Catholic social thought and economic transition.

Introduction

The transition of formerly Communist countries to market-oriented economies is certainly one of the most significant developments of our time. Unfortunately, advice from the West has been lacking -- to say the least -- especially the official advice from the State Department, International Monetary Fund (IMF) and what has been called the "Washington consensus." This failure is partly the result of a failed "vision" of what makes for a good and prosperous society. The Washington consensus has emphasized privatizing state property and establishing stock markets, as well as fiscal balance, paying little attention to historical and social factors and, most important, the moral aspects of the problem of transition. These fundamental factors in any prosperous society seem to be outside the theoretical perspective of Western advisors.

The Catholic Social Thought (CST) tradition does not offer an alternative economic theory. What it does offer is an alternative vision of the economy and society, from which an alternative understanding of the economy can be developed. The value of this alternative vision is that it provides the foundations for a realistic and useful understanding of the economy, and the related problems of economic transition. It also offers a "moral compass" to help guide policymakers as they try to fashion a new economic and social reality.

This paper concentrates on presenting such an alternative vision of the economy and society, not wishing to retrace the well-beaten path of what's wrong with neoclassical economic theory. First, we'll take a look at how CST views: values and the common good; human nature; society and efficiency. The second half of this paper will present some of the key concepts developed in CST and their applicability for transitional economies.

Catholic Social Thought's Alternative Vision for Understanding the Economy

CST is openly and explicitly based on a specific vision and set of value judgments. They are not hidden preconceptions but, rather, celebrated pillars upon which all social formations and analyses need to be built. It is a vision grounded in the Old Testament, which comes to life in the Gospels and provides the explicit underpinning for various Encyclicals and other Church documents making up the Catholic Social Thought tradition.

At the heart of this vision is the belief that "God speaks to every reality. Whatever we are looking at, whether it is an issue such as world hunger...or an economic system such as Capitalism, God does have something to say to that reality. Our world either is or is not in accord with God's ideal for it. Consequently it is important for us to come to know what God is saying to whatever reality we are examining. God speaks to these issues or situations in various ways: through the Bible, through the teachings of His Church, through the signs of the times and through the prophets who interpret those signs ... [W]e should listen to God in theological reflection and in prayer" (7).

The Dignity of all Humans. One bedrock value of this tradition is the assertion of the dignity of all humans. "The dignity of the human person, realized in community with others, is the criterion against which all aspects of economic life must be measured" (11). This is an assertion that runs through CST and its significance cannot be understated, for it calls for a view of society that is not mechanistic and individualistic, as is neoclassical economic theory, or completely organic, as is vulgar Marxism. Both the individual and the community are interconnected and neither can be reduced to the other.

This "interconnectedness" is at the core of the idea of the common good. Since human nature is defined as social, the welfare of each individual is connected with that of the community. The common good is, of course, not an equilibrium state of affairs. It is a process.

"The common good is a social reality in which all persons should share through their participation in it. It is not simply the arithmetic aggregate of individual goods suggested by the utilitarian formula 'the greatest good for the greatest number.' In a utilitarian understanding, increased aggregate social good (e.g., gross national product) is compatible with the exclusion of some persons from participation in it. Emphasis on the participation of all in the common good is particularly important" (8).

Pope John XXIII defined the common good as that which "embraces the sum total of those conditions of social living, whereby men are enabled more fully and more readily to achieve their own perfection" (Mater et Magistra, 65). This interdependence was particularly highlighted in the Vatican II document, Gaudium et Spes: "Man's social nature makes it evident that the progress of the human person and the advance of society itself hinge on each other. For the beginning, the subject, and the goal of all social institutions is and must be the human person, which for its part and by its very nature stands completely in need of social life."

Pope John Paul II recently emphasized that concern for the environment, too, is an essential aspect of the common good, for the obvious reason that man needs more than community to flourish.

Promoting the Common Good. In Economic Justice for All, the U.S. Bishops stated that six principles must be followed if economic policy is to promote the common good: "1) every economic decision and institution must be judged in light of whether it protects or undermines the dignity of the human person; 2) human dignity can be realized and protected only in community; 3) all people have a right to participate in the economic life of society; 4) all members of society have a special obligation to the poor and vulnerable; 5) human rights are the minimum condition for life in community; and 6) society as a whole, acting through public and private institutions, has the moral responsibility to enhance human dignity and protect human rights" (11).

Economic theory defines efficiency in terms of market transactions and outcomes, profit and loss, underpinned by the mythical entities of utility and non-utility. CST asserts a different yardstick. Yet it is not anti-growth or hostile to economic life (both common charges). It objects to economic growth as an "end," not economic growth as a "means." CST offers a different vision of economic development and progress (see Popuiorum Progressio) (4). To follow productivity as a goal, without regard for the context of economic activity and its human dimension, is to follow a false god. As the U.S. Bishops have stated:

Productivity is essential if the community is to have the resources to serve the well-being of all. Productivity, however, cannot be measured solely by its output in goods and services. Patterns of production must also be measured in light of their impact on the fulfillment of basic needs, employment levels, patterns of discrimination, environmental quality and sense of community (11).

The key distinction that CST makes is that humans can never be treated as means to an end, for they are the ends. Thus, the treatment of workers as mere commodities to be used to maximize profits is objectionable. We can see a clear statement of this view in Rerum Novarum:

The following duties bind the wealthy owner and the employer: not to look upon their work-people as their bondsmen but to respect in every person his or her dignity and worth. ... They are reminded that...to misuse people as though they were things in the pursuit of gain...is truly shameful and inhuman. ... Furthermore, employers must never tax their work-people beyond their strength, or employ them in work unsuited to their sex and age. Their great and principal duty is to give everyone what is just. ... to gather one's profit out of the need of another is condemned by all laws human and divine. ... Lastly, the rich must religiously refrain from cutting down the workers' earnings, whether by force, fraud or by unjust dealings... (RN 16-17) (4).

And this theme is continued in numerous subsequent documents. Thus for CST, the concept of efficiency must be defined in terms of meeting human needs, regardless of whether these needs are expressed in the market. Furthermore, these needs are not limited to material ones.

Greater Equity. CST also has a very different concept of equity. The basis of equity in CST is the common gift from God of the earth. Thus the minimum equity criteria is that all have a share in this gift so that each will meet their basic minimum needs. "God destined the earth and all that it contains for the use of all people and peoples. Furthermore, the right to have a share of earthly goods sufficient for oneself and one's family belongs to everyone" (Vatican II) (4). This is not a claim for perfect equality, but that all are insured a decent standard of living. This claim is also put forward in the United Nations Universal Declaration of Human Rights.

CST also notes that greater equity benefits both rich and poor--and society in general. "Excessive economic and social inequalities within the one human family, between individuals or between peoples, give rise to scandal, and are contrary to social justice, to equity, and to the dignity of the human person, as well as to peace within society and at the international level" (Gaudium et Spes) (4). This observation is not exclusive to the Catholic Social Thought tradition--the father of modern economics Adam Smith recognized it as well. Catholic Social Thought has, for the most part, attacked social justice issues on two fronts. On the one hand, it has noted the many structural issues and social inequities that lead to the abuse of human dignity. These issues require structural reform, most often in the form of national or international regulation. Here we would find policies like minimum wage legislation and better terms of trade for developing countries. Yet equally important for the tradition is changing th e hearts of individuals. CST calls on each of us to look at every person as a fellow child of God, to see Christ in them. This is true for us in our business lives, as owners, managers, workers, consumers and voters. Thus, it calls for a new attitude in the micro-aspects of our economic lives.

Advice from Catholic Social Thought

As stated in the beginning of this paper, the Catholic Social Thought tradition does not offer an alternative economic theory from which to analyze and understand the problems of transitional economies. What it offers is a vision from which to carry out such a task; a moral compass to direct researchers and policymakers toward promoting a just society. (1)

Many concepts developed in CST are of particular interest for transitional economies--especially since CST actually originated in the Church's reflection on social transformations brought about by the Industrial Revolution. The transformation formerly Communist countries are undertaking is in many ways analogous to what Western countries went through in the last half of the 19th and first half of the 20th centuries. Many of the key principles of CST illuminate the problems of transitional economies and are very useful in understanding and directing economic change. Of particular importance are the principles of: Subsidiarity; Property; and, Solidarity, Priority of Labor and the Option for the Poor. This section will briefly review these concepts and how they can help us to understand the problems of transitional economies.

Subsidiarity. The principle of "subsidiarity" relates to the social character of individuals and their natural right to associate with others and organize in groups. Furthermore, it directly contradicts the "laissez-faire" view of society being merely a collection of autonomous individuals. A major thrust of subsidiarity is the contention that if a task can be equally carried out by small or large organizations, the smaller one is preferable. It does not assert that larger organizations, such as the state, have no role to play; just that the state should only carry out activities that are beyond the capabilities of smaller organizations.

"In Quadragesimo anno Puis XI explicitly makes the principle of subsidiarity the guiding norm upon which the social order is to be restored: That most weighty principle, which cannot be set aside or changed, remains fixed and unshaken in social philosophy. Just as it is gravely wrong to take from individuals what they can accomplish by their own initiative and industry and give it to the community, so also it is an injustice and at the same time a grave evil and disturbance of right order to assign to a greater or higher association what lesser and subordinate organizations can do. For every social activity ought of its very nature to furnish help to the members of the body social, and never destroy and absorb them" (1).

The underpinning of subsidiarity is the idea that efficient outcomes are not only necessary, so is the process by which they are achieved--the means and ends cannot be separated. Specifically, human dignity asserts that humans participate in their culture and society as fully as possible. Subsidiarity requires that the decisions and activities that affect people's lives be carried out by organizations as close to the affected individuals as can be efficiently accomplished. Obviously, activities like an aerospace program cannot be carried out at the community level. But much of what the state does, as well as state enterprises and private enterprises, can be as effectively (and, in many cases, more effectively) carried out by smaller organizations. There will also be greater social participation. Subsidiarity legitimates labor unions and community groups because they allow for this greater level of social participation.

In the process of recreating their economies and society, the transitional economies would be wise to follow the principle of subsidiarity, both in economics and in politics. Social organizations exist to promote human dignity and the common good, and these are best served when those affected by the change are the ones directing and carrying it out. Domination by the state, IMF or multinational corporations is still domination, and the only way to avoid this is to keep decisions and social organizations at a human scale that will allow the will of the people to be expressed.

Property. Understanding "property" within the context of CST is particularly insightful for the issues raised in transitional economies. CST relies heavily on the understanding of property developed by St. Thomas Aquinas. Three themes are strong and constant in this tradition: 1) the necessity to protect private property, 2) the requirement that property be used to promote the common good and 3) the social nature of property.

Aquinas' defense of private property is pragmatic. Property tends to be used more efficiently toward the common good when it is held by individuals. According to Aquinas, "The institution of private property is 'legitimate,' and 'indeed necessary for human life' inasmuch as (a) persons are more likely to care for what they possess themselves, (b) 'human affairs are more efficiently organized if the proper care of each thing is an individual responsibility,' and (c) 'peace is better preserved' if persons are content with their own property" (12).

Yet the privatization of property does not remove it from the community, for it must be used to promote the common good. Aquinas argues that it is not immoral for a starving man to steal food to feed himself or his family; in times of scarcity all property becomes common. The defense of private property and the responsibility to use property for the common good go hand-in-hand as they both stem from the same requirement that property be used to further the well-being of all in society.

This "social nature of property" is something that CST recognizes, but something that is denied in neoclassical economic theory. The right to private property comes from and through the community, and it is both right and reasonable that the community have its interests promoted and protected in this institution. As Pope John Paul II has written, "It is necessary to state once more the characteristic principle of Christian social doctrine: the goods of this world are originally meant for all. The right to private property is valid and necessary, but it does not nullify the value of this principle. Private property, in fact, is under a 'social mortgage,' which means that it has an intrinsically social function, based upon and justified precisely by the principle of the universal destination of goods" (9).

The issues of property rights in transitional economies are many and varied. One important and contentious problem is the privatization of state property. The theoretical argument that this policy will promote the more efficient operation of companies is strong and powerful, fully backed up by neoclassical economic theory. Yet one cannot be blinded by ideology here. The issue should be settled case-by-case, based on whether the common good will be best served with public or private ownership. In most cases, the issue of ownership has no real bearing on the efficiency of an organization, neoclassical pronouncements notwithstanding. In industrialized capitalist economies, ownership has become separated from the management of large corporations in any positive sense. Yet there is a negative impact, especially in America, as management is increasingly forced to concentrate on stock values and short-term profits to please institutional investors. Although many are made wealthy in this "casino" atmosphere, it's har d to see real evidence that such an environment has promoted the common good.

Another important issue in the move toward privatization is the ethical issue surrounding how goods are distributed. Much of the financial gain that comes from such activities is merely the capitalization of asset values, with assets being valued below their "real value" when they are sold. Their value rises as they are privatized, with the windfall going to the few speculators or insiders able to marshal the finances to purchase the equities. The effect of making loans to transitional economies also poses important property rights problems. A good example of this is being played out in Russia. Billions of dollars of loans from private banks, international agencies and governments have been made to this country, with much of the money ending up in Swiss banks or in the purchase of yachts anchored in the French Mediterranean. Meanwhile, the people as a whole are expected to pay back these loans or are left to suffer the consequence of their nonpayment Transitional economies would be well served if they emphasi zed the social nature of property. Here they can follow the middle ground between extreme laissez-faire capitalism and autocratic Communism--where most property is in private hands (checking the power of the state) but with regulations insisting that the property is used in a manner consistent with the common good (checking the power of large corporations and the affluent).

Solidarity, Priority of Labor and the Option for the Poor. CST has attempted to find a third way--an alternative to the excessive individualism and alienation of laissez-faire capitalism, and the depersonalization and subordination of Communism. It does this by asserting the true nature of society and the individual in away that protects the dignity of each human and promotes the common good, as we've said. An essential component of this third way is the idea of solidarity. Solidarity is more than a feeling of sympathy or compassion for the poor and marginalized. "Catholic solidarity," writes Matthew Lamb, is "aimed at transposing pre-modern understandings of natural law, of human beings as essentially social, and of society itself as organic and cooperative, into the modern contexts of industrialized societies with complex exchange economies" (10). It is, as Pope John Paul II has said, "a firm and persevering determination to commit onself to the common good."

Solidarity calls us to enter into the experience and reality of the "masses," which in a capitalist economy means the workers. Growing out of the idea of solidarity is John Paul II's assertion of the priority of labor:

We must first of all recall a principle that has always been taught by the Church: the principle of priority of labor over capital. This principle directly concerns the process of production: In this process labor is always a primary efficient cause, while capital, the whole collection of means of production, remains a mere instrument or instrumental cause. This principle is an evident truth that emerges from the whole of man's historical experience (Laborem Exercens, 12).

In many ways, Pope John Paul II's understanding of labor and capital is similar to that of Adam Smith and the classical economists, in that capital is seen as past labor. The assertion of the priority of labor over capital is an assertion that people, in this case workers, should not be treated as mere means to an end (the capitalist earning profits). Workers create real wealth. Capitalists contribute to the extent that they contribute their capital, but their contribution comes from past labor.

Another source of "wealth" or capital comes from finance, a topic that has been neglected in CSI. Part of the contributions made by finance stems from linking up savers and investors, and here again it is easy to see how labor has created capital. Yet in a modern economy, much of the efforts of finance are speculative, with wealth being created out of thin air (as happens when one has an elastic money supply) or through paper profits that create wealth only because the general consensus of the markets is that something will be worth more in the future. Much of the financial activity going on in advanced capitalist economies--with the United States as the leading example--involves financial manipulations, such as mergers and downsizing, leveraged buyout and financial re-engineering, derivatives and junk bonds. All of these activities are geared toward making money, with little thought toward expanding the real wealth of society, either in terms of the economies' productive capabilities or, even more important, the well-being of its members. Not only is much of this activity not helpful to the economy, it is often quite damaging. This is especially the case with currency speculators. As a group they have the ability to override government policy and collapse an economy in a very short time period. The state has a responsibility to direct such efforts and resources toward the common good. (2)

This leads us to the last principle of CST that we will analyze here: the option for the poor. All the principles of Catholic Social Thought are grounded in the Bible and the message of Jesus, and the option for the poor is a quintessential example. This option for the poor stems from Jesus' injunction that we will be judged based on how we have treated the "least of our brothers" (Matthew 25). Donol Dorr has noted that there are two aspects of this principle, one at the level of the individual and one at the level of society:

An option for the poor is a commitment by individual Christians and the Christian community at every level to engage actively in a struggle to overcome the social injustices which mar our world. To be genuine it must come from a real experience of solidarity with the victims of our society. This means that one aspect of an option for the poor has to do with sharing in some degree in the lives, sorrows, joys, hopes, and fears of those who are on the margins of society. Without this, the attempt to serve the interests of 'the poor' will be patronizing--and it will make them feel more powerless and dependent than ever. But an option for the poor is not primarily the choice of a less affluent lifestyle by individuals or groups. It is a commitment to resist the structural injustice which marks our world. The person who makes such an option is undertaking to work to change the unjust economic, social and political structures which determine how power and resources are shared out in the world. ... The aim is to brin g about a more just society [4].

Adopting an option for the poor in terms of economics means, among other things, that our first measure of progress is how those on the bottom of the economic ladder are affected. It also means that those at the bottom must be allowed to become agents of their own destinies, and be given the support and tools to transform their own reality. Thus it is not merely placing them on the "dole," or in public housing, or the comprehensive state support that used to be available in the formerly Communist countries. Rather, it's allowing for full social participation, full citizenship. It means not following the dictates of the IMF when it tells you that you have to impoverish millions to pay back loans to rich countries (especially since the loans were not used for the benefit of those who must pay them back). It means not blindly pursuing a policy of privatization that ignores the potentially ill effects on local communities or workers and their families. It means not selling the countries' resources and environmen t to multinationals who are interested in stripping the assets of a country and leaving with the profits.

Conclusion

Catholic Social Thought offers a vision and values that support social order and that direct social development toward a just society. Its roots are deeply embedded in the collective psyche of many of the countries now undergoing an economic transition--thus it is not an alien system of thought. Instead, it offers the ethical foundation for a third alternative between the extremes of other economic and societal models.

Endnotes

(1.) Since all theoretical activity is necessarily based on "values" and a "vision" and since these "values" and "vision" help to shape and form every aspect of the theoretical edifice built upon them, adopting the "values" and "vision" of Catholic Social Thought will require either adopting an already existing non-neoclassical economic theory or developing an alternative. Luckily there are many alternatives, with the Institutionalist tradition being particularly attractive in that its underlying value criteria, the instrumental value principle, is very close to the concept of protecting human dignity and promoting the common good.

(2.) Financiers might argue that the market discipline they impose on countries' economic policies curbs excesses and keeps governments honest. Yet what we end up with is neither the governments or financiers having any concern for the common good (although the financiers most likely have faith in the market to bring about the best outcome).

References

(1.) Allsopp, M. "Subsidiarity." The New Dictionary of Catholic Social Thought, J. A. Dwyer, ed., Collegeville, Minn.: The liturgical Press, 1994, 927-929.

(2.) Clark, C. M. A. "Worldly Advice from Other-Worldly Philosophers." Economic Transition in Historical Perspective, C.M.A. Clark and J. Rosicka, eds., Aldershot, UK: Ashgate, 2001.

(3.) -----."The Future of Capitalism." Doctrine & Life, 48(5), May/June 1998, 258-277.

(4.) Dorr, D. Option for the Poor, Revised Edition, Dublin: Gill and Macmillan, 1992.

(5.) Dwyer, J. A (ed). The New Dictionary of Catholic Social Thought, Collegeville, Minn.: The Liturgical Press, 1994.

(6.) Egan, J. "The Image of God and the Practice of Capitalism." Doctrine & Life, 48(5), May/June 1998, 278-290.

(7.) Healy, S. and B. Reynolds. Social Analysis in Light of the Gospels, Dublin: CORI, 1983.

(8.) Hollenbach, D. "The Common Good." The New Dictionary of Catholic Social Thought, J. A. Dwyer, ed., Collegeville, Minn.: The Liturgical Press, 1994,192-197.

(9.) -----. Sollicitudo Rei Socialis 1987. Catholic Social Thought: The Documentary Heritage, David J. O'Brien and Thomas A. Shannon, eds., Maryknoll, NY: Orbis Books, 1992.

(10.) Lamb, M. L. "Solidarity." The New Dictionary of Catholic Social Thought, J.A. Dwyer, ed., Collegeville, Minn.: The Liturgical Press, 1994, 908-912.

(11.) O'Brien, D. J. and T. A. Shannon (eds.). Catholic Social Thought: The Documentary Heritage, Maryknoll, NY: Orbis Books, 1992.

(12.) O'Neill, W. R. "Private Property." The New Dictionary of Catholic Social Thought, J. A. Dwyer, ed., Collegeville, Minn.: The Liturgical Press, 1994, 785-790.

(13.) Pope John Paul II. Laborem Exercens, 1981. Catholic Social Thought: The Documentary Heritage, D.J. O'Brien and T. A. Shannon, eds., Maryknoll, NY: Orbis Books, 1992.

(14.) Riordan, P. A. Politics of the Common Good, Dublin: Institute of Public Administration, 1996.

A longer version of this paper was presented at the Economic Transition in Historical Perspective Conference, Krakow, Poland, September 17-19, 1998.