RUTHFULLY YOURS

—Joseph Schumpeter, History of Economic Analysis, 1954

Reading can be a pleasure and sometimes, as we all know, a chore. I confess as a Christian—albeit not of the Roman Catholic persuasion—to having not read a papal encyclical before the latest, issued on May 24. On my rough count, Laudato Si’ (On care for our common home) ran to a daunting 40,000 words or so. The flesh is weak. I was deterred. However, my interest was piqued by media commentary on the Pope’s condemnatory views, or so they were portrayed, on the role of free market forces in guiding economic affairs. It turned out to be a rewarding read.

A first thing to say is that when Pope Francis is on his “home turf”, discussing spiritual matters, he is inspirational. I had to put his words down at times because they were so powerful and moving. On the other hand, his wide-ranging comments on the environment, to which the encyclical was primarily directed, were unremittingly one-sided. The way he begins sets his unchanging compass: “This sister [Mother Earth] cries out to us because of the harm we have inflicted on her by our irresponsible use and abuse of the goods which God has endowed her.”

Instructively, as you read on, it becomes increasingly clear that the Pope’s perspective on the environment stems from, and is caught up with, his perspective on economics and capitalism. But stop here. Economics and capitalism take us down the road apiece from where the Pope starts. I think it is safe to say that the Pope starts with God. As you might expect, a number of conservative writers and broadcasters, in passing comment on the encyclical, started further down the road. And this, I believe, and as I will later explain, has led them into being more sharply critical of its economic content than is justified.

At one point John Maynard Keynes broke off debate with some of his contemporaries after the publication of The General Theory in 1936 because he did not believe that they were engaging his arguments with an open mind. Those who write with good will, hoping to persuade, are entitled to an open-minded reception. The Pope is no exception.

I intend giving the encyclical an open-minded reception by taking a walk on the Pope’s side. I will explore the apparent gulf between the Pope’s side and that of defenders of free-market capitalism and try to identify its source and character. My approach to this exploration will be to draw out those parts of the encyclical which bear on economics and the role of markets and to assess how they stand next to a conservative economics perspective. As they are prominent totem-bearers for this latter perspective I will refer in passing to the economics practised by President Reagan and philosophised by Friedrich Hayek. Now I admit to being a fan of both Reagan and Hayek but my objective is conciliatory, not adversarial. To set the scene, I will start with some conservative criticisms of the encyclical that were distinctly adversarial in their nature.

First I will go to the most adversarial and the least considered. It is no surprise that radio shock-jocks took the prize for extravagant language. For example Rush Limbaugh said that the encyclical confirmed that Pope Francis was a “Marxist” and Michael Savage called him a “stealth Marxist”. However, other media were substantively as critical. James Delingpole, the London editor of Breitbart, claimed that the encyclical trotted out “formulaic bilge and accepted faux-wisdom required these days to pass a fairly typical exam paper”. Fox Business commentator Stuart Varney warned that President Obama and Pope Francis were together “a very powerful force pushing left”. Much more of a similar kind can be found summarised at Media Matters (June 18).

The editors of National Review (“Laudato No: Praise Not Pope Francis’s Crude Economics”, June 18) and Samuel Gregg, writing in the American Spectator (“Laudato Si’: Well Intentioned, Economically Flawed”, June 19) provide examples of more considered yet, nonetheless, unreserved criticism.

Among other put-downs, the National Review editors argue that the Pope “combines an admirable and proper concern for the condition of the world’s poor with a crude and backward understanding of economics and politics both”. They accuse the Pope of setting up straw men such as this: “By itself the market cannot guarantee integral human development and social inclusion”. None among “free-market thinkers” would disagree, they point out. They particularly draw attention, as do other conservative critics, to the lack of balance in the encyclical in downplaying the role of free markets in relieving world poverty while emphasising its role in fuelling “consumerism” in developed economies. Their view of the encyclical is well captured when they make the following comment:

The economic progress of the late 20th century and the early 21st century—which is to say, the advance of capitalism—particularly in the areas of agriculture, medicine, and energy, has not so much enabled consumption that is excessive in the rich world but adequate in places such as India and China, where famine, once thought to be a permanent part of ordinary life, has largely disappeared.

Samuel Gregg says the encyclical’s “deeply negative view of free markets”, is in line with the “demonstrably flawed arguments concerning the market economy’s nature and effects in the apostolic exhortation Evangelii Gaudium”, issued by the Pope in 2013. He suggests that the Pope “appears oblivious to the fact that the twentieth century’s worst economically-driven pollution occurred as a result of centrally-planned state industrialization in the former communist nations”. He regards it as “lamentable that this pontificate seems so unwilling to engage in a serious discussion about the market economy’s moral and economic merits vis-à-vis the alternatives”. However, to balance the scales a little, he sensibly points out that it is “nonsensical to describe this pope as a Marxist”.

It is quite easy as a conservative to nod in agreement when reading through these two critiques and others like them. Within their terms of reference they are surely right. There are a number of tenuous (or moot) economic observations in the encyclical. Two of them—that “universalizing” consumption will create unmanageable waste and that the finiteness of the world precludes continuing economic growth—I will cover below. There are others such as the following:

[Water should not be turned] into a commodity subject to the laws of the market …

The foreign debt of poor countries has become a way of controlling them …

… the economy has favoured a kind of technological progress in which the costs of production are reduced by laying off workers and replacing them with machines …

… the time has come to accept decreased growth in some parts of the world, in order to provide resources for other places to experience healthy growth …

These observations all buckle under scrutiny. Clean accessible water is costly and scarce. It must therefore be rationed. If not by price, how? Poor countries need to borrow, but how will that be possible if they do not adopt measures to service existing debt? Companies and societies that do not adopt the best technology will provide fewer employment opportunities. Decreased growth in one part of the world usually lessens the scope other parts have to grow their markets. But, let me stop again, this is too glib by half.

The Pope is calling for a spiritual awakening which will have decision-makers taking more account of those affected by their decisions. Even among capitalists he is not alone. For example, John Mackey, the founder of the US company Whole Foods Market, calls in Conscious Capitalism (2013) for businesses to balance the needs of all of their stakeholders, including those of the community in which they operate. So perhaps taking a generous view of some of the Pope’s slightly gauche economic observations might not go amiss. It is also worthwhile mentioning two observations which establish at least some free-market-friendly credentials:

… it is essential [quoting Pope Benedict XVI] that “we continue to prioritize the goal of access to steady employment for everyone” …

In order to continue providing employment, it is imperative to promote an economy which favours diversity and business creativity …

Ronald Reagan would have approved of these observations, I believe. His policies were all about creating jobs and promoting a vibrant economy. Though, perhaps his way of going about it by decreasing taxation and reducing regulation might not have quite fitted the encyclical script. The script after all is not about extolling free-market capitalism but about exposing its deficiencies against a spiritual template.

Free-market capitalism is the “least worst” of the known systems for conducting national economic affairs. Set in an enlightened and ethical cultural environment—a Judeo-Christian one, dare I say—it produces growing prosperity. But it is neither perfect nor perfectible. It produces adverse side effects. Accordingly, there is always room for those of good will, including the Pope, to have a legitimate say in how it might be improved.

Take a heated exchange between Jon Faine and James Delingpole on ABC radio on April 27, 2012. My sympathies are with Delingpole. However, I have a caveat. Faine made the point that good environmental outcomes in the Western world were the result of regulation. This is clearly wrong as it stands. Regulation can’t reduce the emissions from, say, car exhausts unless cost-effective technical solutions are available, and capitalism is the best way to ensure they are available. But Delingpole missed a beat in arguing that capitalists were not plotting ways to despoil the environment. Of course, they’re not. At the same time, neither would they normally put environmental concerns uppermost; right now think Volkswagen. Their main job is to grow their businesses and their profits.

“Is it realistic to hope that those who are obsessed with maximizing profits will stop to reflect on the environmental damage?” the Pope asks. He evidently thinks not. He might not be wholly right but he is surely partly right. Environmental regulations, both directly and in the effect they have in moulding business culture and community expectations, are an essential adjunct to capitalism.

The Pope’s perspective on free-market capitalism stems from his perspective on the state of a turf war between man’s allegiance to mammon and to God. His economic views cannot be understood outside of this spiritual prism. Referring to two encyclicals of John Paul II on social and economic justice, John O’Sullivan (in The President, the Pope and the Prime Minister) made the telling point that “such encyclicals have certain things in common: for instance they rightly warn against greed and materialism as dangerous sins”. This applies no less to Pope Francis and is no better illustrated than when he quotes John Paul II: “the Church does indeed defend the legitimate right to private property, but she also teaches no less clearly that there is always a social mortgage on all private property, in order that goods may serve the general purpose that God gave them”. It is from this that all else follows.

Economics is not a spiritual discipline. Accordingly, there is a chasm which separates the encyclical from economics as it is understood in textbooks. This does not necessarily mean that the encyclical is free from economic error. It simply means that a broader perspective than textbook economics must be brought to bear in assessing the worth of its criticisms of free-market capitalism. These criticisms can be distilled, I think, into a charge that capitalism’s promise of ever-growing material abundance is both unwholesome and unfulfillable.

The free market is not a product of human ingenuity and design. It simply evolved warts and all because specialisation and exchange guided by prices are potentially capable of making all those participating better off. And human nature favours riches over poverty. If there were a better system no doubt it would have evolved and prevailed. At the same time, the Pope is right. The free market produces “collateral damage” on “society and nature”. The encyclical lists numbers of unconscionable market transactions, for example, human trafficking, the drugs trade, commerce in blood diamonds, and trading in the fur of endangered species. Another recent and particularly egregious example can be added. Doctors from the organisation Planned Parenthood in the US were caught on camera arranging the sale of organs of aborted babies, which they went to some effort to preserve intact during the abortion procedure. That is the free market in action, when unencumbered by any moral strictures. It was those on the conservative right—the believers in free markets—who were most appalled. Leave aside the unfortunate fact that apologists for instances of barbarism can always be found; no one of common decency believes in untrammelled laissez-faire.

Equally, no one believes that “the problems of global hunger and poverty will be resolved simply by market growth” or doubts that “by itself the market cannot guarantee integral human development and social inclusion”. To his critics, the Pope is laying undue emphasis on what the market shouldn’t do and can’t do and not on what it can do and has done to lift people out of poverty. But look at it another way. Making roads safer is a priority, not writing glowing reports on millions of safe journeys. The Pope is in the business of trying to make things better by pointing out deficiencies.

When the Pope sees materialism at the centre of free markets, and so evidently in the financial sector, it is unsurprising that he calls this out. He would hardly be expected to write a hagiographical account of the way bankers are working to fulfil human needs. Criticisms of him for not sufficiently lauding the market fall flat, in my view. But there is a problem that even with the best will in the world can’t be avoided. This occurs when the Pope moves from analysis to prescription and echoes Pope John XXIII in arguing for a supra-national authority to “manage” the global economy. Manage isn’t defined, but it sounds like a species of economic planning which is bound to end in tears. Friedrich Hayek sets out the problem in The Road to Serfdom.

Hayek explains how economic planning which determines what is produced, in what quantities and how it is distributed, can only be achieved by forcing people to act outside of their interests: “the only alternative to the submission to the impersonal and seemingly irrational forces of the market is submission to an equally uncontrollable and therefore arbitrary power of other men”. That this ends in despotism is not initially the product of evil intent. It is nevertheless an inevitable consequence. To go back to Hayek: “It may sound noble to say: Damn economics, let us build up a decent world—but it is, in fact, merely irresponsible.”

Clearly the Pope is not in favour of political despotism in expressing his belief in the limitations of capitalism and proposing a supra-national authority. However, is he naive? It is instructive to consider part of a letter from Keynes to Hayek, dated June 28, 1944: “morally and philosophically I find myself in agreement with virtually the whole of it [The Road to Serfdom]; and not only in agreement with it, but in deeply moving agreement”. And yet later in the same letter he says:

I should say that what we want is not no planning, or even less planning, indeed I should say we almost certainly want more. But the planning should take place in a community in which as many people as possible, both leaders and followers, wholly share your moral position. Moderate planning will be safe if those carrying it out are rightly orientated in their own minds and hearts to the moral issue.

So, according to Keynes, planning is safe if every­one shares the same upright moral values. Not to put too fine a point on it, that is naive from a man of practical affairs who lived in an age of evident moral turpitude. I don’t accept that the Pope is being similarly naive.

Both Hayek and Keynes took the world as it was. What the Pope says can’t be separated from his principal theme, which is a call for a return to a more spiritual existence:

Christian spirituality proposes an alternative understanding of the quality of life, and encourages a prophetic and contemplative lifestyle, one capable of deep enjoyment free of the obsession with consumption.

Utopian, you might say. But what other aspirations befit a pope?

So when the Pope envisages a supra-national authority he does not envisage Pol Pot types pulling the strings but those who “respect the natural and moral structure” endowed to them by God. I happen to believe that Hayek would think that there are no realistic circumstances in which this would not do untold damage. Reagan would have shared that view. As Dinesh D’Souza (in Ronald Reagan) puts it: “Reagan believed intellectuals have no right to attempt to plan or manage the economy. He didn’t think [they] knew how.” At the same time, it is reasonable to think that both Hayek, who met with John Paul II, and Reagan who (according to both O’Sullivan and D’Souza) developed a close rapport with him, would have taken account of the current Pope’s implicit premise.

Materialism, particularly consumerism, comes under sustained attack in the encyclical. I have observed that many of those among us who profess to be atheists claim to have a spiritual side. I have no idea what they mean by this and have never been able to extract a satisfactory explanation. But what is clear is that they have a negative view of unadorned materialism. Most of us do, as I am confident polling on the matter would verify, even among those queuing for the latest personal communications device.

Put aside the comment in the encyclical about the “tedious monotony” of the “constant flow of new products” with which many of us can surely agree. Please not yet another gizmo of dubious merit. The Pope believes that the level of consumption in the developed world cannot be “universalised”. He points principally to the unmanageable waste that would result, but relevant too is his rejection of the possibility of unlimited growth in a finite world. From a free-market perspective this is all moot.

If the less developed regions were able to consume at Western levels they would presumably, and in fact certainly, have embraced capitalism and the cultural values that make it work. No other system would deliver the goods. Demonstrably this would allow waste to be dealt with effectively as it has in the West and, equally demonstrably, it would lead to an improvement in environmental outcomes.

As to unlimited growth in a finite world; this presents a challenge to the rational mind. It is best not to think too far ahead. Infinity is a long way out. Capitalism has shown itself adept at confounding those who predict that resources are going to run out. And no end of this is remotely in sight. To reiterate my explanation in a previous Quadrant article (“Economic Growth in a Finite World”): Impending shortages lead to rising prices. Exploration and extraction intensify, substitute materials are brought into play, and new technologies and products are developed which rely less or not at all on the materials whose supplies are tightening. As Wilfred Beckerman (in Two Cheers for the Affluent Society: A Spirited Defence of Economic Growth) puts it: “History is full of dire predictions that if the demand for a certain product continued to grow as before the known resource would be used up in x years time, and all of them have been shown by events to have been absurd.”

So, in sum, the Pope would appear to be wrong. Perhaps, but quite honestly the logistics of extending the ever-growing material demands of capitalism, as it is in the Western world, to the rest of the world would take us into unknown territory. It is a confronting prospect to envisage Western levels of consumption reproduced worldwide. The size of the leap is almost unimaginable.

According to the Population Reference Bureau, around 83 per cent of the world’s population of 7.3 billion live in less-developed regions of the world. The world’s population is projected by the UN’s Population Division to reach 9.7 billion by 2050, almost all of the growth in less-developed regions; over one half in Africa (see “World’s Population Prospects: 2015 Revision”). This will mean by 2050 that around 88 per cent of the world’s population will live in less-developed regions. And this proportion will go on rising if, as projected, the world’s population grows to over 11 billion by 2100.

All is far from well in the world and the prognosis is unpromising. The disparity between rich and poor nations is not the whole of the malady but it is a major part. The Pope might well be closer to understanding the scope of the problem rather better than those whose field of inquiry is limited geographically and spiritually. In any event, right or wrong in its economic specifics, the encyclical draws attention to the wide material gap between rich and poor and to the insuperable problem of bridging it. And, when the primary goal and measure of mankind is material wealth, growing tensions are bound to arise from the success of capitalism in the smaller, less fecund part of the world set against the relative poverty in the larger, more fecund part of the world. Something’s gotta give, as the old song goes. Principally that something is being played out in population movements.

Leave aside the Syrian (so-called) refugee exodus, migration from poor to rich countries has increased steeply since 1945 and most particularly since the mid-1980s (see Castles, Haas and Miller, The Age of Migration, 2013). It is not hard to envisage the current “invasion” of Europe becoming the new normal as billions more people join the ranks of the relatively impoverished in less-developed regions.

Spreading capitalism combined with Judeo-Christian cultural values to these regions would provide a solution. The realist might say that this is as infeasible as getting people to replace materialism with spiritualism; mammon with God. It is. The realist would be right. There is no feasible solution.

In these circumstances it might be wise to give the Pope a break. Perhaps those in positions of influence in the Judeo-Christian world should support the Pope’s efforts to strengthen spiritual values instead of concentrating on writing off his economics. This might help us withstand the cultural challenges that population movements will bring to free-market economies. For, if much of the migrants’ “cultural baggage” were ever to flourish, it would undoubtedly subvert free-market principles as it has in the migrants’ countries of origin. Else why would they be fleeing? The Pope surely has a point, even if his economics is not wholly of this world.