Evangelical Catholics, supporters of the constructive working of the marketplace that we are, took well to the teaching of Centesimus Annus for it provided a vision of how to see both the accomplishments of free markets in the growth of all economies—and, most specially—the rise of millions of individuals from abject poverty in a short span of years. It was stronger than this, for it suggested a religious understanding of how the market has worked, how it has failed, and how it needed correction.
Those observations went to a most recent period. In our day a global recession has produced some deviations from the improvement path. The question at hand is this: Might these improved trajectories in income growth no longer be achieved? I will return to this question at the end of this essay.
For the present we need to focus on the constructions of Centesimus Annus and the conflicts of its teachings with Caritas in Veritate. I submit that the conflicts of the latter encyclical with Centesimus are major, and need immediate reconciliation. Pointedly Centesimus went to the working of the competitive marketplace, as opposed to the outcomes of planned economies—finding the former a better deliverer of goods and services to consumers. It went further to suggest a set of rules for both government and private controls on marketplace participants set in rules of law, governing participants’ actions and contracts. It further argued that those rules need to be in line with moral commitments of a just society.
Many readers of Caritas in Veritate wish to see in terms of Paul VI’s Populorum Progressio. I have no quarrel with their wishes, nor do I disagree it is descended from that encyclical. Rather I wish to discern the differences between Caritas and Centesimus brought into sharp focus. I submit that these are not minor, and it is time to face up to them.
Let us consider the principals of Centesimus Annus:
1. That all participants are required to understand Christian commitments to the efficient outcomes of the workings of competitive markets.
2. That some of those dynamic growth model outcomes would predict, and indeed be observed, results with clear disparities between the winners (with superior intellectual skills, and market execution results) and the losers (with fewer educational attainments, and insufficient governmental support to correct-if possible-these skill improvements).
3. A significant element of Centesimus was its understanding of its focus on the growth of economic thought (read “new structure,” “new form . . . of property . . . of labor.”) That said sadness about its failure to deal with “sex, age, or family situations, and were determined solely by efficiency. . . .” The gains in theory are noted; the failure to get to the human elements is noted. This is John Paul II reflecting on Rerum Novarum.
4. Critically, John Paul the Great pays special attention to matters of property rights and voluntary contracts upheld by “the rule of law.” Without governmental enforcements economic development will not occur. Examples of flawed national governance are noted for negative improvements in human standards of living.
5. Centesimus holds to an unaltered Catholic assertion of the need for organized labor to find government protection. To be sure John Paul the Great does not do this to support a Marxist view of class struggle, but rather to balance the labor-capital rewards. The danger lies in the role of the state to make fiat delivery of these. His inclinations are compelling, given the victory in Poland. What he fails to address is the coercive power of successful unions to tax workers earnings-and often for causes that minimize job transitions to employment in sectors that will prove more rewarding, both to those individuals and to the economy.
6. I cannot find within Centesimus an appeal to international economic regulatory agencies. Reading between the lines as hard as I can, I sense the notion that individual democratic governments need to care for market failures with a clear mind to the losers in these events.
Reflect, then with the elements of Centesimus Annus within Caritas in Veritate:
1. Where is the matter of efficient allocation of resources, using competitive market mechanisms, noted?
2. Caring for those damaged by Joseph Schumpeter’s creative destruction.
3. The growth in economic thought on matters of economic liberty, human capital investment, and working with the gains of a globalized economy.
4. Property rights, contracts, and the rule of law.
5. The matter of unions and collective bargaining. See the discussion below.
6. Governmental regulation in defense of human liberty and equitable rewards to suppliers of both capital and labor services.
Notice the specific differences, and what we are to make of them:
1. Caritas does not deal with the rewards to be found in efficient allocations, nor go to the enormous losses provided by planned economies. Given that the battle has been won, is not sufficient reason for restating the flaws of past thinking. This proves especially true for the Roman Catholic Church, which is the dominant religious institution in countries that flirt with the socialist traditions of industry nationalization and redistribution of wealth by vacating both capital and labor contracts.
2. Caritas does pay attention to the cause of the displaced. It does not note that such displacements are integral to economic growth.
3. I cannot find any focus in Caritas on the modern view of economic development found in Centesimus. John Paul II was clearly mindful of what we call the New Institutional Economics, that school that states the necessity of providing enforcement of contractual rights between buyers and sellers (of both goods and services), borrowers and lenders. Without such enforcement designs, we learn from this school, development cannot occur. Institutions matter and history suggests the Judea-Christian churches have offered the requisite designs for them.
4. See item 3 above.
5. In the matter of collective bargaining, the state provisions for correctives to empower unions, we find in Caritas a similar view. In fact it is almost an exact representation of Centesimus, while missing most references to the latter. This is sad, for markets-and labor markets-have moved positively in the years after about 1995.
6. The hope, found here and there in Caritas, that international economic regulation might have mitigated the most recent crash of financial markets is most sad. Regulating financial markets is at best a very difficult proposition. When sophisticated economies experience failures in financial regulation, they have a history of resolving these difficulties in a timely fashion (as we are seeing now). When the financial sector complications spread to the real economy, individual governments show some ineptness, but tend toward practical solutions. To have the suggestion from Caritas that international financial regulation would work is most troubling, for the problems are almost always local. Attempts at international solutions (as in, Basil capital standards) miss the mark by a great distance—and typically exacerbate the problem in question.
What we have here is a heartfelt encyclical from a most-constructive pope. Unfortunately, it seems to have defaulted to a collection on cardinals who are uninformed by the work of John Paul II, and hold to a late-nineteenth-century view of the Church in a rapidly developing world (with Italy sadly left out of it).
Per the pope’s choice of outside assistance in a matter of this import, it would have been good for him to consult the Pontifical Academy of Social Sciences wherein the every-focused Mary Ann Glendon serves as president together with her predecessor, Edmond Malinvaud, and the Nobel Laureates Kenneth Arrow and Joseph Stiglitz.
Debate over Caritas might well be instructive for the Pontificate of Benedict XVI. I suspect that he had that debate in mind in offering this encyclical. With prayer and careful debate, we might understand what Benedict had in mind, and how to find an addendum that would be corrective.
Joseph A. Swanson is Clinical Professor of Finance at the Kellogg School of Management at Northwestern University.