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Sunday, July 12, 2009

The Caritas in Veritate: Justice

The only time I ever got an F on an exam, or even close, was in a religious studies course I took to fulfill general education requirements. You know how some of you don't get math? I felt the same way. I somehow managed to pass the course, but I had no foundation whatsoever in the topic going in, and I just didn't get it.

So I am going to let others comment on the Pope's Caritas in Veritate:

Mixing morals and money. by Christopher Caldwell, Commentary, Financial Times: To judge from his encyclical Caritas in Veritate, published this week, Pope Benedict XVI agrees with those who say that something has gone wrong with the way the world does business. ... The encyclical is not anti-global or anti-capitalist. ... Business and finance have not created new excesses. They have opened new routes for an arrogance already present in the hearts of men.

The Pope, in perhaps his most radical passage, laments the “hegemony of the binary model of market-plus-state”. ... Business and government have become specialised fields; each follows a logic that dispenses with the insights of religion. Globalisation can break down cultures, and with them the moral systems in light of which it can be judged. ...

Unfortunately, one of the lost insights concerns justice. The Pope would like us to think about justice as having three aspects. There is commutative justice (the idea of properly judging the prices of things), distributive justice and social justice. National governments, which used to address the second and third, no longer have full power to do so. The global institutions that have replaced them tend to be concerned only with commutative justice – and they do a bad job, the Pope thinks, of judging the value of labour. “If the market is governed solely by the principle of the equivalence in value of exchanged goods, it cannot produce the social cohesion that it requires,” he writes.

It is on the subject of justice that the Pope gives voice to a striking insight: “In the global era, the economy is influenced by competitive models tied to cultures that differ greatly among themselves. The different forms of economic enterprise to which they give rise find their main point of encounter in commutative justice.”

The marketplace is a narrow meeting place... Most of what is distinctive and valuable about the cultures of trading partners gets left out. ... The idea that globalisation expands our horizons is an optical illusion. The same holds true of our technological gadgets. They may give us more instruments for communicating, the Pope says. But “it does not follow that they promote freedom or internationalise development and democracy for all”.

The Pope is optimistic that globalisation does not make loss of identities inevitable. One hopes he is right. But ... he ... has no more luck than others have had in figuring out how to produce distributive justice in this day and age. ...

The Pope’s surprisingly firm political recommendation is for increased global government, based on existing institutions. He urges a “reform of the United Nations and likewise of economic institutions and international finance, so that the concept of the family of nations can acquire real teeth”. But this begs the very question... Before such institutions can be legitimately constituted, we need to know what their principles are. ...

Benedict is certainly right to say that, if we wish to protect the environment, “the decisive issue is the overall moral tenor of society”. He is right to attack the presumption of technologically advanced societies that “confuse their own technological development with a presumed cultural superiority”. And he makes a convincing case that the recent financial failures are best understood in the context of a wider moral failure.

Nick at Open Economics (he's at Notre Dame) has been writing about each chapter in the Pope's "social encyclical." Here, he discusses Chapter 3:

Caritas in Veritate, Chapter Three, Open Economics: Now for a discussion of Chapter 3 of Pope Benedict XVI’s social encyclical, Caritas in Veritate. As I mentioned in my last post of this series, Chapter Three is where Benedict most directly addresses the idea of the economy. Benedict says from the outset that the economy has been misconstrued and abused for much of human history:

Then, the conviction that the economy must be autonomous, that it must be shielded from “influences” of a moral character, has led man to abuse the economic process in a thoroughly destructive way. In the long term, these convictions have led to economic, social and political systems that trample upon personal and social freedom, and are therefore unable to deliver the justice that they promise.

He ... distinguishes between different levels of justice in the context of markets:

In a climate of mutual trust, the market is the economic institution that permits encounter between persons, inasmuch as they are economic subjects who make use of contracts to regulate their relations as they exchange goods and services of equivalent value between them, in order to satisfy their needs and desires. The market is subject to the principles of so-called commutative justice, which regulates the relations of giving and receiving between parties to a transaction. But the social doctrine of the Church has unceasingly highlighted the importance of distributive justice and social justice for the market economy, not only because it belongs within a broader social and political context, but also because of the wider network of relations within which it operates. In fact, if the market is governed solely by the principle of the equivalence in value of exchanged goods, it cannot produce the social cohesion that it requires in order to function well. Without internal forms of solidarity and mutual trust, the market cannot completely fulfil its proper economic function.

This section strikes me as incredibly important. It is thoroughly Polanyi-esque, implicitly arguing that the economy is embedded in society and needs to be treated as such. There is also this notion of trust that is introduced. I think trust would often be categorized by economists as an “institution,” something that can likely be made exogenous when thinking about the economy, but this is naive, Benedict argues. Trust is both a foundation of and a result of the economy.

The emphasis on social and distributive justice is also important because it forces the faithful to think outside the usual Christian paradigm of justice vs. mercy. Social justice is not simply an option, as mercy might be, but a necessity. Casting the economy in these terms forces the faithful to work so that the economy does not just enable, but guarantees, social justice.

Next, Benedict seeks to redefine economic activity. In this section, I’m beginning to see some contradictions cropping up. First,

Economy and finance, as instruments, can be used badly when those at the helm are motivated by purely selfish ends. Instruments that are good in themselves can thereby be transformed into harmful ones. But it is man’s darkened reason that produces these consequences, not the instrument per se. Therefore it is not the instrument that must be called to account, but individuals, their moral conscience and their personal and social responsibility.

So, it’s not the economy’s fault; it’s the people who are running it. By the same token, however,

Economic activity cannot solve all social problems through the simple application of commercial logic…The Church’s social doctrine holds that authentically human social relationships of friendship, solidarity and reciprocity can also be conducted within economic activity, and not only outside it or “after” it. The economic sphere is neither ethically neutral, nor inherently inhuman and opposed to society. It is part and parcel of human activity and precisely because it is human, it must be structured and governed in an ethical manner.

To reconcile these two sections, I think we need to realize that the first paragraph is not an endorsement of charity-based capitalism. When reading the second paragraph, particularly the part about the economy not being ethically neutral, it seems that Benedict is calling on humans to structure the economy in a just manner. Thus, the blame is not so much on humans who fail to act charitably, but on those who perpetuate an economic system that inherently leads to injustice.

Benedict then continues with ideas of embeddedness:

Today we can say that economic life must be understood as a multi-layered phenomenon: in every one of these layers, to varying degrees and in ways specifically suited to each, the aspect of fraternal reciprocity must be present. In the global era, economic activity cannot prescind from gratuitousness, which fosters and disseminates solidarity and responsibility for justice and the common good among the different economic players.

Then, in another important move, Benedict calls for people to reenvision enterprise:

What is needed, therefore, is a market that permits the free operation, in conditions of equal opportunity, of enterprises in pursuit of different institutional ends. Alongside profit-oriented private enterprise and the various types of public enterprise, there must be room for commercial entities based on mutualist principles and pursuing social ends to take root and express themselves. It is from their reciprocal encounter in the marketplace that one may expect hybrid forms of commercial behaviour to emerge, and hence an attentiveness to ways of civilizing the economy.

This is sort of a call for an economy that fosters more Mondragons, not just for people to create more Mondragons. In other words, we must create an economy where socially-oriented enterprises like Mondragon are not simply headed for failure.

Along these same lines,

In order to defeat underdevelopment, action is required not only on improving exchange-based transactions and implanting public welfare structures, but above all on gradually increasing openness, in a world context, to forms of economic activity marked by quotas of gratuitousness and communion. The exclusively binary model of market-plus-State is corrosive of society, while economic forms based on solidarity, which find their natural home in civil society without being restricted to it, build up society.

And now, recognizing the limits of traditional business:

Old models are disappearing, but promising new ones are taking shape on the horizon. Without doubt, one of the greatest risks for businesses is that they are almost exclusively answerable to their investors, thereby limiting their social value…Moreover, the so-called outsourcing of production can weaken the company’s sense of responsibility towards the stakeholders — namely the workers, the suppliers, the consumers, the natural environment and broader society — in favour of the shareholders…Today’s international capital market offers great freedom of action. Yet there is also increasing awareness of the need for greater social responsibility on the part of business.

To conclude the section, Benedict again shifts the focus to these issues in the context of globalization:

humanity itself is becoming increasingly interconnected; it is made up of individuals and peoples to whom this process should offer benefits and development…Despite some of its structural elements, which should neither be denied nor exaggerated, “globalization, a priori, is neither good nor bad. It will be what people make of it”…It is necessary to correct the malfunctions, some of them serious, that cause new divisions between peoples and within peoples, and also to ensure that the redistribution of wealth does not come about through the redistribution or increase of poverty…Unfortunately this spirit is often overwhelmed or suppressed by ethical and cultural considerations of an individualistic and utilitarian nature.

Benedict, in a Stiglitz-esque fashion, concludes by calling for a more just globalization, one that does not suppress ethics with so-called free market ideology. A more just globalization, in summary, will keep the economy in its proper place, embedded in society. It will be welcoming toward socially-oriented enterprises that operate under a stakeholder model. All this is essential to his notion of social justice. The lack of the social justice is not the fault of the economy, but of the people who have helped perpetuate the current structure of the economy. Of course, all this still leaves the question, how will the economy transition, and who will bring that about? Benedict pays lip service to political freedom throughout this chapter, but this obviously is still lacking. How will this develop into more practical recommendations? Stay tuned.

    Posted by on Sunday, July 12, 2009 at 10:45 AM in Economics, International Trade | Permalink  Comments (25)


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