The Church’s latest foray into economics: Brief, clear, on point

By Dr. Jeff Mirus ( bio - articles - email ) | May 18, 2018

[B]usiness management cannot concern itself only with the interests of the proprietors, but must also assume responsibility for all the other stakeholders who contribute to the life of the business: the workers, the clients, the suppliers of various elements of production, the community of reference. [Pope Benedict XVI, 2009 encyclical Caritas in Veritate, #40]

This week the Vatican issued a new (and mercifully brief) document on contemporary economic practices: Considerations for an Ethical Discernment Regarding Some Aspects of the Present Economic-Financial System. Jointly crafted by the Dicastery for Promoting Integral Human Development and the Congregation for the Doctrine of the Faith, it is largely an application of the key statement quoted above from Benedict XVI. It concerns itself primarily with the world of finance—the world which caused the economic crisis of 2007. For roughly ten years, the Vatican has been reflecting deeply on the moral shift necessary for modern economies to truly support the common good. Oeconomicae et Pecuniariae Quaestiones (the Latin title, or OPQ for short) is a refreshingly welcome result.

Perhaps remarkably, the Vatican has succeeded in concisely concentrating on (a) understanding the nature of a number of dangerous but widespread financial/economic practices; and (b) indicating how they run afoul of the genuine moral principles which must always guide economic activity; without (c) insisting on specific changes, regulations and/or political solutions, the efficacy of which Churchmen are ill-suited to judge. In this light, while modest in scope (and assuming I am not hampered too much by a lack of expertise in economics), the offered “Ethical Discernment” is actually an example of Catholic social teaching at its best.

As Catholics, we should be well aware that modern economic theory, and many justifications of economic practices, tend to thrive in a vacuum, divorcing business and financial activity from the common good of the community in which they are practiced. But as Pope Benedict pointed out repeatedly following the 2007 financial crisis, even something as removed from everyday life as high finance depends utterly on a community of trust. Or as OPQ puts it in the Introduction:

[I]t is time to initiate the recovery of what is authentically human, to expand the horizons of minds and hearts, to recognize faithfully the exigencies of the true and the good without which no social, political and economic system could avoid bankruptcy, failure, and, in the long term, collapse. [6]

Fundamentals

In Section II (“Fundamental Considerations”), OPQ frankly recognizes that “there do not exist universally valid economic formulas for every moment”, but rightly insists that we cannot create an economic ethics which truly serves the common good without an appropriate vision of the human person (9), whereas “our contemporary age has shown itself to have a limited vision of the human person, as the person is understood individualistically and predominately as a consumer, whose profit consists above all in the optimization of his or her monetary income.” On the contrary:

The human person...actually possesses a uniquely relational nature and has a sense for the perennial search for gains and well-being that may be more comprehensive, and not reducible either to a logic of consumption or to the economic aspects of life. The fundamentally relational nature of the human person is characterized essentially by a rationality that resists a reductionist view of one’s basic needs. In this regard, it is impossible to be silent in the face of today’s tendency to reify every exchange of “goods” as if it were no more than a mere exchange of “things.” [9]

This section goes on to stress the following points:

• Well-being must be measured by something more than the GDP of a nation; it must take into account such standards as safety, security, the growth of “human capital”, the quality of human relationships and the quality of work. (11)
• Freedom is essential to sustaining economic activity, but it is clear that the freedom of economic stakeholders, if removed from its intrinsic reference to the true and the good, creates centers of power and forms of oligarchy that in the end undermine the economic system. (12)
• Markets are not capable of governing themselves, since they know neither how to maintain the social framework necessary to their smooth running nor how to correct effects and forces that are harmful to that social framework. (13)
• As predicted a century ago, capital annuity can trap and supplant the income from work, causing work itself to lose its value as a personal good and making it merely a means of exchange within asymmetrical social relations. (15)
• What is morally unacceptable is not profit but taking advantage of an inequality in order to create enormous profits that are damaging to others, or to exploit one’s dominant position to disadvantage others, or to make oneself rich through disruptions and harm to the common good. (17)

Contemporary Problems

The major emphasis of the document is found in section 3, which is by far the longest and most economically technical, entitled “Some Clarifications in Today’s Context.” Here OPQ engages in a clear and cogent analysis of the specific dangers which characterize several dominant economic practices which influence the market to the immense detriment of the common good. It would be counter-productive to review them in detail here, since the entire text is short enough for everyone interested to read, but it is clear that the authors really do have a clear understanding of the worldly financial practices they describe (which is not necessarily a given in documents of this type).

Among other things, this section gives serious coverage to:

• Dodgy investment practices (such as lack of definition and separation of entities with differing responsibilities, lack of transparency, excessive movement of portfolios, lack of information about the true worth of certain investments, and lack of due diligence);
• A rationale for business management almost exclusively focused on maximizing profits for shareholders, without regard to the interests of workers, consumers and the communities affected by the business;
• A dangerous discounting of the natural circularity which exists between profit (which is intrinsically necessary for economic success) and social responsibility (which is not only right but essential to the long term success of any economic system).

The authors then examine in significant detail the problems posed by the following:

• Titles of credit;
• Securitizations;
• Certain uses of credit default swap (CDS);
• The shadow banking system;
• Evasion of taxation and regulation through offshore finance (without giving punitive taxation systems a pass);
• Fraudulent public administration.

OPQ also discusses the regulatory emphasis on “negative compliance” (that is, a failure to break written rules) as opposed to a culture of “positive compliance” (“a perspective that seeks to verify [various operations’] effective correspondence with the principles that inform the current norms” (28)). Throughout all of the discussions, the text is remarkably free from unwarranted assumptions about the rectitude of the public order that have sometimes conditioned specific recommendations in the Church’s social teachings (one thinks, to take but one example, of Pope Blessed Paul VI’s naïve trust in foreign aid, which is nearly always abused). What we find instead is the very healthy recognition that these problems cannot be solved without a significant cultural shift.

The text concludes on a positive note, emphasizing that each one of us can contribute to a truly positive economic and financial culture by our own moral attention to how we spend our money and how we conduct ourselves in work, business and investment. But it is clear that the lack of a moral cultural framework for economic activity is a key weakness in our time, which is why the earlier, non-technical, sections of the text are so important.

When it comes to the selfish practices that too often dominate world finance, we will be playing whack-a-mole until we succeed in the inculturation of economic thought which is rooted not in financial theory but in an awareness of the dignity of the human person, fully alive in each of us, and fully relational in all.