Benedict versus Bain Capital

Benedict versus Bain Capital January 19, 2012

“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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  • Kurt


    • CT Michael


  • “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 by no means clear to me that the your “explanation” is an accurate unpacking of the quote that follows.

    The two “conceived [merely] as” are in a parallelism, and the implication is that both conceptions are wrong. He is not praising redistribution here any more than he is praising the engine-of-wealth-creation idea.

    From what I can tell, he’s suggesting that a notion of an economy that first produces wealth through the market, and then redistributes it through the State…is a BAD thing.

    From what I can tell he’s proposing that production’s relation to distribution be such that no “re”-distribution would be required in the first place. That wealth be created according to a system that would distribute correctly in the first place.

    The attachment here to wealth “re”-distribution is disturbing.

    • David Cruz-Uribe, SFO


      “From what I can tell, he’s suggesting that a notion of an economy that first produces wealth through the market, and then redistributes it through the State…is a BAD thing.”

      Then I suggest you go back and read Caritas in Veritate more carefully. Here is the full passage MM quotes:

      “Economic activity cannot solve all social problems through the simple application of commercial logic. This needs to be directed towards the pursuit of the common good, for which the political community in particular must also take responsibility.Therefore, it must be borne in mind that 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.”

      Now interpret it in light of the following two passages:

      “Economic life undoubtedly requires contracts, in order to regulate relations of exchange between goods of equivalent value. But it also needs just laws and forms of redistribution governed by politics, and what is more, it needs works redolent of the spirit of gift. The economy in the global era seems to privilege the former logic, that of contractual exchange, but directly or indirectly it also demonstrates its need for the other two: political logic, and the logic of the unconditional gift.”

      “In this way he [Paul VI] was applying on a global scale the insights and aspirations contained in Rerum Novarum, written when, as a result of the Industrial Revolution, the idea was first proposed — somewhat ahead of its time — that the civil order, for its self-regulation, also needed intervention from the State for purposes of redistribution.”

      Pope Benedict is clearly arguing in favor of “redistribution governed by politics” and state intervention “for purposes of redistribution.” So if you are disturbed by the attachment to wealth distribution you find here, the Pope must give you the heebie-jeebies! 🙂

      • I’m not convinced that redistribution to correct the imbalances that the current system have caused…is the same thing as a system of “perpetual” redistribution.

        Yes, clearly, you might need a “one time” redistribution to reset everything that went wrong. But that should only be done contingent on the creation of a system that will ensure it won’t happen again.

        I read what the Pope says as proposing a redistribution in practice, in the concrete circumstances we find ourselves in. I don’t see it as an endorsement of the idea that redistribution should be a structural feature of the ideal economic system.

  • Romney apparently had quite a lot to do with the corporate strategy and focus on “shareholder value” at Bain Capital. He is listed as one of the founders of the enterprise.

    However, it must be said that the tactics of restructuring a business following takeover and before selloff for maximum profit is now legendary practice in the entire global corporate sector.

    This is apparently one of the hallmarks of global capitalism.

    Question for discussion: Where is the voice of ethics in all of this? Who would dare challenge the juggernaut of profit when everyone of us in this part of the planet wants to survive with at least a piece of the pie?

    The economic pressures on vulnerable organizations, particularly those in the nonprofit sector has left our world with millions of unemployed and oppressed workers in the diminishing ranks of the middle class.

    When Pope Benedict issues an encyclical such as Caritas in Veritate, what real impact does it have on the lives of our own Catholic people? Most will probably never read a word of the text, and if they are business people, I can only imagine the glazing over and rolling of eyes, the smirks and smiles whenever the media carries a story about Catholic social doctrine.

    It is really too bad that Liberation Theology was given such an authoritarian critique by the Vatican, at least in the popular press. Perhaps Benedict and his team of new cardinals can work to correct the impression that Catholicism opposes human liberation from oppression.

    • Mark Gordon

      I don’t have that impression, and if you do I wonder where you acquired it. The CDF was critical of Liberation Theology in some respects, laudatory in others. Specifically, it criticized LI’s appropriation from Marxism of class struggle as the hermeneutic key to understanding human history. It also criticized the reduction of the Eucharist to a mere political symbol, at the expense of its profoundly religious and mystical meaning. Liberation Theology made an important contribution to the Church’s social doctrine – “preferential option for the poor” – but it was one movement within the Church, properly subject to review and critique.

  • Julia Smucker

    I wonder how Louis-Marie Chauvet’s distinction between market exchange and symbolic exchange would fit here. There is no “giving” in a market exchange, really, only quantified purchase, which is why it’s not conducive to the building of relationships. Symbolic exchange, which is the language Chauvet applies to sacramental reception, begins with the gift of God and is paid forward in a life of charity, not in a quantifiable way but as “the ethical return-gift of justice and mercy.”

    • All well and good. However, you have to find a way to express this structurally in the system, otherwise it basically becomes pie-in-the-sky nonsense that depends on a massive reform of human nature whereby everyone “stops being greedy” and “starts giving to charity,” or at least making decisions contrary to productive efficiency for the sake of a more humane distribution, etc

      I would suggest that the monetary reforms proposed by social credit would represent a concrete practical application of these principles and get to the root of the problem in the system as a whole (which is usury).

      I would strongly urge the hierarchy to re-emphasize the condemnation of usury. This has been misunderstood as simply a condemnation of charging interest, but “interest” can mean and be different things in different systems and economic contexts. Rather, the essence of the condemnation has to do with the nature of credit itself. I think a principle should be firmly established and re-emphasized among the social teachings of the Church something along the lines of “credit is inherently a social good, not a private one.”

  • Mark Gordon

    MM, this is a magnificent capsule summary of Benedict’s thinking. It is an audacious vision, broader and more representative of human need and longing than doctrinaire capitalism or socialism. It’s another great reminder that the Church is the original “third way.”

    • Julia Smucker

      YES! And this is very consistent with the overall trajectory of CST – not to mention the Gospel of Jesus Christ.

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