Pope Francis Questions the Economy
On behalf of the Pontifical Council for Justice and Peace, thank you for this initiative and invitation to raise questions, in the spirit of Pope Francis, about the economy.
In his 6 May address on receiving the Charlemagne Prize, the Holy Father called three times “for moving from a liquid economy to a social economy…
[This] would involve passing from an economy directed at revenue, profiting from speculation and lending at interest, to a social economy that invests in persons by creating jobs and providing training.”
In the light of Catholic social teaching, then, I would like to consider the contrast between:
i) The problem of the liquid economy; and
ii) The solution of a social economy.
And then I could sketch three challenges which such a move must confront, namely,
iii) Challenges facing any economy which wants to serve not itself but those who live in our common home
After this brief opening address, the other distinguished speakers will raise the question, “What is social market economy and what is the impact on Europe and globally?”
1. The problem: the liquid economy
When Pope Francis talks about a liquid economy, he calls it “an economy directed at revenue, profiting from speculation and lending at interest”. He means one in which financial flows are deemed paramount, in which technical efficiency and productivity trump human dignity and the ability of all to live flourishing lives. The financial bottom line is seen as more important than the human bottom line. Numbers matter more than people.
This is a theme Pope Francis has emphasized again and again, in Evangelii Gaudium, in Laudato Si’—and indeed in many homilies and extemporaneous remarks over the past few years. He repeatedly warns of the dangers of an economy of exclusion and inequality. Such an economy kills, he says. He goes on to ask: “How can it be that it is not a news item when an elderly homeless person dies of exposure, but it is news when the stock market loses two points?…Can we continue to stand by when food is thrown away while people are starving?” (EG 53).
As evidence, the Holy Father mentions “a ‘liquid’ economy that – in Italy, for example – results in young people under twenty-five not finding work: 40% of them.”
With strong adjectives and concrete examples, Pope Francis is laying out the moral defects of a liquid economy, one that refuses to put the human being at the centre of economic life. The problem stems from a “new idolatry of money”. “We have created new idols,” he says, “The worship of the ancient golden calf (cf. Ex 32:1-35) has returned in a new and ruthless guise in the idolatry of money and the dictatorship of an impersonal economy lacking a truly human purpose” (EG 55).
A real problem with the liquid economy is that it elevates the financial sector to a position whereby it rules rather than serves the real economy.
“The financial crisis of 2007-08 provided an opportunity to develop a new economy, more attentive to ethical principles and new ways of regulating speculative financial practices and virtual wealth. But the response to the crisis did not include rethinking the outdated criteria which continue to rule the world.” (LS 189)
For Pope Francis, a liquid economy goes hand-in-hand with a throwaway culture. This is the ultimate economy of exclusion: “those excluded are no longer society’s underside or its fringes or its disenfranchised – they are no longer even a part of it. The excluded are not the “exploited” but the outcast, the “leftovers” (EG 53).
In Laudato Si’, Pope Francis goes deeper into the roots of this throwaway culture: he points to a technocratic paradigm, a cult of unlimited human power, and “a relativism which sees everything as irrelevant unless it serves one’s own immediate interests” (LS 122). The technocratic paradigm, so dominant in our global economy today, invites people to think of economic intervention solely in terms of utility, productivity, and efficiency—negating any inherent dignity or value either in the human person or in creation. This is inherently confrontational, replacing virtues like care, compassion, and cooperation with an ethic of “possession, mastery and transformation” (LS 106). In turn, it leads to the idea of infinite or unlimited growth, a dominant idea in economics and finance, but ultimately “based on the lie that there is an infinite supply of the earth’s goods.” It leads to a “disordered desire to consume more than necessary” (LS 123). Profit maximization becomes the unquestioned economic motive, which contributes to both economic exclusion and environmental degradation. And it leads to practical relativism that gives absolute priority to immediate convenience and a “self-centred culture of instant gratification” (LS 162), which causes people to treat their fellow human beings—and indeed all of creation—as mere objects to be taken advantage of and then thrown away.
2. The solution: a social economy
What, then, is the solution? A social economy invests in persons by creating jobs and providing training. Pope Francis’ answer is that we need a different type of progress, one that is “healthier, more human, more social, more integral.” (LS 112).
Addressing the popular movements gathered in Santa Cruz de la Sierra in July 2015, the Pope argues that priority must shift from economic growth and financial health to human flourishing and the ability to “live well”—so that all people can “find meaning, a destiny, and to live with dignity.”
“A just economy must create the conditions for everyone to be able to enjoy a childhood without want, to develop their talents when young, to work with full rights during their active years and to enjoy a dignified retirement as they grow older. It is an economy where human beings, in harmony with nature, structure the entire system of production and distribution in such a way that the abilities and needs of each individual find suitable expression in social life.”
In the aftermath of the Second World War, the then social economy responded well to the particular challenges of its day. Likewise, we need a new social economy to meet the challenges of the present day, one in which the human being is firmly at the centre, where all are included in economic social life, and where creation is cherished and protected.
To make this vision a reality, a social economy would need to apply principles like solidarity, subsidiarity, and the common good to the challenges of the modern market economy.
Pope Francis argues that the idea of the common good is “a central and unifying principle of social ethics” (LS 156). For “underlying the principle of the common good is respect for the human person as such, endowed with basic and inalienable rights ordered to his or her integral development” (LS 157).
“In the present condition of global society, where injustices abound and growing numbers of people are deprived of basic human rights and considered expendable, the principle of the common good immediately becomes, logically and inevitably, a summons to solidarity and a preferential option for the poorest of our brothers and sisters” (LS 158).
In Evangelii Gaudium, Pope Francis expounded on this idea of solidarity. It “presumes the creation of a new mind-set which thinks in terms of community and the priority of the life of all over the appropriation of goods by a few” (EG 188). And it “must be lived as the decision to restore to the poor what belongs to them” (EG 189). Laudato Si’ presents us with an even more expansive notion of solidarity—solidarity within generations, solidarity between generations, and even solidarity with creation itself.
In Catholic social teaching, solidarity is always balanced by subsidiarity. Subsidiarity is concerned with identifying the right level of authority for undertaking decisions that affect the common good. It seeks to protect the freedom, initiative, and responsibility of lower levels, while making sure that higher levels (which tend to have the most power) provide proper assistance to these lower levels.
Subsidiarity “grants freedom to develop the capabilities present at every level of society, while also demanding a greater sense of responsibility for the common good from those who wield greater power” (LS 196). Of course, when it comes to global problems that do not respect national boundaries, the appropriate level of authority is the supranational level.
Climate change is an obvious example. The same is true for other environmental problems, including the loss of biodiversity; the strain on water supplies; and pollution of the air, the soil, the water. “Interdependence obliges us to think of one world with a common plan” (LS 164).
3. Three challenges
So far, I have critiqued the liquid economy and proposed the social economy in terms of principles. I would now like to focus on three practical implications of moving from a liquid to a social economy: (i) employment; (ii) inequality; (iii) climate change and environmental degradation.
It is no exaggeration to say that the world is going through a jobs crisis. According to the ILO, about 200 million people in the world are unemployed today. This includes about 70 million young people. We all know that unemployment has pernicious social consequences—it leads to worse health, lower educational attainment for children, and a loss of trust and social cohesion.
This is because employment is not just about earning one’s daily bread—it is actually an essential route to human flourishing and fulfilment, an essential source of human dignity. In the words of Pope Francis, “work is a necessity, part of the meaning of life on this earth, a path to growth, human development and personal fulfilment” (LS 128). He goes on: “It follows that, in the reality of today’s global society, it is essential that ‘we continue to prioritize the goal of access to steady employment for everyone,’ no matter the limited interests of business and dubious economic reasoning.” (LS 127)
What does the future hold in store? We are living through a period of immense technological advance, but this technology is raising some real problems for employment, especially for those with fewer skills. More and more people are being discarded as machines take up their tasks. And as technology gets more and more advanced, what will a “robot economy” mean for workers?
In Laudato Si’, Pope Francis warns about too much faith in the power of technology, because “immense technological development has not been accompanied by a development in human responsibility, values and conscience,” (LS 105). This is part and parcel of the throwaway culture.
This is why Pope Francis argues that when we replace workers with machines, we work against ourselves. “To stop investing in people, in order to gain greater short-term financial gain, is bad business for society,” he says (LS 128). To fully serve the common good, business is called upon to put the creation of employment ahead of a fixation of profits. This is essential to a social market economy and it is one of the areas where we really have lost our way as a society.
In the former social market economy, unions played a vital role. Catholic social teaching has always supported the right of workers to organize and bargain collectively, both on grounds of subsidiarity (they are an indispensable element of social life) and solidarity (they protect the just rights of workers vis-à-vis the owners of the means of production). Nowadays unions have lost a lot of power in this globalized economy. Perhaps part of the answer revolves around reinvigorated unions for the 21st century that look not only at wages and working conditions but also at “integral human development”—placing the world of work within the bigger perspective of human flourishing in all its aspects, in the civitas humana.
How we can involve our young people in this building project if we fail to offer them employment, dignified labour that lets them grow and develop through their handiwork, their intelligence and their abilities? How can we tell them that they are protagonists, when the levels of employment and underemployment of millions of young Europeans are continually rising? How can we avoid losing our young people, who end up going elsewhere in search of their dreams and a sense of belonging, because here, in their own countries, we don’t know how to offer them opportunities and values?
Let me now turn to the second issue: inequality. The rise in inequality over the last 30 years has been stark. Oxfam now tells us that a mere 62 people own as much wealth as half of the world’s people.
There is a huge ongoing debate about the sources of inequality, which I will not get into. Suffice it to say that many economists point to technology and globalization as the main culprits. However, these trends will not be easily reversed, and it is hard to argue that they should be. Technology has brought great benefits. The fact that hundreds of millions of people have been lifted out of poverty in countries like China and India, thanks to their integration into the global economy, is certainly positive
The real problem is that government policies, instead of trying to dull the edges of inequality driven by these economic forces, actually made it worse. I am thinking here of policies like tax cuts for the wealthy and financial deregulation on one side, and fraying social safety nets and weakening unions on the other. A contributing factor, as many economists have pointed out, is that inequality gives the wealthy too much influence over policy. This is an insight that goes back to Aristotle.
Why is inequality so bad? Some economists argue that it is natural and healthy, the inevitable outcome of a competitive market economy. In recent years, however, there seems to be more and more evidence that excessive inequality is bad for economic growth, bad for economic opportunity, bad for financial stability, and bad for trust and social cohesion. I actually think there is even a deeper reason why inequality is harmful. Adam Smith might be most famous as the intellectual godfather of the free market, but he also had a profound insight that inequality undermines virtue because it leads people to admire wealth, prestige, and privilege—and to disdain the poor.
Pope Francis connects these dots, tying together inequality, the economy of exclusion, and the pathologies of the throwaway culture. Ultimately, he suggests that inequality spawns violence and destroys peace: “This is not the case simply because inequality provokes a violent reaction from those excluded from the system, but because the socioeconomic system is unjust at its root,” he says (EG 59).
A further point is that when societies become too unequal, they lose a sense of shared purpose necessary for deliberating on the common good. This glue of “civic virtue” was an important reason why the original social market economy proved so successful. To solve today’s problems, we need a new injection of civic virtue—and this in turn means taking inequality seriously and doing what we can to combat it. After all, Pope Francis calls inequality the “root of social ills” (EG 202).
Let me now turn to my third and final example: environmental degradation.
The former social market economy was very much based on old-school industrialization—powered by oil, coal, and gas. Given the effects of economic activity on the planet, this is no longer viable. This is indeed a major theme of Laudato Si’: the old economic model is leading to extreme pollution, runaway climate change, severe water stress, a destruction of biodiversity and vital ecosystems—overall, a legacy of “debris, desolation and filth” (LS 161). “Never have we so hurt and mistreated our common home as we have in the last two hundred years,” says Pope Francis (LS 53).
As the Pope noted so simply and poignantly in his recent Message for the World Day of Prayer for the Care of Creation: “When we mistreat nature, we also mistreat human beings” —especially the poor and vulnerable. These are the people least responsible for the ecological crisis, and yet who are most affected by it—because their livelihoods are most at risk and because they lack the resources available to others to cushion themselves. The World Bank estimates that climate change alone will push 100 million people into extreme poverty by 2030, if we fail to act.
A new social economy, therefore, needs to do a better job of respecting nature. It needs to be built, not on fossil fuels, but on renewable energy. As Pope Francis said in Laudato Si’, “technology based on the use of highly polluting fossil fuels – especially coal, but also oil and, to a lesser degree, gas – needs to be progressively replaced without delay” (LS 165). This is why last year’s Paris Agreement on climate change—endorsed by 196 countries and pledging to peak greenhouse gas emissions as soon as possible, with the goal of moving to net-zero carbon emissions in the second half of the century—is so important. It is indeed the foundation of a new social market economy. I am glad to see that both China and the United States have recently announced signing onto the Agreement, and I encourage other countries to follow without delay.
A complete shift from fossil fuels to renewables by 2070 or thereabouts will not be easy. To put things in perspective, though, neither was rebuilding Europe after World War II! It took heroic effort, and it brought out humanity’s best. We need that kind of heroic effort once again: to harness the virtues that propelled the original social market economy—but on a global scale. This includes coming to grips with climate change and achieving sustainable agriculture, plus efforts to make sure that all have access to food, healthcare, education, clean water, clean energy, and communications.
A 21st century social economy must not only prioritize solidarity and subsidiarity—but also sustainability, equality, and human dignity.
To conclude, then, let me say that finding solutions to these challenges and building a social economy requires all stakeholders to take responsibility and play their part. Let’s not fall into the trap of assuming that the state alone is responsible for the common good while “the business of business is business”.
Under the original social market economy, business accepted its social responsibility, its duty to the common good. It realized that it was beholden to a wider array of stakeholders than shareholders alone—this was especially notable in Germany. This ethos needs to be restored and reinvigorated. This is how business can live up to its calling as (in the words of Pope Francis) a “noble vocation”. How might it accomplish that today? By prioritizing jobs over short-term profits; by respecting the environment and investing in sustainable development; by paying its workers well and paying its fair share of taxes, instead of exploiting globalization to once again maximize profits.
May I end with a parable? It starts, “A man was going down Jerusalem to Jericho, and fell into the hands of robbers, who stripped him, beat him, and went away, leaving him half dead.” The first two passers-by evidently had more important business to attend to.
But now, with Laudato Si’, let us identify the victim as all who are in social or environmental peril and those likely to fall into such dangers in our lifetimes; and let us identify the ones who pass by as too preoccupied with banking and business, commerce and technology, governmental and political affairs …
The original parable continued, “A Samaritan while travelling came near him; and when he saw him, he was moved with pity”. In our update, the Samaritan represents all those whose compassion leads them to displace their previous priorities and make the great social and environmental perils of our day their first concern ….
At the end, Jesus said to his questioner and to us, “Go and do likewise.”
[Vatican Radio provided text]