A few days before the appearance of the encyclical Caritas in Veritate, the following news item appeared:
July 3 (Bloomberg) — Developing countries’ share of worldwide equity value climbed to a record as the fastest- growing economies lured investors amid the first global recession since World War II.
The 22 nations classified as “emerging” by index provider MSCI Inc. comprised 24 percent of world market capitalization, up from 18 percent at the start of this year, the highest proportion since Bloomberg began compiling the data in 2003. China shares surpassed $3 trillion yesterday for the first time since August, from $1.8 trillion at the end of 2008.
The increase signals growing confidence in developing countries as equity investors, spurred by interest-rate cuts and stimulus plans, redeploy cash after the worst U.S. losses since the Great Depression. The MSCI Emerging Markets Index rose 35 percent, beating a 2.9 percent advance in the MSCI World Index Index of developed economies and lifting the value of stocks to $8.6 trillion from $5.1 trillion in 2008.
In fact, the creation of wealth in the developing world is the most spectacular economic success story in world history. Nothing like this ever occurred before.
Of course, as the encyclical observes, “The world’s wealth is growing in absolute terms, but inequalities are on the increase . . . The development of peoples depends, above all, on a recognition that the human race is a single family working together in true communion, not simply a group of subjects who happen to live side by side.”
Fair enough. But the issue is not so much inequality as the position of the poorest. Even under a Rawlsian sort of ethics, if the poorest accrue the most benefits, the system is doing the right thing. If we take life expectancy as a crude measure of welfare in the poorest countries, a remarkable result pops out.
According to the United Nations, the least-developed countries’ life expectancy at birth rose from forty-seven years in 1980, when Ronald Reagan became US President, to fifty-nine years today, and is expected to gradually rise to seventy years by mid-century. India’s life expectancy has risen from fifty-four years to sixty-seven years.
What holds the global numbers down is the fall in life expectancy in Africa, from 55.3 years in 1980 to 51.6 years today. That is not the result of capitalism but of AIDS. AIDS derives from moral and cultural problems, but it has a devastating economic impact. No amount of foreign aid, market regulation, and so forth will compensate for this crater in the African population.
If one goes to East or South Asia, home to half the world’s population, the sense of optimism and well-being is palpable. People who grew up with mud floors, outdoor toilets, and a bicycle now have electricity, plumbing, and motor transport. In China’s interior, in Burma, and in parts of northern Thailand and Laos, rural poverty remains extreme, but the jump in living standards from one generation to the next is without precedent.
Brazil, Latin America’s most populous country, is flush with money largely as a byproduct of the Asian boom: its exports of soy, iron ore and beef to China will keep it rich for some time to come. Heartbreaking and enraging disparities of wealth between the Brazilian elite and the favela-dwellers of the cities or and the rural poor are everywhere—but Brazil is doing much better.
The facts seem clear: The Reagan revolution that set in motion a quarter-century boom in the United States inspired the rest of the world to adopt American-style methods. This has led to the greatest boom in wealth in history among countries that a generation ago were more visible in UNICEF commercials than in financial markets. Despite enormous wealth disparities and abuses, more people have benefited than by any other trend in any era of history.
Except, of course in Africa, which is worse off, for reasons that have nothing to do with economics. AIDS, corruption, and war have held the continent back while the rest of the world has surged ahead.
The lesson I would draw from the available data is somewhat different than the one in the encyclical. Markets work reasonably well if people are moral (e.g., do not engage in behavior that leads to pandemic disease). If people fail to have children, by adopting a hedonistic model of life and sexuality, economies fail, as I wrote in “Demographics and Depression” in the May 2009 issue. If the Biblical injunction is ignored to maintain honest courts and to decide cases without favor to rich or poor, economies fail. Markets need morality to function. No amount of regulation can replace morality. Markets can’t be better than the people who participate in them.
Call this an African encyclical. Its description of economic developments applies to Africa, but not to East or South Asia, nor for that matter to most of Latin America.
As a non-Catholic, I find far more persuasive than Cardinal Ratzinger’s 1985 statement on morality and markets:
It is becoming an increasingly obvious fact of economic history that the development of economic systems which concentrate on the common good depends on a determinate ethical system, which in turn can be born and sustained only by strong religious convictions. Conversely, it has also become obvious that the decline of such discipline can actually cause the laws of the market to collapse. An economic policy that is ordered not only to the good of the group – indeed, not only to the common good of a determinate state – but to the common good of the family of man demands a maximum of ethical discipline and thus a maximum of religious strength.
I had written about that Ratzinger address last year.
It is very different to emphasize how much markets depend on the morality of the participants, and the religion whence this morality derives, and quite another to argue that morality can be imposed upon the market mechanism by various kinds of tinkering and the creation of supranational agencies.