1. CAPITALISM AND CREATION
“Man,” writes Pope John Paul II in Laborem Exercens, “is the image of God partly through the mandate received from his Creator to subdue, to dominate, the earth. In carrying out this mandate, man, every human being, reflects the very action of the creator of the universe.”62 In America, the image of God as Creator compelled admiration through the beauty of the mountains, the prairies, and the oceans and — as an exemplar in the immense task of creating a new civilization in the wilderness.
Nature was not always kind. Many perished from impure water, in blizzards, in desolate climates, in swamplands, in places of rocky and barren soil. It may be easy enough today, in a civilization of air conditioners, to imagine that “the environment” is naturally hospitable to humans, and that humans add nothing to nature but to pollute it. In the early days of this country, the very beauties of the natural environment of this continent were juxtaposed to the relentless power of nature to destroy human life. Wind, flood, desert, and erosion needed to be tamed; resources hidden in nature needed to be brought to human usefulness. The expression “subdue the earth,” according to John Paul II, has an immense range:
It means all the resources that the earth (and indirectly the visible world) contains and which, through the conscious activity of man, can be discovered and used for his ends. And so these words, placed at the beginning of the Bible, never cease to be relevant. They embrace equally the past ages of civilization and economy, as also the whole of modern reality and future phases of development, which are perhaps already to some extent beginning to take shape, though for the most part they are still almost unknown to man and hidden from him.
Creation is not finished. Much of use to humans remains hidden within it. Humans become co-creators through discovery and invention, following the clues left by God. Yet human beings are creators not only in changing the world, but also in realizing their own inner possibilities. Every human being who works must be respected as a person. None is merely “an instrument of production,” mere “merchandise,” whose labor is merely purchased. Since the early nineteenth century, John Paul II writes, expressions of this sort “have given way to more human ways of thinking about work and evaluating it. “6° Free labor is neither slave labor nor a mere instrument; freedom flows from personality, autonomy, and choice. Yet a materialistic civilization may reverse the priority of looking at humans as true makers and creators, in the image of God, and instead treat man solely “as an instrument of production.” “Precisely this reversal of order, whatever the program or name under which it occurs, should rightly be called ‘capitalism,’ ” the pope adds.
While Pope John Paul II clearly defines the term “capitalism” in this way, and while abuses of that sort do occur here, this is not the meaning of the term in the United States, Abraham Lincoln described the system of “free labor” as “the just, the prosperous system,” precisely because of the dignity it afforded every free economic agent. Only a market system allows economic agents regular, reliable, ordinary liberties. Only a market system respects the free creativity of every human person, and for this reason respects private property, incentives (rather than coercion), freedom of choice, and the other institutions of a free economy. A market system obliges its participants to be other-regarding, that is, to observe the freely expressed needs and desires of others, in order to serve them. A market system is not morally validated because it is productive; command economies, after all, achieve capital accumulation and other material goods through coercion. A market system is validated because it is the only system built upon the liberty of its participants. That it also works better to promote invention and to yield an incredible bounty is a secondary (although not insignificant) advantage. A market system values new ideas, the inventor, the entrepreneur, the creator, and it values the free, individual choices of every worker and participant. It values the free individual, skilled in cooperating in association with others. In no other economy does the worker command more social respect.
Pope John Paul II is clearly in favor of a “reformed” capitalism. Yet Catholic social thought needs to examine more carefully the institutional causes of economic creativity. Creativity does not just happen; in world economies, it is relatively rare.
2. THE INNATE VIRTUE OF ENTERPRISE
Experience around the world since 1945 teaches us that the innate virtue of enterprise is universal. It is distributed among the poor as widely as, perhaps more widely than, among the children of the affluent. Like all talents, it is no regarder of birth or station. What is most required for its appearance and its flourishing, however, is a system which encourages it. The importance of system — as we said near the beginning — can hardly be exaggerated. In many parts of the world, alas, the natural talents distributed by the Creator are left to wither on barren or rocky ground, and the dynamism of whole peoples is unnaturally repressed.
Catholic social thought itself grew up in an agrarian age. It was shaped through long centuries in which static societies, rather than dynamic, developing societies, were the norm. It remains relatively underdeveloped in its conceptions of how new wealth is produced, and how co-creation is accomplished. To create new wealth, specific institutions are required. Specific virtues are required. A specific ethos is required. The gate to creativity is narrow, and the way is strait.
The term “enterprise” is sometimes used to designate the business firm, in a static way, rather than to designate the dynamism impelling a free economy: the virtue of inventiveness, risk-taking, and creativity. This virtue, more than any other factor, makes an economy dynamic and leads to economic development. Enterprise is a virtue relatively neglected by theologians, although perhaps included by them as the economic aspect of creativity. In most cultures during most of history, neither the wealthy nor the poor have been enterprising. The miser sat counting up his money, not investing it. The poor saw little prospect of bettering their condition in a sustained and progressive way. Enterprise requires the opposite of possessiveness; it consists in a willingness to lose gains already acquired by placing them at risk. Among the poor, it inspires imagination and adventure, rather than resignation. The incentives for enterprise are more than material. They include the excitement, the beauty, and the satisfaction of making to exist what did not exist before.
Like Abraham Lincoln, Pope John Paul II, as we have seen, speaks of “the priority of labor over capital.”67 Considered as a final cause, the human person is indeed prior to inanimate capital. Yet capital is not only inanimate; knowledge and skills, habits and attitudes are also forms of capital. The fact of widespread unemployment shows beyond a doubt that, as an efficient cause, labor is not prior to capital but, on the contrary, requires new investment as its own prior cause. The creation of new enterprises depends upon the cooperation of others, investors, for ex¬ample. Capital and labor are both human, and both are present in every economic activity.
The father of Pius XI was a businessman, and so with uncommon insight Pius XI stressed three things: creative intellect, the enterprise, and its work. A business enterprise is not simply assets and liabilities listed on a balance sheet. It “consists in the first place of the human beings who work in it; it essentially consists of them, in association.” The business enterprise is “an association of persons who co-operate in production by contributions of different kinds, especially by employing their person (“labor”) or property (“capital”); the result (yield or return) of this production is intended to serve the various interests of those involved.” “Without question, intellectus comes first, that is, the initiative and enterprise of-management, in personal terms therefore the directors, the top management, whose function is to combine the productive factors, labor and capital, and to get them to co-operate effectively.” In short, the relation is triadic: not only labor and capital but also creative intellect. The entrepreneur, who supplied the intellectual vision putting labor and capital together, is a co-creator. In our experience, this role can scarcely be stressed enough. Along with workers and managers — and millions of others in every social role — entrepreneurs are co-creators.
3. THE ENTREPRENEUR
In this respect, the distinguished German Jesuit Oswald von Nell-Breuning, one of the authors of Pius XI’s Quadragesimo Anno, has criticized the economic teaching of Vatican II precisely because, while praising the dynamism of modern economics, it fails even to mention its chief instrumentality: the entrepreneur. Since Vatican II praised the economic miracles of the reformed capitalist West “in glowing terms,” von Nell-Breuning notes, “it is therefore all the more odd that the key-figure in this economy, the entrepreneur is not mentioned in any way.” Catholic social thought has not yet put sufficient emphasis upon the creative instrument through which new ideas and inventions are brought into service to human beings: the practical in-sight of the entrepreneur. By themselves brilliant ideas do not serve humankind; to be brought into service to man, they must be transformed through complex processes of design and production. The talent to perform this transformation is as rare and as humanly precious as talent in any other field. Indeed, the promotion of entrepreneurial talent is indispensable if the “cry of the poor” is to be heard. If not the man or woman of enterprise, who else will create new wealth? Who else will invent new opportunities for employment?
Pope John Paul II seems to have come to this same point in his address to businessmen and economic managers in Milan (22 May 1983):
The degree of well-being which society enjoys today would be unthinkable without the dynamic figure of the business man, whose function consists of organizing human labor and the means of production so as to give rise to the goods and services necessary for the prosperity and progress of the community.
In Barcelona (7 November 1982), the pope was more emphatic:
Allow me now, dear men and women workers of Spain, to address my words to another class of workers in Spain: businessmen, industrialists, top administrators, qualified experts in socio-economic life and backers of industrial complexes.
I greet and pay honor to you, the creators of jobs, employment, services and job training, all of you in this dear Spain who provide work and support for a great number of men and women workers. The pope expresses his esteem and gratitude to you for the high function which you perform in service to man and society. To you, too, I proclaim the gospel of work….do not waver, do not doubt your mission. Do not fall into the temptation to give up business, to shut down, to devote yourselves egoistically to calmer and less demanding professional activities. Overcome such temptations to escape, and keep on bravely at your posts, trying to give a more humane face every day to your enterprise and keeping in mind the great contribution you make to the common good when you open up fresh work possibilities.
Major errors were committed by entrepreneurs during the development of the industrial revolution in the past. But that is no reason for failing, dear industrialists, to give public recognition and praise to your dynamism, your spirit of initiative, your iron wills, your creative capacities and your ability to take risks. These qualities have made you key figures in economic history and in confronting the future.
Willingly, we embrace this teaching, confirming it from our own experience. The task of lay persons in the economic order, whether investors, workers, managers, or entrepreneurs, is to build cooperative associations respectful of each other’s full humanity. Such enterprises should be so far as is feasible participative and creative, in order to bring out from creation the productive possibilities and the human resources that the Creator, in his bounty, has hidden within it. Economic activism is a direct participation in the work of the Creator Himself.
4. ECONOMIC TALENTS
Under the leadership of Pope John Paul II, the Church has been placing more emphasis upon creativity — and, particularly, upon the creative task of the entrepreneur and the inventor and all other workers — than ever before. This emphasis is timely. Furthermore, it is important to see that a business depends for its creativity not only upon inventors and entrepreneurs, but, also upon an adventurous and skillful work force. Creativity is necessary at every level. Thus, many have come to see that economic activism is as much a vocation for lay Catholics as is political activism — indeed, much more so,- given Catholic teachings on the limited state, on the principle of subsidiarity, on liberty, on property and creative action, and on the need for economic development. Naturally, as in the American scheme, the political system, including the state, plays a major role both in empowering and in regulating the economic system. Catholic social teaching has never accepted the strictly libertarian view of “the night watchman state,” on the one hand, nor the socialist view of “the managerial state,” on the other hand.
The concern for government activities to promote commerce and industry is present on virtually every page of The Federalist. The new nation was hardly born when Alexander Hamilton wrote his Report on Manufactures. A sound banking policy, it was speedily seen, is an essential contribution of government to economic dynamism, since government policy disproportionately affects the soundness of money. The U.S. Congress decided through the Homestead Act to settle the West through multiplying the number of owners and economic activists — rather than according to the plantation system of the South (and of Latin America). The government saw its role as that of taking on tasks that would lead to greater productivity: from helping build canals, railroads, ports, and interstate highways to sponsoring rural electrification, farm credit, great dams, and countless other initiatives. Not all of these were wise, or conducted without corruption. But all vindicated the principle that government, too, has a role in the economy, as the phrase “political economy” explicitly suggests. As distinct from socialism, a democratic capitalist regime seeks to empower others, not to manage all things.
We who are laypersons have learned through our own experience, however, how precious are the liberties which encourage economic creativity, and how easy it is to stifle those liberties through neglect, indifference, excessive state entanglement, imprudent regulation, a decline in capital formation, and the unwise monetary, fiscal, and credit policies of governments. Persons of superb talents in economic creativity are found in every nation, in every ethnic group, in every social class, at every level of formal education. Economic talents, as we learn in the Parable of the Talents (Matt. 25:14-30), are not intended to be buried — but to be employed in wise and creative stewardship, reaping the return for which creative efforts are intended:
[A] man who was going on a journey….called in his servants and handed his funds over to them according to each man’s abilities. To one he disbursed five thousand silver pieces, to a second two thousand, and to a third a thousand. Then he went away. Immediately the man who received the five thousand went to invest it and made another five. In the same way, the man who received the two thousand doubled his figure. The man who received the thousand went off instead and dug a hole in the ground, where he buried his master’s money. After a long absence, the master of those servants came home and settled accounts with them. The man who had received the five thousand came forward bringing the additional five. “My lord,” he said, “you let me have five thousand. See, I have made five thousand more.” His master said to him, “Well done! You are an industrious and reliable servant. Since you were dependable in a small matter I will put you in charge of larger affairs. Come, share your master’s joy! The man who had received the two thousand then stepped forward. “My lord,” he said, “you entrusted me with two thousand and I have made two thousand more.” His master said to him, “Cleverly done! You too are an industrious and reliable servant. Since you were dependable in a small matter I will put you in charge of larger affairs. Come, share your master’s joy!”
Finally the man who had received the thousand stepped forward. “My lord,” he said, “I knew you were a hard man. You reap where you did not sow and gather where you did not scatter, so out of fear I went off and buried your thousand silver pieces in the ground. Here is your money back.” His master exclaimed: “You worthless, lazy lout! You know I reap where I did not sow and gather where I did not scatter. All the more reason to deposit my money with the bankers, so that on my return I could have had it back with interest. You, there! Take the thousand away from him and give it to the man with the ten thousand. Those who have will get more until they grow rich, while those who have not will lose even the little they have. Throw this worthless servant into the darkness outside, where he can wail and grind his teeth.
This parable, in fact, stresses not only stewardship but creativity: preserving capital is not enough — it must be made to grow.
In the Catholic tradition, von Nell-Breuning observes, there was for too long a “skeptical, critical attitude to economic life, so frequently found in ascetical writings and in official ecclesiastical pronouncements, which asserts that it diverts men’s minds from higher things and attaches them to lower things.” Yet in a world in which early mortality is being swept away by advances in medicine and hygiene, a world, therefore, of growing populations, this negative attitude toward economic activism is blessedly being set aside. The task of feeding the hungry, clothing the naked, educating the unlearned, and assisting the millions of all nations to attain their own economic well-being is now a matter of vast social necessity. Economic activism is no longer an avocation of comparatively few; it is indispensable for the entire human family.
5. CROSS-CULTURAL CLARIFICATIONS
To make our own position clear, we wish to distinguish it sharply from three common misperceptions. Some hold that anyone who supports a capitalist economy: (a) places all responsibility upon individuals, without reference to social institutions or the social system as a whole; (b) holds to a purely “free market” approach to society, is libertarian, or even “Darwinian”; and (c) excludes the political system, especially the state, from public policy reforms. These claims are false. Our own views are as follows.
The United States differs from the individual nations of Western Europe in its continental size, in its diversity of cultures drawn from the entire planet, in its vast range of regional climates, economic strengths and needs, and in the churning mobility of its population. Thus, it is no wonder that individual U.S. citizens often find themselves far from their neighborhoods of origin, their families, and other familiar social networks, and, through no fault of their own, become vulnerable to chance events. Thus, too, there is great flux into and out of poverty. For such reasons, we strongly support the social welfare systems which help the truly needy, until they regain their self-reliance. And we recognize that because of age or disability or other necessity, some cannot be self-reliant.
Second, the very concept of political economy implies that the economic system of democratic capitalism does not stand by itself. The American system is not a free-market system alone, or a free enterprise system alone. The political system has many wholly legitimate and important economic roles, including care for the truly needy. To the one side, we reject statist views which would swallow all of life under state control. To the other, we reject libertarian visions of an “unfettered” economic system, which would measure all matters merely in their economic aspects.
No economic system can pretend to do everything sufficient for a good society. Many human requirements must be met outside and beyond it. The young, the elderly, the disabled, those visited by sudden misfortune, and many others are permanently or for a time unable to work. In a good society, the moral system and the political system must come to the assistance of such persons in ways the economic system alone cannot. In fact, one of the moral obligations of the economic system is to produce the wealth necessary so that the political and moral systems can accomplish these and other tasks.
Third, it is clear from the foregoing that we are not opposed to the state. We are watchful, as all free citizens must be, lest it abuse its enormous powers, overstep its proper competence and limits, and through unwise actions not only fail to achieve its proper purposes but make matters worse for all. Criticism of errors by the state is no more a failure to respect the legitimate roles of the state than criticism of the economic system is a failure to respect its legitimate roles. Particularly in its welfare functions, as a last resort, the state is an indispensable institution of the good society.
In this context, several major terminological difficulties seem to arise from the differences between Continental and Anglo-American cultures. “Liberalism” on the Continent seems to have connoted a strongly anti-religious animus. This connotation is not typical of Anglo-American liberalism. Further, the Anglo-American concept of liberty, as Archbishop Hughes tried to explain to Rome, means liberty under law, “liberty and justice for all,” a liberty constrained both by moral and by political safeguards. On the Continent, by contrast, “liberty” is sometimes defined in opposition to law and to moral constraint, in an alleged contrast between “unfettered” liberty and social good. In Anglo-American culture, the fetters of law, virtue, and custom are normally thought of as indispensable to the constitution of liberty.
Yet again, the term “capitalism” has negative connotations on the Continent which, except among those who approach these matters as socialists do, it does not have in America. Capitalism on the Continent is associated with Darwinism, the survival of the fittest, and contempt for the weak. Yet Darwin’s work became popular nearly a century after Adam Smith, whose concern for the poor and moral sense are quite prominent.” More to the point, the record of capitalist societies in providing personal liberties, a creative economy, high wages, and unprecedented standards of living for the formerly poor is beyond dispute. The aim of capitalism has been to overcome the tyranny of poverty not solely for the few (who did not need such liberation), but for all, and not solely in one nation, but in all nations.
Finally, on the Continent and in Anglo-American culture, there appear to be quite different concepts of the self. On the Continent, the self is sometimes regarded as if in opposition to society, public order, and the common good. By contrast, in Anglo-American culture, the self is often viewed as having internalized such crucial social values as sympathy, fellow-feeling, benevolence, a sense of fair play, and a due regard for the way the self would be regarded by an objective observer. From among a multitude of texts, we cite but one:
When the happiness or misery of others depends in any respect upon our conduct, we dare not, as self -love might suggest to us, prefer the interest of one to that of many. The man within immediately calls to us, that we value ourselves too much and other people too little, and that, by doing so, we render ourselves the proper object of the contempt and indignation of our brethren.
The judgment of a contemporary social critic is worth including here by way of summary:
A close reading of the Wealth of Nations itself suggests that political economy as Smith understood it was part of a larger moral philosophy, a new kind of moral economy. Schumpeter complained that Smith was so steeped in the tradition of moral philosophy derived from scholasticism and natural law that he could not conceive of economics per se, an economics divorced from ethics and politics.
6. SEVEN BASIC QUESTIONS
Nonetheless, in contemporary discussions inside and outside the Church, we often encounter serious misunderstandings about how economic development is actually created. Many intellectuals, for example, use wealth created by others; only some create it. It should not be surprising that some lack experience in recognizing its causes. To express these seems to be the task of those who have created wealth where it did not exist before, normally, lay persons.
We may be forgiven, therefore, if we linger on several economic concepts which, in public debate, we have often found to be surprisingly misunderstood. Next to illiteracy about religion, illiteracy about economics may be the most notable deficiency even among highly educated persons today. In any case, to prevent misunderstandings, we would like to make clear our own understandings. of certain basic points. We intend to speak about these points in simple and direct ways, rooted rather in our own experience than in academic or technical language. The seven themes are: unions; profit; self-interest; the profit motive; the market; multinational corporations; and rich and poor nations.
In treating these seven concepts, we wish to observe that many critics, in our experience, criticize the system for faults that are more properly attributed to the persons — to ourselves — who fail to use the liberties afforded by this system wisely or well. That a free system cannot, of its very nature, coerce human beings into moral behavior is the flaw in all schemes by coercive utopians. After invoking some sanctions and some incentives, after education and encouragement, a free system can do little more than offer human beings the liberty to act morally. This means, of course, that some will act immorally; in fact, that every one of us will sometimes fail. But it is no more just to blame the system for the failings of free persons than to blame our blessed Creator for making us free, or for allowing tares to grow up with the wheat. (Matt. 13:24-30). On this point, we have heard the words of Cardinal Ratzinger in his recent instruction on liberation theology:
Nor can one localize evil principally or uniquely in bad social, political or economic “structures” as though all other evils came from them so that the creation of the “new man” would depend on the establishment of different economic and socio-political structures. To be sure, there are structures which are evil and which cause evil and which we must have the courage to change. Structures, whether they are good or bad, are the result of man’s actions and so are consequences more than causes. The root of evil, then, lies in free and responsible persons who have to be converted by the grace of Jesus Christ in order to live and act as new creatures in the love of neighbor and in the effective search for justice, self-control and the exercise of virtue.
After the clarification of each of the seven secular concepts mentioned, we offer a reflection which occurs to us specifically as Catholics. We have thought about each of them in the light of two questions, which seem to summarize the obligations of an American Catholic both to Catholic social thought and to American possibilities:
—What have I produced with the goods and talents God has given me?
— Can I tell God I am giving a fair amount of my personal time and treasure to help those in need and to help them to achieve economic self- reliance?
. . .
(1) Unions. All of us have been deeply moved in the last few years by the often heroic struggles of Solidarity in Poland, the remaining and barely free unions in Nicaragua, and the spirited peasant and industrial unions of El Salvador. With the Catholic tradition, we affirm the rights, legitimacy, and crucial social role of free labor unions, manifesting the fundamental human right of association. With the American tradition, we recognize with gratitude the immense role played by U.S. labor unions in the struggle to build democracy from the grass roots both in our own country and internationally. Free labor unions are a significant litmus test of the degree of freedom within nations.
Further, we applaud the U.S. labor unions, in particular, for two great achievements. First, by refusing to become a political party, and by exerting legitimate political pressures on both major parties, labor unions in the U.S. have made an immense contribution to the two-party system, and have helped to prevent divisions in American politics along class lines. This is an achievement of historic dimensions. Second, probably no institution in American life has been so consistently engaged in promoting democracy in the international arena as the U.S. labor unions. The unions have been outstanding international citizens.
We recognize, too, that in recent years labor unions in the United States have faced a difficult period. Some industries in which unions have been strong have been declining; some firms or industries have campaigned against unions in elections among their workers. Unions and management, in the check-and-balance style of American institutions, have traditionally had an adversarial posture which, although remarkable among the examples of other nations for its peaceable and cooperative successes, is sometimes more acrimonious than either side would like. Finally, we note with regret that many union members in recent years have felt besieged, receiving inadequate recognition in the press, from business leaders, and from other sectors of society.
In such periods, especially, it is important to voice our full support for the principle of free and voluntary association in labor unions, and also to express our gratitude for the great contributions of American labor both to Catholic social thought and to the American experiment. Some of us are, or have been, members of unions or children of union families, and have intensely personal reason for such expression, in which all of us join.
Above all, we wish to stress the contributions of a creative and enlightened workforce to a dynamic economy. The ideas of inventors and the imagination of entrepreneurs depend for their practical execution upon creative and intelligent workers. This is the great glory of American labor. Indeed, disproportionate numbers of creative advances in American industry and commerce have been born on the shop floor, among workers alert to new possibilities. It is part of our heritage both as Catholics and as Americans to think of workers, and of labor unions in particular, as part of a co-creative enterprise, in pursuit of the ideals of our society.
We are especially grateful that the Catholic Church in the United States has from the days of the Knights of Labor stood at the side of American workers, even in days of significant struggle and violence, and continues to do so today. This is not to say that labor unions today have no deficiencies and cannot be criticized. One advantage of the distinctively American blend of cooperation and adversarial relations is that labor often properly points out faults in management, and the reverse, to mutual benefit.
The present period seems to us ripe for a new era of cooperation. Business leaders, in these circumstances, would do well to take the initiative in hearing out and thinking through the concerns of labor, as both labor and management enter a new era of change. Regarding the future, we make several suggestions below (Part III, Sec. 4). To these we add that procedures in unfair labor practice cases take unconscionably long and ought, in fairness, to be expedited.
(2) Profit. Economic growth is hardly possible without profit. In the popular sense of the term, profit refers to capital invested in its operations. This is essentially an accounting concept, which describes how income is allocated among the factors of production. In a more technical sense, profit is a reward for the talent, skills, and multiple activities of the entrepreneur. The social organization of economic activity requires someone to determine what products and services to develop, in what quantities, at what prices they are to be sold, which resources of production will be needed and how they are to be combined, and how to make the output available to those who wish to purchase them. All of these steps involve risk and expense, managerial and executive skills, insight and judgment. Mistakes in any of these steps can be expensive. Profit compensates the entrepreneur for the employment of his time and skills, and rewards him for the risks undergone.
Strictly speaking, then, profit is the reward for risk-taking and invention. In this sense, it is the chief incentive for creative growth. Without such profit, an economy is simply spinning its wheels in stagnation or in decline. Without profit, there is little creative development. Economically, profit is an incentive for the risks inherent in creativity. Philosophically, though, in free societies profit is a social device which expresses a society’s esteem for personal liberty and creativity. Profit turned into accumulated capital is also the inheritance which those who labor today pass on to their successors. As we live from the achievements of profit by our ancestors, so it is our vocation as good stewards thereof, not to bury it or squander it, but to make that inheritance grow for the sake of those who come afterwards. In this sense, profit is also a social necessity, if creative growth is to occur at all. Whoever favors development logically declares for profit.
Economically, any enterprise (even a state-owned one in a command economy) must show a profit in both senses, if it is not to squander resources without producing new wealth in return. Where the state retains all profits, personal incentives for taking risks no longer exist, and considerations of political safety lead many to go along with conventional inefficiencies. Firms which show losses instead of profits leak a nation’s capital away. More importantly, firms which do not set aside some portion of their profit for internal improvements, for research and development, and for future innovation imperil their own survival, since the world around them is progressive and changing. Even well-established firms must practice enterprise, under pain of obsolescence and decline. Thus, profit as a reward for enterprise is to be distinguished from profit as an accounting concept, even in firms which do not at first sight appear to be entrepreneurial.
In both senses, the common good requires profit. Profit serves the common good by allocating resources creatively and stimulating entrepreneurial creativity; it represents newly created wealth pumped into the body social. From such profit governments draw a portion of their revenues, and non-profit organizations (of vast variety and scope) a large portion of their operating funds. A creative, growing, profitable economy multiplies the possibilities for non-profit activities. A stagnant or shrinking economy diminishes the opportunities of the poor. The creative reinvestment of profits in research and development opens new frontiers, leading to new industries, new goods and services, and new employment. Only a creative economy promises a new future. To build a creative economy requires sacrifices of consumption and ease today, in order to imagine and to realize their fruits tomorrow. In this sense, to create profit is a form of providence.
We sometimes hear that a profit system is “essentially exploitative,” because it “extracts” profits from the wages of workers. This underlying conception of profit does not withstand analysis. In growing creative economies, a surge in total profit virtually never means that the income of labor has been correspondingly depressed. On the contrary, the cause of such a surge in profits is typically a rise in output. This, in turn, is typically due to rising capital investments and innovative breakthroughs. Expansions in productivity and total output tend to create new employment and higher wage rates. Usually, too, a rapid surge in profits attracts new investment, generates yet further savings, and thus makes possible new investment elsewhere. Times of rising profits mean prosperity and “good times,” in which the rising tax revenues of government and the generosity of the public lead to more generous outlays for social programs and social innovation. The important insight, in short, is that in the creation of new wealth it is not necessary to “extract” wealth from others. To the contrary, new wealth has many obvious good effects throughout the society at large. The generation of new wealth is certainly better for the poor than are stagnation, recession, and decline. Without it, economic development does not occur at all.
We sometimes hear locutions which oppose “profit for the few” to “the needs of the many.” Such locutions do not stand up to analysis. Without profit, the needs of the many cannot be met. Does any socialist or traditional society meet the needs of the many as well as the profit system of democratic capitalist societies, from Western Europe to Japan? If one is talking of systems, profit systems demonstrably raise the standards of living of the many far better than any other systems have done, while also preserving far greater liberties for moral and cultural life. If one is talking of persons, yes, it is possible that in some instances owners or managers succumb to greed and do not employ profit accrued by the firm in wise, future-oriented ways. No free system can coerce all participants into virtuous behavior. But in profit systems, greed is typically its own punishment. Firms that use profits unwisely, for the selfish gains of a few, typically injure their own long-term prospects. Their competitors, using profits more wisely and generously — for future needs; among their own managers, workers, and investors; and for the communities in which they function — tend to grow both economically and in moral esteem, internally and in the public eye. Greed is not the driving force of a profit system; it is a corruption which injures those who give way to it.
As Catholics, furthermore, we recognize that it would profit us nothing to gain the whole world, while suffering the loss of our souls (Matt. 16:26). Important though profit is for the dynamic society as a whole, for no person are profits properly the final aim of life. Profits must be fairly earned. And the point of earning them — a matter on which each of us must one day give an accounting to our Creator — is that their use should benefit humankind. Greed destroys the soul. To be magnanimous and generous in sharing personal returns from profits, and to do so wisely, is a Christian duty.
(3) Self-interest. In religious language, the word “self-interest” usually connotes selfishness or at least a failure of other-regardingness; in this sense, it names a vice. In economic matters, self-interest is a neutral phrase. It can encompass motives of holiness, aesthetics, or science as well as all other motives. In this sense, the self-interests of an individual are expressions in action of his or her personal scale of values. Whether the personal motive is other-regarding or self-regarding, and on whatever scale of values, is not for the economist to pass judgment. In matters of economic well-being, individuals sometimes prefer to forego monetary gains in the hope of rewards of another type. A researcher, e.g., may turn down a higher-paying job in favor of a job whose liberties and working conditions more suit her or his choice. Some may prefer jobs that involve them in service to others. Some may prefer highly routinized jobs, of a sort which others would find unattractive. Self-interests in economic activities are not always monetary, self-centered, or materialistic. A free economy allows for the fullest possible range of motivation. In economic activities the practice of Christian virtue has full and wide scope, the more so where liberties are full and dynamic growth makes opportunities flower.
(4) The Profit Motive. Denunciations of the profit motive are often heard, even in societies like ours. This sounds plausible to some, since most persons work for salaries or wages rather than for profit. As we have seen, however, profit is a social device expressing a society’s esteem for personal liberty and creativity. It is not in itself immoral or amoral to be creative or to contribute to the economic creativity of one’s own nation (and the world). Furthermore, all those who work in non-profit organizations live on profits made by others; and most of them, educators, for example, heighten the creativity and competence of those who generate profits. The Christian scriptures themselves borrow abundantly from the language of profit in many elementary metaphors. The concept of incentive and reward is by no means foreign to Christianity.
The fundamental justification for profit rests upon a social decision to confer rewards on those who have resources, if they abstain from consuming them on luxuries for themselves in order to invest them in the creation of new industries, new goods and services, and new wealth. Without the creation of new wealth, economic development cannot occur. Compared to the relative economic stasis of pre-capitalist, traditional societies, dynamic, profit-producing societies have enjoyed great wealth and unparalleled economic development.
Even in those sectors of the world formally dedicated to the abolition of private property, the most powerful economic ideas of our time are the roles of incentives, enterprise, invention and profit. Nearly all socialist nations are discovering, through trial and error, the creative role of profit. In the real world, attacks on profit injure those who launch them and most of all the poor, the bettering of whose condition depends on wisely used profit.
As markets express with computer-like speed the prices purchasers are willing to pay for goods and services, thus signaling realistic prices, so the existence (or non-existence) of profits signals quickly whether resources are being used in a creative, dynamic way or in a wasteful way. As a reward for enterprise, profits signal new creativity and efficiency. As an accounting concept, profits signal whether resources are being wasted or husbanded creatively.
To be sure, in a good society, there are many laudable activities which are best met by activities not subject to the discipline of profit. Such activities depend upon an excess of profits generated elsewhere, and contributed freely or by coercion to worthy activities. In the United States, approx-mately forty percent of all those who receive income receive it from non-profit activities: those on social security or other forms of welfare, most workers for government, church workers, and workers in academic, educational, scientific, artistic or other non-profit activities. For example, workers in Catholic non-profit schools, hospitals, and other institutions alone — not counting other religious bodies — number an estimated 1.1 million persons.” Ironically, most of the ideological attacks upon the profit motive spring from those who are dependent upon profits earned by others.
One of the reasons why the American Catholic Church has become in less than two centuries a dominant financial force in the universal Church springs directly from the free-market profit system. In diocese after diocese, beautiful properties and great buildings have been contributed to the Church, by Catholics and non-Catholics alike, directly out of their own liberty and profits. Cathedrals, convents, colleges, hospitals, magnificent estates, recreational areas and many other properties have been freely given, quite apart from state control or fiat. The liberty of the American Catholic Church is directly owed to a free market profit system, which permits both economic creativity and liberty of conscience in the disposal of wealth earned.
Finally, critics often overlook the fact that new inventions and new services create new wealth; they do not take away wealth from others (as if wealth were a zero-sum game) but add new increments to the common store. Ray Kroc, who in his later years invented the concepts on which McDonald’s is based, .gave more employment to teen-aged youths than all the programs of the federal government put together, costing the government not a penny and paying taxes for the privilege. In addition, through franchising, he put scores of thousands of families in businesses owned by themselves.
Among human motives, of course, the profit-motive is not the only or, indeed, the chief motive. As Catholics, we recognize the importance to any dynamic political economy of the motive of creating new wealth, while recognizing at the same time that a full Christian life inspires in us many other motives. In practice, the profit-motive often functions as a discipline, instructing us in whether our economic activities are merely spinning wheels or are genuinely creating new wealth (which is their purpose). The actual motives which guide most economic activists, however, cover a range as broad and diverse as individual human beings. They include the sheer pleasure of creating new goods, putting up or rehabilitating buildings, finding new and more efficient ways of saving resources than others have found, being the best at whatever one does, and sharing vicariously in the pleasure or utility such services bring to others. We think that critics often miss the fun of what economic activists do. They think of business as mere accounting. The discipline of accounting is invaluable, but the real motives for a religious person in business are far more fulfilling than the profit motive alone.
(5) The Market. Many of those who denounce “the market” typically champion intellectual dissent in “the free market of ideas.” Such persons seem to us in favor of free markets in their own sphere, but not in those of others. Such inconsistencies are typical of businessmen, too. Often enough, businessmen who complain about governmental regulations which they don’t like are the first to ask government for regulations which they do like — because the latter protect their own interests and penalize competitors. It is a mistake to believe that most businessmen actually want a completely free market. It is a natural temptation for them to protect whatever advantages they have. In this respect, free markets are rather like an objective ideal, in whose light businessmen often fall short. In the real world, virtually all markets are to some extent regulated by governments, limited by innumerable constraints (including moral constraints), and “imperfect” in various ways. What is most crucial about markets is their openness to new entrants, their dynamic and shifting nature, and their invitation to innovators to study the unmet wants and needs of the public.
This last point deserves elaboration. The market is a social institution, expressing the social nature of humankind. It respects the liberty of each participant, while tying each through a social device to every other. Further, a market teaches all who participate in it to be alert to the needs and wants of others. No one can succeed in markets without a considerable degree of other -regardingness. To be sure, in free as well as in unfree societies some will cater to what is lowest in others, as in pornography, prostitution, or other base forms of commerce. But commerce also serves every noblest profession and activity. A market system is a system of service to others. It is as open to abuse as human freedom is, and as noble.
Nearly all traditional, pre-capitalist societies have used the social devices of markets, private property, and profits. But such societies did not become modern democratic capitalist nations until they institutionalized the insight that the cause of the wealth of nations (all nations) is creativity, that the instrumentality of creativity is invention and entrepreneurship, and that government limited in — but not excluded from — the economic sphere gives rise to surging energies within its own population. The “new order” so launched in the United States drew to this nation millions of Catholic immigrants. Most succeeded here, economically, politically, and culturally, as they had never succeeded in their lands of origin. Most Catholic (and Jewish) families in the U.S. date their arrival in this land within the last one hundred years. They found most positions of wealth and prominence and ownership held by Protestants. Yet it is the virtue of a system based on markets and profits that it is ultimately no regarder of race, color, creed, ethnicity, or sex. The very rapid rise of the Catholic (and Jewish) immigrants from poverty to wealth illustrates this openness.
Within a hundred years, in fact, the pastoral problem the Catholic church faces in the U.S. has changed dramatically: from that of widespread poverty to widespread affluence. Our Catholic people have experienced here — under the torch of the Statue of Liberty — a “liberation theology” that works, a liberation theology based neither upon class struggle nor upon atheistic materialism nor upon hatred and conflict. It is based, rather, upon respect for individuals, upon liberty, and fellowship, and upon social cooperation. U.S. “liberation theology” — perhaps better described as “creation theology” — has been both amazingly productive and amazingly liberating. Its work is in-complete, but it has been well begun.
John Courtney Murray, S.J., captured this reality in a brilliant passage in We Hold These Truths:
In sheer point of fact, the Church in America has accepted this thing which is the American economy. Her life, the life of grace, is tied to it in multiple respects. It is, in fact, the thing that has given peculiarity both to certain institutions of the American Catholic Church and to certain forms of Catholic life. The major instance is the whole system of Catholic education, supported by the voluntary contributions of the faithful, who have found in it a means of professing their faith and expressing their spirit of charity and sacrifice. Catholic education in its present many-storied structure would be impossible apart from the American economy, the wealth it has created, and the wide distribution of this wealth that it has operated. Important alterations in the economy (not to speak of changes in the tax structure) could deal a serious blow to the res sacra which is Catholic education. Other institutions of the Church’s apostolate would be similarly affected; the involvement of any large diocese in the workings of the American economy is fairly deep.
One cannot imagine the liberty, the wealth, and the active possibilities of the Catholic Church in the U.S. having unfolded either in traditional, pre-capitalist societies or in socialist command societies.
As Catholics, we do not value the market either as an idol or as an automatic “Invisible Hand” instantly making all things right. The market is an opportunity, an open place. It allows us our liberty of conscience. What we make of it defines our character and prepares us to meet our Judge. Unlike our fellow Catholics whose liberties are cramped by command societies, we are left by the open market with no excuses, our liberties intact.
There are some who say that markets are cruel — “It’s a jungle out there” — and that ethics and religion must be left behind. It is true that markets are an arena of widespread failure, and also true that markets do not bend to pious wishes. It is also true that some who enter them have lesser scruples than others, and that a very few have none. Over time, however, in this arena as in every other, vice often brings in train its own destruction. In business, a reputation for consistently honorable dealings is a priceless asset. Even if that were not so, Christian imperatives command honorable and honest dealings.
(6) Multinational Corporations. We often hear clergymen speak of multinational corporations as if these were institutions evil in themselves. By a multinational corporation we mean not simply an international trading firm, but a firm which has operating establishments producing goods or providing services in two or more nations. Such institutions are among the most creative institutions of the modern era. They supply the main institutional links referred to in the phrase “global interdependence.” Since such corporations are private, not arms of the state, they are often able to create constructive institutional relationships between peoples whose governments are at odds. The economic advantages-they bring to less-developed nations are many. Nonetheless, for good reasons or for bad (usually the latter), some states choose to prohibit them, to expel them, or to nationalize their local establishments — and frequently enough have done so. All nations without exception regulate them, sometimes wisely, sometimes unwisely, but with technical skill that has tangibly increased from year to year, since government officials in many nations now manifest superb educational credentials. It is often said that, in the past, powerful corporations could make alliance with state officials, the sole possessors of police and military power, and thus abuse local peoples. Egregious incidents are cited. Since such charges are often highly ideological, we would wish to study each case carefully. Wherever true, such behavior is reprehensible.
Like diplomats, missionaries, social scientists and other international activists, some managers of multinational corporations are bound to have committed some abuses. Any such derelictions of moral duty are, and ought to be, universally condemned. Operating within political, economic, and cultural systems different from those they know at home, all are clearly liable to err in all three dimensions. The size, sophistication, and different cultural-political-economic origin of some business enterprises often bring strains and dislocations to less developed countries (LDCs). Relatively new on the international scene, and growing in number and in kind as the LDCs also spawn their own rapidly growing multinationals, these new institutions dramatize the fact that not only religious activists, and not only political activists, but also economic activists now operate in a worldwide frame.
On the plus side, multinational corporations bring badly needed capital investments, technology transfers, import substitutions, training, infrastructure, employment and wages, taxes, and important economic contacts to LDCs. The first major American multinational was the Singer Sewing Machine Company in the late nineteenth century,” but the greatest explosion in the growth of multinationals followed World War II. If it were the case that multinationals had not come into existence then each isolated nation would be deprived of goods and services developed in other nations, until it had amassed sufficient capital, produced inventions, and brought similar goods and services to market on its own. The alternative to multinational corporations would be economic isolation. Such isolation is no part of the Catholic vision.
Multinational corporations arose out of both moral and material necessity. They extend the creative breakthroughs of entrepreneurship which occur within one nation to other nations. They promote international interaction, the reduction of barriers between nations, and cultural interpretation from one to another part of the human race. They benefit the home nation by expanding its employment in new ways (not without some dislocation). They benefit recipient nations by indispensable transfers of ideas, methods, capital, and other benefits; they expand the total world economy. On balance, if they did not already exist, the critical needs of humankind would require that they be invented. Apart from private multinational firms, only state organizations would function in the world economy, much to the detriment of economic creativity.
(7) Rich Nations and Poor Nations. The words of Matthew 25, “Inasmuch as ye have done it unto one of the least of these my brethren, ye have done it unto me,” apply as well to poor nations as to poor persons. “What you did for one, for millions, for billions, you did it to me,” Pope John Paul II has commented.
In raising these passages to the level of national and international systems, however, it is crucial to understand the role of system in economic development. Those few societies on this planet based on private property, market systems, incentives, and the discipline of profit succeed with astonishing speed in raising up the living standards of their poor: so it has happened in recent decades in South Korea, Taiwan, Hong Kong, Singapore, Malaysia, and Japan, as earlier in Australia, New Zealand, Western Europe and the United States. Clearly, the chief distinction among nations is not geographical, between “North” and “South,” but between profit systems and statist systems, whether traditional or socialist. A short time ago, several of the nations listed above stood among the poor Third World nations of the South; today they count as developed or at least very rapidly developing nations. The role of system in their advance is unmistakable.
Similarly, the vast “loan crisis” of recent years has dramatized beyond a doubt that the mere redistribution of financial resources may not at all assist development, in cases where internal systems frustrate such development. If nations can borrow fifty billion or a hundred billion dollars, and use such funds so unwisely that they do not create the new wealth to repay those funds, or even to pay the interest on them, could they not as easily lose without benefit equal or greater funds simply given to them? The mere influx of capital does not of itself lead to development. Immense amounts of capital, earned by hard work and savings in creative systems elsewhere, have often in recent history simply been squandered, evaporating almost without a trace. Redistribution may, or may not, help the poor. Much depends on system.
It is of profound human and Christian concern to uplift the poor universally. Frustrating such concern are statist systems of political economy which wittingly or unwittingly suppress economic creativity. If the words of Christ in Matthew 25 apply to systems, then they demand systems which actually do help the poor, not systems which so suppress economic activism as to frustrate the poor systematically.
No one can make an empirical case that “the South is getting poorer.” This is not true of Australia, New Zealand, Southeast Asia, or many other places in “the South.” And although many nations of the South — in Latin America and Africa, particularly — are not progressing as rapidly as they might, given more creative forms of political economy, virtually every nation without exception is experiencing undeniable signs of progress among the poor, including increased longevity, lower infant mortality, progress in literacy, higher participation in schooling at every level, and the like. Such progress could be as fast in such retarded nations as in the more rapidly developing nations, if their systems of political economy were creative instead of self-impairing.
It cannot be said empirically that the poor nations are poor because they have few natural resources, for some have many; nor because they are small, since some wealthy nations are smaller; not because they are densely populated, since some wealthy nations are more so; nor because they were once colonies, since many of the poorest nations never were colonies and many of the wealthiest were; nor because they trade much with the richer nations, since the richer nations trade even more with one another; nor because the terms of trade for commodities are historically low, since in most cases they are not and, besides, wealth can be produced in many ways beyond the export of a few commodities. The elites of virtually every poor nation offer excuses for their poverty, preferring to blame others or hiding behind fate. It would scarcely be realistic to expect elites of the poor nations to blame themselves.
The causes of wealth need explanation, as the causes of poverty do not, since by contemporary standards, poverty has been the condition of most peoples in most nations down through history. Unless culture and civilization intervene, poverty is humankind’s natural condition, even in our own era. What is distinctive about our era is the insight that wealth can be created in a sustained way. Two hundred years after that insight was first expressed, the human race can now foresee the day when poverty will be universally eliminated. Even so, some will always consider themselves poor, since standards for what counts as poverty are constantly rising, and since poverty is by definition a relative condition. In Latin America, for example, it has recently become common to distinguish between the poor (measured by a relative financial standard) and the destitute (measured by a rising standard of infant mortality, nutritional sustenance, physical and mental health, longevity, economic opportunity, etc.)
What, then, are the causes of wealth? Among them, one of the chief is culture — meaning, in part, the national distribution of human capital, including habits, skills, attitudes and ambitions. The vast migrations of the twentieth century have shown that whole peoples, uprooted from one place and then transported to an undeveloped part of the world, can make even deserts bloom. The cause of wealth lies more in culture than in nature.
Second, the human race has acquired ample evidence since World War. II that institutions of political economy, too, are of decisive importance. Move a whole people from within one system of political economy and place them within another, and often enough one sees a remarkable transformation in their capacity to produce wealth, in their liberties, and in their creativity. Systems of political economy are not equal in their effects upon human creativity.
In an unfree, uncreative political economy, the Polish priest-philosopher Jozef Tischner has written, “What good does it do when a fisherman exceeds a quota if there is no place to store the excess fish? What good does it do when people build a steel mill if the steel produced in it is more expensive and of poorer quality than the steel available on the open market? This … kind of betrayal consists in condemning work to senselessness.”
Who can deny that under more liberating institutions of political economy the Polish people could produce greater wealth, demonstrate more effective economic dynamism, and set even for the wealthiest nations a new example of exploding creativity? Who can compare South Korea with North Korea, West Germany with East, Kenya with Ethiopia, Hong Kong with mainland China, Taiwan with Vietnam, Japan with Brazil, Australia with Argentina, and not see the difference in economic creativity that institutions of political economy can make?
Recently, Freedom House constructed a chart of all the nations, describing by type the economic system present in each, and also the relative state of political and civil liberties. The correlation between free economies and political and civil liberties is almost perfect. All the World’s freest nations, and all those ranked highest in their respect for human rights, are capitalist gocieties. The correlation between free economies and high levels of economic development is equally close. In the real world as well as in theory, therefore, the liberal society redeems its promises both in the economic and in the political order. Capitalism seems to be a necessary, but not a sufficient, condition for political and civil liberties and also for economic development. Ten years ago, some who blamed the rich nations for the plight of the poor urged leaders of the poor nations to discourage the activities of multinational corporations in Latin America, and to borrow capital in-stead. There followed a pattern of significant disengagement of U.S. firms from Central and South America, which still continues. There also followed massive debts. During the’ past year, many of the same critics, far from admitting their own responsibility for these disasters, have again blamed America. They say that the cause of Latin American difficulties is U.S. interest rates. If so, the picture is improving. The U.S. prime rate has come down substantially since 1980 (from nearly 22 percent to under 13 percent).
Naturally, it would be far better for the U.S., for Latin America, for Europe, and for the world if the U.S. interest rates came down even more. But other competing goods must also be achieved: federal spending must come down; inflation must be kept down; unemployment must come down still further. In economics one cannot proceed by wishes. Each action generates responses within a dynamic, moving pattern of millions of independent decision makers.
Even apart from practical considerations, it is false for Latin American critics to blame the U.S. for their own failures to use credit creatively. They borrowed freely, if unwisely. Equally unwisely, governments and banks lent to them. The parable of the foolish virgins is not irrelevant. Naturally, a people may decide, if it wishes, that it would prefer to maintain its traditional virtues and institutions, rather than to adapt itself to the virtues and institutions necessary for economic development. All have the right to do so.
Take, for example, the field of agriculture — the most basic of economic matters. With notable exceptions, most nations on this planet have received from the Creator sufficient arable land to be self-sufficient in food. Yet many nations so blessed impose political obstacles to the economic vitalities of farmers, in some cases setting price controls on food which make farmers lose money; in other cases pouring capital into fanciful schemes developed by bureaucrats for new urban centers, for highways that lead nowhere, and for wasteful industrial developments which seldom seem to go according to “plan,” rather than into fertilizers, tools, transport, and a favorable trading environment for farmers. Nations cannot repress their own farmers with impunity. The cause of hunger in the world is far more often political (and local) than economic.
Self-sufficiency in food is, for many poor nations, an important step towards economic development. Those systems work best in producing abundant food which most respect private property for small farmers, as well as for large; open markets and market pricing; adequate incentives for the hard and laborious work of agriculture; and wise investment and tax policies. Most democratic capitalist lands not only feed their own populations but are net exporters of food; others, such as Japan and Switzerland, specialize in mercantile or other skills in order to pay for food imports. Statist societies, whether traditionalist or socialist, have in many (if not most) cases frustrated their own farming sectors, and are net drains upon world food supplies.
Finally, it is improper to concentrate upon “the gap” alleged to exist between poor and rich countries, rather than upon uplifting the poor within the poor countries. The latter is the criterion pointed to by Christ in Matthew 25: to feed the hungry, give drink to the thirsty, clothe the naked. Christ does not speak here about the distance between the rich and the poor, but about the real needs of the poor, which must be met. Such systematic needs can only be met by systems designed to conquer scarcity. This is the problem for which the political economy of democratic capitalism has been expressly designed. What doth it profit a nation to redistribute scarcity? The first systemic task is to produce abundance, and in such a way that the poor are quickly uplifted, as has happened in many formerly Third World nations, which deserve to be studied as models. Nations which are failing economically — often despite immense natural resources, abundant arable lands, favorable natural climates, and other blessings of the Creator — evince dramatic failures to grasp the causes of the wealth of nations. Such causes are not only knowable but known; they are not inimitable. Equally as poor as others in 1950, many developing countries have made spectacular progress both in uplifting their poor and in closing the “gap” between themselves and the nations which developed earlier. Nonetheless, closing the “gap” is less important in the Christian scheme than uplifting the poor.
It is to the advantage of the developed nations that the poorer nations should develop quickly, and that standards of living among the poorest people should rise quickly. It is to their moral advantage, to their political advantage, and to their economic advantage. Thus, the wealth of the United States has not been diminished in the least by the “economic miracles” of post-war Western Europe, Japan, and a growing legion of other nations. On the contrary, it has been enhanced. For the creation of new wealth anywhere tends to help all others elsewhere. The good fortune of some tends to be the good fortune of all. This is all the more true when each country keeps its borders open to goods from other countries, so that trade is voluntary and mutually beneficial.
We reject as empirically unfounded the proposition that the wealth of some causes the poverty of others. We reject as false the proposition that the poverty of poor nations is caused by the wealth of richer nations. Like persons, nations are each different from every other, exhibiting inequalities along many dimensions. Yet many nations which are small, densely populated and poor in natural resources, have developed systems of political economy which have placed them in the first rank. Chief among them, but not alone, is Japan.
Often enough, religious and moral ideas lead to the design of systems of political economy which frustrate economic activism and economic creativity. Feeding the hungry, giving drink to the thirsty, and clothing the naked means, in the long run, ceasing to frustrate the talents given every people of the planet by their Creator. Such frustration comes, most often, from the heavy hand of politics, whether in socialist or in traditional statist societies. It is to politics that those who would follow Matthew 25 ought first to look, in order to discover the roots of economic frustration.
. . .
The human sources of a dynamic economy are many. Whether issuing in new goods and services or in new methods of production, marketing, transport, and service, intellectual creativity lies at the heart of development. Such creativity is one of the most difficult, yet most rewarding, of all economic activities. Creative moments come as gifts. The flash of insight is free and comes by its own proper laws. Nonetheless, environments making their occurrences more frequent can be systematically contrived. Thus, a social order within which creative intellect thrives is crucial. Incentives, liberties, incubating time, teamwork, and even education of certain kinds seem to be important. Investors must stand ready to identify and to support practicable ideas. Government policies must, at the very least, not stifle creativity and, at best, provide patent laws, laws of incorporation, credit laws, tax policies, and a regulatory environment which permit its flowering. The importance of new ideas to economic creativity can scarcely be exaggerated.
Nonetheless, some nations so heavily penalize creative enterprise as to deprive their populations of economic dynamism. In many nations it is almost impossible to start new businesses. Governments make creative entry difficult, and banks do not make loans to small beginners.
Having seen many such cases, we thoroughly reject the view that economic benefits “trickle down” from economic heights. On the contrary, the greatest sources of new invention, new employment, and the new horizons of the future classically come from grassroots entrepreneurship, much less often than from the corporate giants. In a continental, worldwide economy, large corporations play an indispensable role. Yet a vast majority of the world’s workers will depend for jobs on the flowering of millions of small enterprises. In the United States, too, the five hundred largest corporations employ only one American in eight, and they do not often serve as the cutting edge of the future. They are typically geared to providing goods and services to a very broad popular base (thus their size). By far the major source of new jobs lies in small, not large, businesses.
Economic activism characterizes a nation first at the grassroots or not at all. Since the 1960s, we have observed many developing nations attempt to energize their economies from the top down, building heavy industries under direct state control. This policy almost never works. On the contrary, those nations that have permitted and promoted economic activism at the grassroots, in the small business sector and among small farmers, have shown spectacular patterns of growth. When an entire population is economically energized from the bottom up, much faster growth ensues. Wealth does not trickle down; it wells up from below — as, most often, does economic talent.
In the task of co-creation — bringing forth from each part of creation the economic possibilities with which the Creator unequally endowed each — participation by the whole of society, from the bottom up, is in our experience, as in Catholic teaching, the most fruitful course.
We turn now to grievous problems in the U.S. — and world — economy.