“Every economic decision has a moral consequence”. This is one of the core themes of Caritas in Veritate, Pope Benedict’s great social encyclical. Do we really believe this? On the right, you will see an excessive deference to markets, an attitude seems to hark back to an old theological fallacy on the separation between grace and nature. And on the left, you will hear calls for markets to be regulated and the wealth they generate to be distributed fairly by the state. But what about the people, the entities, the cultures that populate the business economy? This is what most interests Benedict. And it is too often off our radar.
The traditional focus of Catholic social teaching has always been justice . But Benedict takes this one step further to focus on caritas. Developing an argument be made in Deus Caritas Est, he claims that while charity (love) can never lack justice, it also goes beyond justice – “because to love is to give, to offer what is mine to the other; but it can never lack justice..I cannot give what is mine to the other without first giving him what pertains to him in justice”. In other words, “charity demands justice, but also transcends justice and completes it in the logic of giving and forgiving”.
I believe this is quite a radical insight.
For sure, economic life certainly needs contracts and laws to enforce justice – in the famous words of Pope Pius XI, economic life must be “governed by a true and effective directing principle”. It also, as Benedict notes, needs redistribution governed by politics. As he says, “grave imbalances are produced when economic action, conceived merely as an engine for wealth creation, is detached from political action, conceived as a means for pursuing justice through redistribution”. It is probably fair to say that these were the traditional concerns of Catholic social teaching.
But Benedict takes this further, and argues that our economic relationships need to be based on the spirit of gift and fraternal reciprocity. This cannot simply be delegated to the state. No, the market itself must operate on the logic of unconditional gift and always be infused by a spirit of gratuitousness. In the traditional understanding of the market, we give to acquire something in return. And with the state, we give out of a sense of duty. Benedict believes that economic life must step beyond this, by being open to “forms of economic activity marked by quotas of gratuitousness and communion”. We must go beyond the “exclusively binary model of market-plus-state” which is “corrosive of society”. As he puts it, “human relationships of friendship, solidarity and reciprocity can also be conducted within economic activity, and not only outside it or after it”.
Benedict is asking for nothing less than a “profoundly new way of understanding business enterprise”. He points his finger at a key problem – business that is “almost exclusively answerable to their investors, thereby limiting their social value”. He criticizes the emergence in recent years of “a new cosmopolitan class of managers..who are often answerable only to the shareholders generally consisting of anonymous funds which de facto determine their remuneration”. He condemns the “speculative use of financial resources” that seeks only short-term profits at the expense of the long-term sustainability of the enterprise.
Last summer, I attended a fascinating conference on ethics and business in Vatican City. One of the keynote presenters was Professor Andy Zelleke of Harvard University. Professor Zelleke argued that so much had gone wrong with the American business model in the 1980s, with the rise of “agency theory”, the notion that business must focus exclusively on maximizing shareholder value. The problem in business is a cultural problem, he claimed, where performance is measured solely by financial value of the firm and where self-interest reigns supreme. During this period, business lost track of its broader obligations to society. We saw the rise of a very aggressive corporate culture – leveraged buy-outs, hostile takeovers, shady financial engineering, a massive rise in compensation at the top.
And here’s where Bain Capital fits it. Bain Capital was at the cutting edge of this “shareholder value” revolution. This private equity fund proved highly aggressive in pursuing short-term profit, never caring too much about long-term gain – the idea was to get in, restructure, get out. Sometimes the best way to increase your return was through leverage – saddling the company with debt that would eventually suffocate it, long after you left. Sometimes it meant firing lots of workers. Of course, this was not always the case, but the point remains – workers were treated as mere instruments, as a means to an end, which was shareholder profits.
This is the core of Caritas in Veritate. Benedict sees our economic woes as due to a corporate culture closed off from the spirit of fraternal reciprocity. To allow for a spirit of gift to develop, we need greater social responsibility on the part of business. Profit cannot be the main criterion. As the pope said recently, “there is no justice where profit is the number one criterion”. And if no justice, no caritas. At its core, the market must be based on trust and solidarity, which means the goal of any business must be broader than profit and shareholder value. As Benedict says directly: “business management cannot concern itself only with the interests of the proprietors, but must also assume responsibility for all the other stakeholders who contribute to the life of the business”. By this he means workers,suppliers, consumers, the natural environment, and broader society. Indeed, he calls for new forms of business that break down the walls between “profit” and “no-profits” entities. We must start seeing profit as a means to a greater end – a more humane market and society.
Of course, Benedict is not writing in a vacuum. He is writing in the midst of the greatest economic recession in sixty years, with many parallels with the Great Depression – a collapse in global demand brought about by the activities of a dominant financial sector in pursuit of short-term gain.
The cultural developments since the 1980s, championed by the Reaganistas, led to an unbalanced and dysfunctional corporate structure, and ultimately to crisis and economic ruin. They violated the principle of solidarity by focusing only on shareholder value. They violated the principle of subsidiarity by becoming disproportionately large, wealthy, and politically influential. They violated the common good, contributing not only to rising inequality but to an unstable economic structure that almost toppled the global economy. According the Benedict, the answer is not merely to restore balance and seek justice by regulation and redistribution, even if these are indispensable elements. Benedict believes we should go further than this and change the very culture of business itself, which touches every aspect of economic life.
This is a remarkable vision. An audacious vision. But this is what we are called to aspire to. For while the Church certainly believes in the business economy, it stands completely against the type of business economy epitomized by Bain Capital and championed by Mitt Romney.
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