A financial reform plan released by the Vatican in October is filled with optimism and hope for sustained economic justice. The plan makes prudent and timely recommendations that would apply moral and ethical principles to alleviate the accelerating world financial crisis – now wider in scope than the Great 1930’s Depression. The document called, “Reforming the International Financial and Monetary Systems in the Context of Global Public Authority” offers wise recommendations for the leaders the Group of 20 – world’s largest economies – who stated in 2009 that “the economic crisis demonstrates the importance of ushering in a new era of sustainable global economic activity grounded in responsibility.”
In a concise and factual analysis of the present world economic crisis, the reform plan identifies the seminal role of “financial speculation” and “unlimited credit” which have had such a devastating effect on the real “productive” economy. The authors point to the role of an “ethical breakdown” which is occurring at all levels of a world system increasingly dominated by avarice and corruption. In keeping with past encyclicals, their study attributes many of our current ills to the doctrine of “economic liberalism” based they say, on “utilitarianism and materialism.” The statement emphasizes restoring the moral dimension to the ongoing efforts to resolve the world crisis by establishing fairness and justice among all nations, developed and underdeveloped.
The Vatican statement is entirely consistent with past Catholic teachings in particular the social encyclical of Pope Benedict XVI as well as other Catholic social encyclicals beginning with Rerum Novarum in 1893. Certainly, the most controversial part of the outline written by the Pontifical Council for Peace and Justice (PCPJ), is a proposal to establish a world authority to usher in a more just, and sustainable path for world economic development. The authors stress that such a coordinating body would be “the outcome of a free and shared agreement”, designed to incorporate the interests of billions of people around the world, including those in numerous nations and cultures that have little influence in such affairs.
As expected, the national media’s response was pessimistic and dismissive. Most of the financial press simply chose to ignore the Council’s unwelcome but needed advice. The document begins by noting that every “individual in every community” shares a responsibility in promoting the common good. The current world economic system has entered a “grave economic and financial crisis which the authors say stems from multiple causes linked to a “breakdown” in ethics. One of the seminal factors in the crisis is the crucial role played by monetary and financial markets which are increasingly divorced from the real economy of goods and services. “In material goods markets,” the Council stated, “natural factors and productive capacity as well as labor in all its any forms set quantitative limits” which permit an efficient allocation of resources. However, monetary and financial markets are an exception and without proper regulation can take off like a runaway freight train.
Say the authors, “The speculative bubble in the real estate and the recent financial crisis has the very same origin in the excessive amount of money and the plethora of financial instruments globally.” Speculative markets have grown exponentially, “In recent decades banks extended credit which generated money, which in turn sought further expansion of credit.” The instability triggered a series of crises that lead eventually to theU.S.housing collapse. According to economist, Robert J. Samuelson, “the 2007-09 financial crisis — having started in the U. S. — discredited American ideas and competence.”
“A world of increasing interconnected economies requires greater cooperation – but everywhere there is a fragmentation of power and purpose.” The crisis has spread to Europ eand could easily mushroom into a world catastrophe. “A liberalist approach,” which rejects prudent public intervention in the market, says the Council has had devastating effects on the real economy, employment, production and international trade.
With the worst damage likely on the way, the total costs are devastating – not only for millions in the developed (richer) countries, but for billions in the developing sector. In those nations there are still more than 1 billion people surviving on little more than $1 per day. To give one example, England’s former leader Gordon Brown relates that the total value of world derivatives (mostly speculative wagers) had grown to an unfathomable figure of over $500 Trillion by 2008. That sum is 12 times the entire world’s yearly economic output! The idea that modern economic theory needs a significant makeover is among many fundamental insights which are usually overlooked or misunderstood by all but a few commentators and financial journalists – most of who would benefit from a close reading of the analysis.
Overall, there are ample reasons to applaud the significant achievements of globalization. From 1980 to 2010, global trade volumes grew fourfold. As national income rose, countless millions were lifted from poverty; new middle classes arose in Asia and Latin America. Nevertheless, inequalities within and between countries say the authors, have also multiplied making huge number of persons poorer and at greater risk. In Pope Benedict‘s encyclical he deplored, “the role played by utilitarianism and individualism … and those who have adopted and promoted them as the parameters for optimal behavior for all economic and political agents.” In Caritas in Veritate, the Holy Father refers to the words of Blessed Pope John Paul II who warned in 1991 of an “idolatry of the market, an idolatry which ignores the existence of goods which by their nature are not and cannot be mere commodities.” He continued that we “ought to have a keen sense of belonging to the human family, which means sharing in the common dignity of all human beings.”
As we read in Caritas, “the governance of globalization must be marked by subsidiarity, articulated into several layers and involving different levels that can work together.” Only in this way, say the authors, can the authority be able to avoid “an isolation that would risk its being delegitimized”, by an array of temptations. As Pope Benedict reminds us, “despite the great progress accomplished in various sectors, international law would risk being conditioned by the balance of power among the strongest nations.” Such a proposed world authority, “would be set up gradually” with a suitable legal framework.” It would support free and stable markets,” including a “well functioning (legal framework) in support of sustainable development and social progress of all, and inspired by the values of charity and truth.” The Council pointed to obvious need for a “minimum shared body of rules to manage the global financial market which has grown more rapidly than the real economy.” “The aim would be a reflection of the permanent and historic needs of the world common good.”
Writing in the website Catholic Culture, Phillip Lawler praised the analysis for affirming that “utilitarian standards are inadequate to define the common good.” However he and several other Catholic writers remain skeptical of the proposals for economic reform. Mr. Lawler advised the Council to, “leave economic analysis to the economists.” As the world crisis unfolds the need for moral guidelines, although more and more important, is often cast aside by the elites and political leaders. We are reminded, by the Pontifical Council of the account of the Tower of Babel in Genesis 11 – an apt metaphor for the current crisis. The Bible warns that “diversity of peoples can turn into a vehicle for selfishness and an instrument of division.” For many reasons, it is essential that the ideas of the Catholic social encyclicals are circulated widely. We need a spirit of confidence to overcome the spread of confusion and despair – one that affirms that viable solutions with ethical guidelines can emerge.
While no one should believe we can convert any world system into a utopia, we can strive for international relations and transparent institutions that will provide better opportunity – including a fairer distribution of wealth, and more universal access to economic development. The Church can’t be indifferent or remain silent at this critical time. An outlook based on truth and on the vital message of the Gospels is indispensible and represents the voice of reason.