Correcting Catholic Blindness

See, judge, act.” Such has been the method by which modern Catholic social teaching has urged Catholics to approach the political and economic challenges of our time. First and foremost, the “seeing” involves looking with the eyes of Christ rather than through the prism of our own ideology. But seeing inevitably entails choices concerning what we look at and the breadth and depth of what we take into account. In that respect, alas, the field of vision of modern Catholic social doctrine appears to have been far more limited than often is realized, and so it is less effective in helping Catholics and other Christians address many economic issues, ranging from Europe’s bleak unemployment prospects to poverty in the developing world.

It’s not a matter of having to revisit the fundamental principles of Catholic social doctrine. Its imperatives—such as solidarity, subsidiarity, the dignity of the person, and the universal destination of material goods—never change, because of their grounding in what revelation and natural law tell us about the nature of what the Church calls “integral human development”: the all-round flourishing of every person and community. Continued adherence to these principles are, however, perfectly compatible with widening the scope of that teaching’s views on economic life to make it less dependent on what might be loosely labeled a mildly center-left Western European consensus and more attentive to developments that continue, both positively and negatively, to affect millions of peoples’ economic well-being.

Some 5,764 miles away from Rome, on a pile of rocks just off the coast of mainland China, sits the special administrative region of Hong Kong, a bustling city of seven million people. A better example of East Asia’s economic transformation over the past forty years would be hard to find. Since they took over in 1997, Hong Kong’s masters in the People’s Republic have been relatively restrained about interfering with the economic arrangements of the former British colony.

So how is it that relatively small nations like Singapore, Malaysia, and South Korea, but also giant ones like India and China, are doing quite well in what’s been a generally gloomy global economy since 2008? Why is the International Monetary Fund projecting India’s economy to grow by 6.4 percent and China’s by 7.3 percent by 2015, compared with a measly 1.8 percent average growth in the European Union? What has enabled these nations to break away from the decades of stagnation under, for example, the planned economy (colloquially known as the “permit raj”) that existed in India from independence until the 1990s, let alone the mass famines and death that followed Mao’s effort at the “Great Leap Forward” through agricultural collectivization and state-directed industrialization?

These nations didn’t transform themselves by embracing the analysis associated with the “dependency theory” of some twentieth-century economists who influenced many liberation theologians with their argument that resources flow from a “periphery” of poor nations to a “core” of wealthy countries, enriching the rich at the poor’s expense. Central to this argument was the insistence of Argentine economist Raúl Prebisch that peripheral nations were disadvantaged vis-à-vis developed economies because of the unfavorable terms, as he saw them, of international trade facing poorer countries. It followed, or so dependency theorists claimed, that peripheral nations should restrict foreign investment and limit trade with developed countries; this would reduce their reliance on exports of raw minerals and agricultural products, thereby promoting the emergence of domestic industrial sectors.

Many East Asian nations chose a different path. Twenty-one years ago, a World Bank report acknowledged that some of them, albeit to different degrees and by no means perfectly, were already benefitting from adopting competitive exchange rates, abolishing many price controls, liberalizing much of their labor markets, following relatively prudent fiscal and monetary policies, and, above all, inviting international trade and foreign capital inflows. The process, which started with the “Tigers” of southeast and northeast Asia as they integrated into the global economy in the 1960s, accelerated after 1980 with the opening up of the Chinese and Indian economies. In his book Capitalism with Chinese Characteristics (2008), MIT’s Yasheng Huang details how the exceptionally fast growth experienced by China in the 1980s was driven by an explosion of private entrepreneurship facilitated by greater access to foreign capital and reforms that promoted greater economic flexibility.

To be sure, not everything is sweetness and light in East Asia. Memories of the region’s severe financial meltdown in 1997 linger. More ominously, China’s mammoth banking system is a hopelessly run extension of its government. The same banks are heavily and rather incestuously invested in propping up thousands of underperforming Chinese state-owned enterprises. That’s a recipe for trouble. Corruption remains an endemic problem, most notably in China and India, which rank an unimpressive 96 and 134, respectively, in the World Bank’s 2014 Ease of Doing Business Index, while Singapore, Hong Kong, South Korea, Malaysia, and Thailand are ranked in the top twenty.

Nonetheless, the overall benefits of greater economic liberty in East Asia can’t be denied. In 2010, the Asian Development Bank reported that per capita GDP increased 6 percent each year in developing Asian countries between 1990 and 2008. Christians should especially consider how this growth has contributed to the reduction of poverty. The ADB estimated that between 1990 and 2005 approximately 850 million people escaped absolute poverty. That is an astonishing figure.

Of course, millions in East Asia remain impoverished. Still, the numbers above represent an amazing rate of economic development. Contra dependency theory’s economic and theological prophets but also, to be frank, Paul VI’s 1967 encyclical Populorum Progressio, economic liberalization, including the freeing up of trade, turned out not to be a race to the bottom. Rather, it helped facilitate the emergence of large middle classes in India, China, and elsewhere. In China’s case, the new middle class has proved remarkably receptive to the Gospel.

Back in 1996, Michael Novak wrote that the twentieth century’s most underreported fact was the death of socialism as a plausible idea. More than a few Catholics, particularly in Western countries and Latin America, participated in that great unnoticing. It is regrettable that much of today’s Catholic Church seems oblivious to developments in East Asia and the economic lessons to be learned from them. Certainly John Paul II in Centesimus Annus (1991) acknowledged the folly of nations’ seeking to develop in isolation from the global economy. But even that relatively “pro-market” document didn’t elaborate on the point. In the most recent social encyclical, Caritas in Veritate (2009), Benedict XVI restricted himself to a one-line reference to the “billions” (perhaps an overstatement) who have escaped poverty because of economic growth. In the same text, however, he failed to reflect on the key reasons for that growth.

A similar oversight is evident in the Church’s treatment of economic difficulties confronting many developed nations. One of those difficulties is the catastrophic unemployment levels prevailing throughout much of Western Europe that were so forcibly condemned by Pope Francis during his visit to Sardinia in 2013. On any given day in Europe, you need only pick up a copy of Le Monde, La Repubblica, or the Guardian to discover how often Europe’s unemployment crisis is blamed on mondialisation, globalizzazione, or globalization—and not just by the left but also by Marine Le Pen’s Front National and other far-right parties. Undoubtedly, economic globalization brings alongside its many benefits considerable social dislocation that’s often downplayed by some free-marketers. That said, Catholic social teaching is marked by reluctance to concede that choices made by Europeans themselves have contributed to the high levels of joblessness in many European nations.

Nowhere in recent Catholic social teaching can you find allusions to how many of the hundreds of thousands of regional, national, and E.U. regulations designed to “protect” people’s jobs have increased unemployment. A 2011 World Bank report on Europe’s economic situation pointed to cross-continental evidence suggesting that the prevalence of high labor-force costs and regulations in countries like Belgium, Italy, and France helps explain why so many of these countries’ otherwise successful businesses decline to increase their workforces.

According to France’s 3,400-page Code du Travail, for example, any company that exceeds forty-nine employees is legally obliged to establish no fewer than three worker councils. If such businesses decide they need to let go of some employees, they’re required to present a reorganization plan to all three councils. Is it any wonder many French businesses don’t hire more employees?

Italy fares hardly better. In their book The Future of Europe (2008), economists Alberto Alesina and Francesco Giavazzi observe that the notoriously slow Italian justice system suddenly becomes very efficient in cases of employee dismissals. Most workers who have recently lost their jobs are promptly reinstated. This poses a risk for employers and a disincentive for them to hire people in the first place.

Attempts at addressing these problems in many European countries encounter enormous resistance. In 2012, Italy’s then–prime minister, Mario Monti, sought to change laws that made it extremely difficult for businesses with more than fifteen full-time employees to reduce staff. Some workers had jobs for life, and others suffered perpetual job insecurity. Monti’s plan was to provide severance provisions for people dismissed on economic grounds. Under intense pressure from unions, however, his proposal was watered down. While the severance provisions were kept, the new law upheld the judiciary’s extensive powers to investigate whether a company’s decision to fire an employee was justified. This essentially nullified any liberalizing effects of the new law.

The negative economic impact of over-mighty trade unions goes virtually unmentioned in Catholic social teaching. Any careful reading of Catholic social doctrine soon makes it apparent that the Church doesn’t provide a blanket no-questions-asked endorsement of any union activity whatsoever. The historical picture of unions presented in the social teaching, however, rarely reflects a note of criticism.

In Centesimus Annus, for example, John Paul stated that unions played a role in undoing communism in Central and Eastern Europe. That’s obviously true of Poland’s Solidarity movement (which was always more than a union). Yet the contribution made to communism’s downfall by unions that are often dominated by the hard left in Britain, Italy, and France, for example, is at best unclear. In 1983, Arthur Scargill, head of what was then Britain’s strongest union, the National Union of Mineworkers, condemned Solidarity as “an anti-socialist organization which desires to overthrow a socialist state.” Nor has Catholic social teaching paid much heed to how unions helped turn once vibrant American cities like Detroit into bywords for economic disaster.

I suspect that this apparent inability to evaluate some unions’ actual behavior more critically owes something to the way in which many European Catholics have long viewed unions as integral to a project in which they’ve invested considerable intellectual credibility: the European social model, a form of “coordinated capitalism,” as it is described by one of the most prominent commentators on Europe’s economies, Barry Eichengreen. By “coordination,” Eichengreen means, among other things, direct state intervention to stimulate or dampen economic growth, extensive welfare states, direct subsidies to particular industries, and, most significant, state-supervised cooperation between different groups, especially unions and businesses.

Konrad Adenauer, Alcide De Gasperi, Robert Schuman, and other postwar Catholic politicians in Europe were sympathetic to considerable top-down synchronization of the activities of non-state communities. That view resonated, after all, with proposals for economic reform expressed by then-current Catholic social teaching, specifically Pius XI’s encyclical Quadragesimo Anno (1931), which cautiously affirmed a form of corporatism as an appropriate response to the Great Depression. As an idea, corporatism has deep roots in European history. From the late nineteenth century onward, the term was used primarily to describe a system of social organization in which people are corralled into groups recognized by the government, which then seeks to coordinate “capital” and “labor” in ways that promote the common good.

To varying degrees, “hard” corporatist arrangements were implemented in Mussolini’s Italy, Franco’s Spain, Hitler’s Germany, Salazar’s Portugal, and Dollfuss’s Austria. In some cases, corporatism served mainly to cement the regime’s political control. “Neo-” or “soft” corporatism manifested itself in postwar Western Europe through such institutional formations as work councils (whose membership was invariably dominated by union officials) that management was legally bound to consult. Neo-corporatism also included worker-codetermination arrangements whereby employees (again, usually union officials) were allocated seats on company boards. Some countries, including Austria, formally co-opted businesses and unions into the setting of government policy. Even today, most E.U. member states maintain many of these and other neo-corporatist protocols.

Some economic historians maintain that, in postwar Europe, neo-corporatist strategies helped reduce tensions in politically fractured societies—nations that were not only far behind America with respect to living standards, industrial capacity, wage levels, and capital accumulation but also, as in France and Italy immediately after the war, at serious risk of communist takeovers. Through neo-corporatist arrangements, the argument goes, governments led businesses and unions to buy into government policies. Unions committed themselves to making wage demands that didn’t exceed the pace of economic growth. Businesses promised to invest more in technological catch-up than they might have otherwise.

There is much truth to this narrative. One could add that after what some call the great thirty-one-year European civil war, most Europeans were understandably interested more in security than in freedom. Unfortunately, as the 2006 Nobel Prize–winning economist Edmund Phelps comments in his recent book Mass Flourishing, contemporary Europe is now paying a very high economic and social price for neo-corporatist policies, which are now rendering much of Europe globally uncompetitive by supporting the jungle of regulations and inflexible labor markets that, as noted, contribute mightily to high unemployment throughout the continent.

Unions and employer associations can, for example, negotiate wages under the watchful eye of European governments as much as they want. But if labor is less expensive and the bureaucratic maze easier to navigate in, say, Korea, can you really blame businesses for deciding it’s much simpler to cut out the middleman of neo-corporatist officialdom and build new factories outside Seoul rather than in Normandy and to employ Koreans rather than Normans?

It’s not as if all Europeans are unaware of these problems. One reason why Germany is able, for the moment, to carry southern Europe’s economies is that a Social Democrat chancellor who was engaged in a limited liberalization of Germany’s labor markets increased conditions on welfare and reduced business and income taxes in the early years of this century. The Agenda 2010 reforms, as they’re known, almost certainly cost Gerhard Schröder his job, as angry German voters punished him for disturbing their comfortable (albeit unsustainable) status quo. In retrospect, however, the changes have helped keep German businesses internationally competitive and Germany’s unemployment levels lower than those of most other European nations since 2009. But it is not so easy to find European Christian Democrat politicians arguing publicly (whatever they might think privately) that significant economic liberalization is a prerequisite to reducing unemployment and restoring competitiveness.

Nor, it must be said, have European Catholic bishops been especially creative in responding to Europe’s economic troubles. In their statements on such matters, they invariably call for greater solidarity in response to Europe’s crisis. Fair enough. But many European bishops go on to conflate solidarity with state action and soft corporatism. In a 2011 document on Europe’s economic crisis, for instance, the Commission of European Bishops’ Conferences noted that “demographic change” (code for the aging of the European population and for the unwillingness of Europeans to have many children) and globalization necessitated some social-policy reforms. Nevertheless, the text immediately cautioned, reforms could not be allowed to “disturb the fabric of social protection.”

Alas, as the German example illustrates, if change is to be effective, Schröder-style disruption of the way European welfare systems presently function is precisely what’s needed. By contrast, the bishops’ document urged Europe’s “social partners” and regulators to collaborate to address Europe’s unemployment problem. That classic neo-corporatist language indicates a disinclination to accept that, as Phelps bluntly writes, “Europe will not recover to the respectable levels of employment it had in the 1990s, let alone regain the high prosperity of the early 1990s, as long as it clings to the belief that a corporatist economy . . . can achieve the stability and harmony that capitalism cannot.”

Inattentiveness to the dysfunctional effects of heavily interventionist and corporatist policies has not been limited to Western European Catholics. In Latin America, 7,315 miles to Rome’s southwest, lies Argentina—at “the end of the earth,” as the nation’s most famous citizen since Diego Maradona has described it: a Catholic country that’s practically a synonym for “economic basket case.”

“There are countries which are rich,” Peru’s Mario Vargas Llosa once observed, “and countries which are poor. And there are poor countries which are growing rich. And then there is Argentina.” In 1900, Argentina ranked among the world’s ten ­wealthiest nations in terms of income per capita. Blessed with immense natural resources and large inflows of foreign capital that helped it develop infrastructure faster than other South American countries, Argentina attracted hundreds of thousands of European immigrants, including a young Mario Bergoglio from Piedmont. Argentina also enjoyed stable governance structures. Taken together, these factors enabled it to enter international markets as a competitive provider of agricultural products.

So why does Argentina find itself in a rather different economic position in 2014? Until the 1940s, Argentina was only slightly behind Australia in terms of GDP growth per capita. Everything changed, however, once Argentina’s institutional structure began corroding from within, especially following Colonel Juan Perón’s rise to power. Even before becoming president in 1946, Perón employed the populist rhetoric later associated with Hugo Chávez. But in terms of economic policy, as Mauricio Roja illustrates in The Sorrows of Carmencita (2002), his instructive study of Argentina’s economic rise and fall, Perón followed a hard corporatist agenda that contributed to the internal problems that plague Argentina’s economy today.

From its beginning, Perón’s regime pursued an intense top-down control of Argentine civil society—an approach that, at the time, was supported by Perón’s references (whether justified or not is another subject) to Quadragesimo Anno. Through a combination of carrot and stick, unions were the first group co-opted into this system. These initial forays into what Perón in a 1949 speech called “la comunidad organizada” were accompanied by a ratcheting up of initiatives influenced by the aforementioned Raúl Prebisch: intense state-directed industrialization, import-substitution programs, and efforts to minimize foreign investment, primarily through nationalizing British-owned infrastructure and banks.

By 1949, Argentina had adopted a new corporatist­inclined constitution and extinguished its Supreme Court’s autonomy. Perón then proceeded to push his policies ever deeper into the economy. His government forced businesses, universities, journalists, and even high-school students into state-controlled associations. The Perónist state and its client trade unions also assumed more direct control over social security. The associated doubling of public-sector employees, Roja stresses, “triggered a development that was to lead to one of Argentina’s severest problems, namely growing corruption and a contest for privilege.” Not surprisingly, much business activity ceased being directed by consumer demand. Instead, companies focused on pursuing political favors.

As the country’s economy imploded and social tensions escalated, Argentina’s military eventually moved, with the Church’s backing, against Perón, sending him into exile in 1955. In many respects, however, Argentina has never escaped Perónism. Its economy remains hopelessly overregulated. In the 2014 Index of Economic Freedom, Argentina was ranked 166 (out of, ahem, 178). Efforts to liberalize labor markets were rejected out of hand by Argentina’s legislature in the 1990s.

Despite various reform efforts, corporatist ways remain deeply ingrained in the country’s economic culture, as Argentina’s leading constitutional economist Juan Vicente Sola has demonstrated. This creates incentives, Sola observes, for corruption, which includes rampant rent-seeking by businesses and unions. Back in the 1990s, Argentina’s privatization program was fatally compromised by endless corruption scandals. If anything, the situation has grown worse since then. According to the IMF, even Argentina’s official statistics agency, the Instituto Nacional de Estadística y Censos, has been routinely cooking the books for years to exaggerate growth numbers and disguise rampant inflation.

Nor has there been any meaningful dialing back on the populist speechifying. Under the presidencies of the late Néstor Kirchner and his widow, Cristina, it has flourished. Not for nothing did one Jorge Cardinal Bergoglio consistently denounce the demagoguery regularly employed by Argentine politicians. The moral of Argentina’s story of “economic decadence,” as Sola calls it, is clear. Long-term adherence to corporatist and interventionist policies legitimized by fiery populist oratory seriously weakens a nation’s wealth-producing capacities, thereby undercutting its ability to reduce poverty. Instead, those policies encourage a predictable mixture of crony-capitalist arrangements that benefit those who have political friends or are unscrupulous enough to purchase favors.

The “losers” in such systems are the people on what Pope Francis describes as society’s peripheries: the poor, the mal-educated, the unemployed, and those without political connections. These are the very same people who are urged by the Chávezes, Kirchners, Correas, and Morales of Latin America to blame anyone—foreigners, the wealthy, “neoliberals,” “the imperialism of international finance,” globalización, America—for their plight: anyone, that is, except their own political masters and sometimes, it must be said, their own political choices. Elections do, after all, have consequences.

Again, however, we must ask: Has Catholic social teaching taken heed of what the decades-long slouch of Argentina and other nations toward economic decrepitude tells us about wealth and poverty? Why, Catholics might ask, are Argentina’s close neighbors, Uruguay and Chile, on the opposite end of the corruption spectrum, according to Transparency International? How is it, they could further inquire, that these two Latin American countries, largely Catholic, have developed their economies (despite enduring their own military dictatorships, leftist insurgencies, and widespread human-rights abuses) to the point where the World Bank in 2013 classified them for the first time as “high income” countries?

Returning to Europe, compare those E.U. economies most influenced by corporatism with less-corporatist economies, and note how relatively poorly the former have performed with respect to productivity, employment, and innovation, as Phelps underscores in Mass Flourishing. Could it be that efforts to realize perpetual economic security and full employment through top-down coordination actually produce stagnation and the insecurity of high unemployment? And, looking more globally (and risking the wrath of the politically correct), we might ask why it is that four of the world’s five freest economies and five of the ten wealthiest countries in terms of GDP per capita (according to the 2014 Index of Economic Freedom and the IMF, respectively) are former British colonies?

Though Pope Francis comes from a part of the world that has experienced more than its share of economic turmoil, it’s not his responsibility to provide detailed answers to these questions. Though Evangelii Gaudium illustrated that he has his own views, the Argentine pope has also been clear that the prudential details of economic policy are primarily for laypeople to address. If, however, the first non-European pope in thirteen hundred years represents an opportunity for broadening the Church’s horizons, then part of this enlargement of vision could involve more Catholics considering evidence that should exert some influence on Catholic social doctrine but at present appears not to. In light of such data, Catholic social teaching could further distance itself from obsolete, historically conditioned prudential judgments about, for example, the effects of free trade. Similarly, the Church has nothing doctrinally invested in the labor–capital framework bequeathed to us by the nineteenth century—an intellectual construction that not only is inadequate for understanding today’s global economy but also struggles to account for the crucial role that the right value choices, particular social norms, and specific institutions play in producing what Rerum Novarum called the divitias civitatum, the wealth of nations.

None of this means compromising on the demands of justice. It would, however, allow the “seeing” of Catholic social teaching to take wider account of the empirical without being empiricist, to look at what actually works without lapsing into pragmatism, and to remove some of the conceptual blinkers that have inhibited many Catholics’ vision of how to transform the world’s economies into arenas of human flourishing. The well-being of the poor surely demands nothing less.

Samuel Gregg is director of research at the Acton Institute.