride in papal writings. It starts with Pius IX (1792-1878), who argued that socialists misapply the terms “liberty” and “equality” and are preparing people for “plundering, stealing and usurping first the Church’s and then everyone’s property”. He then described socialism as a pestilence. A little later, in 1891, Leo XIII described the effects of socialism thus: “The door would be thrown open to envy, to mutual invective and to discord. The sources of wealth themselves would run dry, for no one would have any interest in exerting his talents or his industry. And that ideal equality about which they entertain pleasant dreams would be in reality the levelling down of all to a like condition of misery and degradation.” Some may see this as having come true in many contexts, particularly in the former communist economies.

John Paul II’s critique of socialism strikes a similar chord. He examines socialism in the context of the God-given nature of man and argues in his evangelical Centesimus annus (1991) that the fundamental error of socialism is to “treat the individual person simply as a molecule within the social organism, denying man his free choice and the unique and exclusive responsibility which he exercises in the face of good or evil”.

This critique is not just relevant to extreme forms of socialism but to all forms where individuals and families are subjected to control by the state. Indeed, John Paul goes on to deal with the specific issue of the welfare state. “In recent years, the range of such intervention has vastly expanded, to the point of creating a new type of state, the so-called ‘welfare state’…[E]xcesses and abuses, especially in recent years, have provoked very harsh criticisms of the welfare state, dubbed the ‘social assistance state’. Malfunctions and defects in the social assistance state are the result of an inadequate understanding of the tasks proper to the state.”

In fact, there is little in formal Catholic teaching to give much comfort to those who believe, in principle, that the state should play the primary role in economic life. But, if the Church rejects socialism does that mean she embraces the opposite? Of course, it does not. The opposite economic system may be flawed too. As the old Polish joke goes, “socialism is the exploitation of man by man; capitalism is the opposite.”

Catholic social teaching has criticised capitalism at various times – sometimes in very strong language. Normally, though not always, those criticisms relate to the culture of consumerism which the Church has perceived is rooted in Western societies. The accumulation of material goods for their own sake must be condemned. But the enemy here should be the sin of materialism and not structure of the market economy.

State intervention in the economic sphere does not save us from materialism as socialism is intrinsically materialistic. It seeks to raise the human condition through increased production and the redistribution of material wealth. So a debate about materialism does not get us very far in the debate between socialism and capitalism.

John Paul II asked in Centesimus annus whether capitalism should be the model sought by failed socialist countries. “If by ‘capitalism’ is meant an economic system which recognises the fundamental and positive role of business, the market, private property and the resulting responsibility for the means of production, as well as free human creativity in the economic sector, then the answer is certainly in the affirmative, even though it would perhaps be more appropriate to speak of a ‘business economy’, ‘market economy’ or simply ‘free economy’.”

Perhaps the phrase “free economy” is preferable to “capitalism” as it moves the focus on to the individual and his basic humanity and away from political and economic structures. A free economy should not be valued just for the prosperity it brings. A free economy, being the opposite of the socialist economy criticised by the Popes, actually has inherent virtues that a government-directed economy lacks. In a free economy, economic resources are allocated peacefully, by mutual agreement. This is not to say that destructive conflict and competition do not occur due to fallen human nature in a market economy, but the process of mutual contracting ensures that this is not inherent within the system.

A socialist economy, on the other hand, involves allocating a fixed set of resources in a system that is beset by conflict, as we see in many ways, such as in the fight for the fixed number of places at state schools each year. Markets also harness self-interest for the common good. The free economy allows people to meet their own needs while, at the same time, serving the needs of others. It is, of course, possible for self-interest to become disordered and turned into selfishness. In the business economy, the pursuit of self can do much damage. But the damage is more limited than if the selfish take their place in government and use powers of coercion to achieve their objectives in a centrally planned economy. I would rather a selfish, greedy person worked in a manufacturing or service business than as finance minister of an underdeveloped country or as chief of the secret police. Ultimately, a business must be mindful of the “other” it seeks to serve or it will go out of business. Like any worthy undertaking, it can be corrupted but, like sex, alcohol or food, we should not regard it as inherently corrupted.

As consumers, business owners or managers we should regard the exercise of economic freedom, which is a crucial aspect of our God-given dignity, as an aspect of the exercise of true freedom to seek and to do what is right. The opposite of a free economy in which individuals and families are subservient to decisions made by the state undermines that dignity.

The present Pope has tended to approach this subject in a way rather different from his predecessor. But what is notable is his scepticism that socialism can achieve what its proponents promise. This arises from his observation of so many unrealised expectations. But it also arises from his basic humility. And there is an interesting parallel here with how many economists think. Economists should understand the implications of the limitations on human knowledge for political and economic policymaking. The argument is really quite straightforward. Humans lack the knowledge to plan the economy centrally and achieve outcomes that ensure that goods and services are produced that meet needs and demands. The collapse of the communist economies was, of course, the great manifestation of that but it applies on a smaller scale too. This particular critique should resonate with Christians, who should surely be aware of the limitations of the human mind and human planning to try to improve and perfect society.

But a free economy goes beyond a free market. Sadly, many institutions of a free economy have been crowded-out by the state. The family is increasingly falling victim to this crowding out process. This has happened as the state has taken primary responsibility for health, education, arts and culture, social insurance, pensions and the regulation of financial markets. All of these were mainly provided, a few generations ago, by a mixture of profit-seeking companies, mutual associations, foundations, charities and professional and community associations. The free economy can be a richer and deeper institution than it is currently, and the opportunities for mutuality and solidarity could be much more profound, enriching and effective.

A renewal of understanding of Catholic social teaching, and its intrinsic compatibility with an economic and social order in which families are at the centre of decision-making, can make a valuable contribution to enriching the free economy. Unsurprisingly, any analysis should begin with the application of the familiar principles in Catholic social teaching of solidarity and subsidiarity. Many commentators talk as if these two concepts are held in tension. Solidarity, it is argued, demands government action to help the poor, the homeless, the sick and so on, whereas the idea of subsidiarity provides a warning to politicians to use the lowest possible layer of government to implement policy and to leave decisions with the family if possible. This is an over-simplification.

When the popes have talked about solidarity and the “preferential option for the poor” they have almost always used it in the context of charity – love and service in providing for one’s neighbour without expecting anything in return. It is a fundamental error to conflate the role of the political system in seeking to help the poor through redistribution with that of people acting spontaneously out of charity. As Pope Benedict wrote in his first encyclical letter, Deus Caritas Est (2005): “There is no ordering of the state so just that it can eliminate the need for a service of love…There will always be suffering which cries out for consolation and help…The state which would provide everything, absorbing everything into itself, would ultimately become a mere bureaucracy incapable of guaranteeing the very thing which the suffering person – every person – needs.”

We do need a renewal of solidarity. The state should create a just order. The state may intervene, at times, to try and assist the poor. But the spirit of solidarity, represented by love and works of charity, arises in the first place from the individual, the family and spontaneously from the community. More generally, Christians need to put the state back in its place. They should make clear the need to give families, voluntary institutions and civil society room to breathe and fulfil their legitimate functions. After all, the first and biggest provider of welfare is the family. The working wife provides for the unemployed husband; husband and wife provide for the needs of their children; children will look after their parents; and so on. Yet, over a 20-year period at least, the state has decisively undermined the family as a provider of welfare and taken upon itself not only the provision of income but, increasingly, child-care too.

The state needs putting back in its place because of our understanding of the term subsidiarity. The state exists to help individuals, families, the community and civil associations achieve their legitimate objectives. Subsidiarity means to help or to provide support. From a proper understanding of subsidiarity many direct policy implications follow. We come to understand, for example, the recent problems with the Catholic adoption agencies. These problems came to exist because, instead of the state helping the voluntary associations in their act of solidarity of finding stable families for children, the tables were turned. The voluntary associations – that is, the Catholic adoption agencies – became agents of the state. The state is in charge of adoption and the agencies dance to the tune of the state. The right relationships have been precisely reversed.

We need to be aware that the right relationships have been reversed in education, too. Schools, even Catholic schools, have become agents of the government and not of parents. They provide a service of educating children on behalf of the government. Indeed, it is interesting that Pope Paul VI said that the state should provide the same support to parents to have their children educated in a private school as was provided in state schools. Such a system would set Catholic parents and schools free. It would also, I suspect, lead to the creation of many more Catholic (and non-Catholic) schools that would provide more alternatives for parents that better suited the varied needs, character and aptitude of their children.

There certainly is not unqualified support for a free economy in Catholic thinking. As the Catechism makes clear, quoting from Centesimus annus, the market economy must be circumscribed in a framework of law so that the market is the servant of human freedom. Where that framework should begin and end is not something determined directly by Catholic social teaching. There is a relatively wide field of argument that Catholics of different political perspectives can occupy. We would not expect all Christians to take the same side in a debate about whether we should respond to the current financial crisis by deregulating or further regulating the City.

Christians should, though, at least empathise with the free economy. All too often as Christians we see certain social objectives that we would like to see fulfilled – the elimination of poverty, universal education and housing, good health services and so on. As a result, we call upon the government as the one institution that we know can pass laws that we believe can help us achieve these objectives directly. We should resist this temptation. When we pass laws in this way, we undermine the autonomy of individuals, families, businesses, charities, co-operatives, mutuals and professional and civil associations to act separately and in solidarity to meet the varied needs of families and the joint needs of the community. We also frequently find that the result of such laws is precisely the opposite of that intended. It is with good reason that the Compendium of the Social Doctrine of the Church states that government intervention in the economic sphere must be a last resort and only continue as long as the special circumstances that require it continue. That is a strong statement and we should take note.

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