In the Fray of Economy Debate

Social Doctrine Professor Welcomes Main Message in Vatican Document

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By Edward Pentin 

ROME, OCT. 28, 2011 (Zenit.org).- A document published this week by the Pontifical Council for Justice and Peace, which analyzes the global economic crisis and proposes specific ways to resolve it, has drawn a great mix of reactions, many of them negative.

The short document titled “Toward Reforming the International Financial and Monetary Systems in the Context of Global Public Authority” aimed at contributing to the Nov. 3-4 Group of 20 summit. The paper was not an expression of the papal magisterium, but nevertheless a proposal for discussion.

In it, the Vatican said the current global financial crisis has revealed “selfishness, collective greed, and the hoarding of goods on a great scale.” It advocated a supranational authority as a possible remedy, one that places the common good at the center of international economic activity.

The paper proposed “a kind of central world bank” and a “set of public institutions,” with reference to the United Nations, which would “guarantee the unity and consistency” of common decisions. But it also stressed the importance of subsidiarity tied to any such global authority. 

“The primacy of the spiritual and of ethics needs to be restored and, with them, the primacy of politics — which is responsible for the common good — over the economy and finance,” the document said. 

Among other measures, the paper proposed a transaction tax to help promote “social justice and solidarity.” It advocated the creation “of a world reserve fund” to support countries suffering from economic crises, and called for recapitalization of banks with public funds but conditional on “virtuous” behaviors aimed at developing the “real economy.” 

The document warned of an “idolatry of the market” — a term first used by Blessed John Paul II — saying his warning “needs to be heeded without delay.” And it claimed the primary cause of the current global crisis was “an economic liberalism that spurns rules and controls” and that relies solely on the laws of the market. 

But by calling for what some consider unworkable solutions, such as a U.N.-governed supranational authority, the pontifical council has been accused of a lack of understanding of economic or political reality. 

Nevertheless, there are economic and political experts who have given it a more positive hearing, while not ignoring its weaknesses. One of those is Father Martin Schlag, a professor of the Church’s social doctrine at the Pontifical University of the Holy Cross.

Father Schlag believes the document was “well timed and contains important insights, as for example that financial markets ought to serve ‘real economy.'” 

“People are very concerned and expect some kind of orientation also from the Church,” he said. “It was foreseeable that some expressions of the document would be misunderstood. This is especially true for the part on the ‘global authority’: It has attracted most attention and thus distracted from the main message, which is putting finance at the service of human work.”

When asked how feasible such a body would be in promoting the common good, Father Schlag reminded that the magisterium often stresses that the Church “must refrain from giving technical solutions to economic or political problems.” 

Nevertheless, he added that since John XXIII, “the wish for some kind of global authority that is not identical with the military and political superpowers but above and over them, is a constant theme of pontifical messages. 

“I can only conclude that this proposal is considered not as a technical solution but as a requirement of justice,” he said. “My personal opinion is that a supranational financial authority makes sense in a globalized economy. John Paul II distinguished ‘good’ from ‘bad’ capitalism. Bad capitalism would be any wild economic activity that accepts neither ethical nor legal rules and regulations. A globalized or semi-globalized economy has a global common good and needs some kind of global regulation. However, this regulation, as in any other field, must be limited to the necessary minimum and must be based on real facts, not ideology.” 

Father Schlag said he thought this was feasible, just as international laws governing aviation or the postal service are workable. “Unfortunately, the pontifical council document, even though it carefully avoids using the expression ‘global state,’ uses the rhetoric of sketching the traits of a global constitution,” he said. The priest highlighted the difficulties in such a proposal, “at least at present, because the world simply is not fully globalized and united.”

Unified code

The document’s emphasis on more regulation drew widespread criticism from free-market advocates — who believe too much regulation, rather than too little, has precipitated this crisis. Father Schlag prefaced his comment in this regard by saying he didn’t know enough about international trade regulation to answer this question well. But he is opposed to the idea that the crisis was caused by laws governing finance.

“On the contrary,” he said. “The repealing of the Glass-Steagall Act [the repeal removed the separation between investment banking and commercial banks] was, I think, a mistake, as was the non-regulation of derivatives [a form of speculation] and credit default swaps [quasi-insurance policies on loans].”

Father Schlag said his impression was that national economies, at least in Europe, “are highly and even over regulated, sometimes stifled by bureaucracy and red tape; whereas international financial transactions lack regulation.” He said a “unified code” of international standards and laws would create the frame for a free and just market economy. 

“It would also help international companies to save money and avoid penalties because they could act according to only one set of rules instead of a multiplicity of them,” he said. “In this sense, I personally would have been happy with a call for deregulation and liberalization on the national level together with a call for regulation on the international one.”

Table manners

So was this document, as many have suggested, a boon to socialists but a swipe at capitalists? 

“I think people at the Pontifical Council of Justice and Peace are sick and tired of teaching table manners to cannibals and are impatient for a new form of economy,” Father Schlag reflected. “For me this new form of economy can only be a free market in the limits of ethical and legal norms and borne by a culture of common good. 

“The document says the same and does not criticize market economy: To the contrary, it repeatedly upholds free and stable markets. In this sense, the document criticizes ‘bad capitalism’ and upholds ‘good capitalism’: free markets, entrepreneurship, creativity, sustainable innovations, etc.”

Father Schlag said that from a personal point of view, he would have preferred these terms presented “more clearly as the solution,” instead of putting the emphasis on states. 

“The Church can contribute to abolishing involuntary poverty,” he said. “The path is social entrepreneurship or capitalism with a human heart.”

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