The following talk was given at Pontificia Universita Lateranse on 28th March at the launch of the Italian edition of ‘Catholic Social Teaching and the Market Economy’, published in English by St. Pauls.
The background to the debate
Catholic social teaching has an ambiguous relationship with globalisation. It has often been quite critical of free trade, or at least suggested that trade should be managed in various ways, both within countries and through international institutions. This was true in the 1960s in the advice the Church gave to developing countries. And it is clearly a strand of Pope Francis’ thinking.
In the secular world, globalisation is clearly taking a hammering at the moment. Popular discontent about some aspects of globalisation have been fuelling the political debate in Holland, France, and also the debate surrounding the election of Trump’ though it is worth noting that discontent about globalisation was a rather small factor in the UK Brexit referendum.
There is a paradox in this debate. The Church tends to be much more sceptical about the free movement of goods and capital than it is about migration. Presumably, that is because the human cost to an individual who is unable to move to a more prosperous and safer place is more visible and more immediate than the human cost to an individual unable to participate in free trade or benefit from the free movement of capital. At the same time, secular populist movements tend to focus on migration – though that is not always the case, especially in France and the US where free trade also seems to be in their sights.
Catholic commentary on free trade
In 1967 Pope Paul VI’s Populorum progressio, which inspired the creation of Catholic aid agencies throughout the developed world, was highly critical of free trade, suggesting that it would only work between countries that are roughly equal economically. It argued for price support schemes and for the protection of infant industries. Indeed, time and again in the document, arguments for free trade were qualified and critiqued. The encyclical suggested that trade involved exploitation of the poor by the rich. For example, it was stated: “trade relations can no longer be based solely on the principle of free, unchecked competition, for it very often creates an economic dictatorship.”
Both economic theory and empirical evidence run very much in the other direction. Trade between countries that are different from each other is much more beneficial than trade between parties that are similar. What can be gained from a country that has a comparative advantage in growing food only trading with other countries that grow food?
The views expressed in Populorum progressio were popular amongst some economists at the time. But, the policies it promoted tended to help the rich and well-connected rather than the needy. Certainly, South America, many African countries and India have not benefited from huge levels of protectionism. Amongst many reasons for this is that trade barriers promote corruption. Professor Sir Paul Collier once noted that the bribe to get into the training school for customs officers in Madagascar was 50 times per capita annual income – such a job in a country with high trade barriers is a well-trodden path to enrichment (rather like a tax collector in Jesus’s time). The attempts by government to direct development in particular sectors or protect domestic markets or promote policies of import substitution have often promoted mass poverty and corruption or, at best, hindered economic growth. Tanzania is a good example of a country that followed these sorts of policies and incomes stagnated at shockingly low levels. By the mid-1980s, some textile mills were operating at 10 per cent capacity in an industry that was protected and promoted by the government.
In these prudential areas, scholars such as Rodger Charles have argued that the Church was taking the best advice of social scientists working in this field at that time. Thus it would be reasonable to change the tenor of the teaching as that advice changed. And Centesimus annus, published in 1991, did seem to give rise to a change of tune – or at least the notes were played with a different tone. Aware of the realities facing countries that rejected globalisation, John Paul II commented that it was those countries that had integrated into international markets that had developed most quickly and that prevailing views had changed when it came to free trade. Pope Benedict XVI also reminded us in Caritas in veritate about the importance of developed countries opening their markets to the exports of poorer countries.
Pope Francis’ scepticism of globalisation is well known. He has made, to put it mildly, made contentious statements on the effect of globalisation on inequality and poverty. At the same time, though, he has recognised the positive aspects of globalisation. In his main teaching documents, the concerns he has expressed have tended to be related to the impact of globalisation on culture rather than on the economy.
Again, there is a paradox here as globalisation is most likely to affect culture through migration of which the Church has been strongly supportive. But, we also should not close our minds to the enrichment of cultures that happens through globalisation. Indeed, it is probably not an exaggeration to say that the Catholic Church in England is being revitalised by migration today just as it was revitalised by migration in the late 19th century.
What does the balance sheet look like?
When we take all these arguments into account, what should we think about globalisation and nationalism as Christians?
In my view we should be wholly positive about globalisation and very cautious about nationalism. To begin with, we should not forget that the participation of an increasing number of once-poor countries in world trade has led to the most rapid fall in absolute poverty in the economic history of our planet. And the poverty that people have escaped was not just one characterised by a lack of riches, it was a poverty that had led to whole people’s being at permanent risk of malnutrition and starvation. Not only that, globalisation has also led to a significant fall in inequality – not by all measures and in all places, but the general trend since the 1980s has been for the living standards of the world’s poorest to move much closer to those of the rich world.
Many problems have been laid at the door of globalisation in continental Europe and in the US – especially unemployment and the stagnation of incomes. It is certainly very difficult to argue that unemployment in continental Europe has anything to do with globalisation. And the factors that have caused incomes to stagnate in the US are complex. Of course, that does not mean that we should not be sensitive to these problems and try to find solutions. But, the reality is that globalisation is an overwhelmingly positive force which I believe should be defended by Christians.
Globalisation does, of course, make more complex demands on institutions, trans-national companies and individuals as we try to navigate difficult problems pertaining to economic development and the employment of people who may have few opportunities – and also as we deal with economic change domestically.
But, the question that the book Catholic Social Teaching and the Market Economy tries to address in a numbers of spheres is what should be the role of the state – or the role of public policy? After all, that is the sort of question that we consider at general elections and in referenda.
I would argue that, given what we know about human nature, the regulation of trade through trade barriers is not going to lead people either to prosperity or to virtue. It encourages rent seeking and corruption. It also encourages an ugly competition in politics as people seek to use the political system for the pursuit of self-interest.
Perhaps the missing ingredient here is ‘social justice’. You might think that social justice in the international sphere is all about foreign aid, or income distribution and state regulation. Properly understood it isn’t. Social justice is about all those actions and rules of behaviour that need to be embedded within institutions and that are necessary so that all can live in dignity and live a good and virtuous life – in other words, so that the common good is promoted. The fact that I believe that the role of the state in regulating trade should be limited does not lessen the responsibility for all actors in the economy to act virtuously and with social justice, it increases it.
Conclusion
Globalisation has brought huge prosperity to people who previously lived lives of misery; it has allowed the planet to support a much greater population; and it has allowed the inter-mingling of cultures in a way that has brought many benefits – not least to a Europe that is on the edge of a demographic black hole. At the same time, it is quite difficult to think of protectionist actions by government that have been effective in promoting prosperity, the common good or a virtuous society.
When globalisation is under attack, I believe that Christians should be the first to speak up in its defence. Indeed, I believe we have a responsibility to do so. Bad economic policy is a matter of life and death for people who live on the edge – and they should be our first concern. The virtue of prudence demands that we think carefully before embracing the rhetoric of nationalist and populist movements.
The background to the debate
Catholic social teaching has an ambiguous relationship with globalisation. It has often been quite critical of free trade, or at least suggested that trade should be managed in various ways, both within countries and through international institutions. This was true in the 1960s in the advice the Church gave to developing countries. And it is clearly a strand of Pope Francis’ thinking.
In the secular world, globalisation is clearly taking a hammering at the moment. Popular discontent about some aspects of globalisation have been fuelling the political debate in Holland, France, and also the debate surrounding the election of Trump’ though it is worth noting that discontent about globalisation was a rather small factor in the UK Brexit referendum.
There is a paradox in this debate. The Church tends to be much more sceptical about the free movement of goods and capital than it is about migration. Presumably, that is because the human cost to an individual who is unable to move to a more prosperous and safer place is more visible and more immediate than the human cost to an individual unable to participate in free trade or benefit from the free movement of capital. At the same time, secular populist movements tend to focus on migration – though that is not always the case, especially in France and the US where free trade also seems to be in their sights.
Catholic commentary on free trade
In 1967 Pope Paul VI’s Populorum progressio, which inspired the creation of Catholic aid agencies throughout the developed world, was highly critical of free trade, suggesting that it would only work between countries that are roughly equal economically. It argued for price support schemes and for the protection of infant industries. Indeed, time and again in the document, arguments for free trade were qualified and critiqued. The encyclical suggested that trade involved exploitation of the poor by the rich. For example, it was stated: “trade relations can no longer be based solely on the principle of free, unchecked competition, for it very often creates an economic dictatorship.”
Both economic theory and empirical evidence run very much in the other direction. Trade between countries that are different from each other is much more beneficial than trade between parties that are similar. What can be gained from a country that has a comparative advantage in growing food only trading with other countries that grow food?
The views expressed in Populorum progressio were popular amongst some economists at the time. But, the policies it promoted tended to help the rich and well-connected rather than the needy. Certainly, South America, many African countries and India have not benefited from huge levels of protectionism. Amongst many reasons for this is that trade barriers promote corruption. Professor Sir Paul Collier once noted that the bribe to get into the training school for customs officers in Madagascar was 50 times per capita annual income – such a job in a country with high trade barriers is a well-trodden path to enrichment (rather like a tax collector in Jesus’s time). The attempts by government to direct development in particular sectors or protect domestic markets or promote policies of import substitution have often promoted mass poverty and corruption or, at best, hindered economic growth. Tanzania is a good example of a country that followed these sorts of policies and incomes stagnated at shockingly low levels. By the mid-1980s, some textile mills were operating at 10 per cent capacity in an industry that was protected and promoted by the government.
In these prudential areas, scholars such as Rodger Charles have argued that the Church was taking the best advice of social scientists working in this field at that time. Thus it would be reasonable to change the tenor of the teaching as that advice changed. And Centesimus annus, published in 1991, did seem to give rise to a change of tune – or at least the notes were played with a different tone. Aware of the realities facing countries that rejected globalisation, John Paul II commented that it was those countries that had integrated into international markets that had developed most quickly and that prevailing views had changed when it came to free trade. Pope Benedict XVI also reminded us in Caritas in veritate about the importance of developed countries opening their markets to the exports of poorer countries.
Pope Francis’ scepticism of globalisation is well known. He has made, to put it mildly, made contentious statements on the effect of globalisation on inequality and poverty. At the same time, though, he has recognised the positive aspects of globalisation. In his main teaching documents, the concerns he has expressed have tended to be related to the impact of globalisation on culture rather than on the economy.
Again, there is a paradox here as globalisation is most likely to affect culture through migration of which the Church has been strongly supportive. But, we also should not close our minds to the enrichment of cultures that happens through globalisation. Indeed, it is probably not an exaggeration to say that the Catholic Church in England is being revitalised by migration today just as it was revitalised by migration in the late 19th century.
What does the balance sheet look like?
When we take all these arguments into account, what should we think about globalisation and nationalism as Christians?
In my view we should be wholly positive about globalisation and very cautious about nationalism. To begin with, we should not forget that the participation of an increasing number of once-poor countries in world trade has led to the most rapid fall in absolute poverty in the economic history of our planet. And the poverty that people have escaped was not just one characterised by a lack of riches, it was a poverty that had led to whole people’s being at permanent risk of malnutrition and starvation. Not only that, globalisation has also led to a significant fall in inequality – not by all measures and in all places, but the general trend since the 1980s has been for the living standards of the world’s poorest to move much closer to those of the rich world.
Many problems have been laid at the door of globalisation in continental Europe and in the US – especially unemployment and the stagnation of incomes. It is certainly very difficult to argue that unemployment in continental Europe has anything to do with globalisation. And the factors that have caused incomes to stagnate in the US are complex. Of course, that does not mean that we should not be sensitive to these problems and try to find solutions. But, the reality is that globalisation is an overwhelmingly positive force which I believe should be defended by Christians.
Globalisation does, of course, make more complex demands on institutions, trans-national companies and individuals as we try to navigate difficult problems pertaining to economic development and the employment of people who may have few opportunities – and also as we deal with economic change domestically.
But, the question that the book Catholic Social Teaching and the Market Economy tries to address in a numbers of spheres is what should be the role of the state – or the role of public policy? After all, that is the sort of question that we consider at general elections and in referenda.
I would argue that, given what we know about human nature, the regulation of trade through trade barriers is not going to lead people either to prosperity or to virtue. It encourages rent seeking and corruption. It also encourages an ugly competition in politics as people seek to use the political system for the pursuit of self-interest.
Perhaps the missing ingredient here is ‘social justice’. You might think that social justice in the international sphere is all about foreign aid, or income distribution and state regulation. Properly understood it isn’t. Social justice is about all those actions and rules of behaviour that need to be embedded within institutions and that are necessary so that all can live in dignity and live a good and virtuous life – in other words, so that the common good is promoted. The fact that I believe that the role of the state in regulating trade should be limited does not lessen the responsibility for all actors in the economy to act virtuously and with social justice, it increases it.
Conclusion
Globalisation has brought huge prosperity to people who previously lived lives of misery; it has allowed the planet to support a much greater population; and it has allowed the inter-mingling of cultures in a way that has brought many benefits – not least to a Europe that is on the edge of a demographic black hole. At the same time, it is quite difficult to think of protectionist actions by government that have been effective in promoting prosperity, the common good or a virtuous society.
When globalisation is under attack, I believe that Christians should be the first to speak up in its defence. Indeed, I believe we have a responsibility to do so. Bad economic policy is a matter of life and death for people who live on the edge – and they should be our first concern. The virtue of prudence demands that we think carefully before embracing the rhetoric of nationalist and populist movements.
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Economic Theory
31 March 2017
Economic Theory
Regulation