Pope Francis's Economics Hurt the Poor He Aims to Help

Recently named Time magazine's "Person of the Year" for 2013, Pope Francis II has been touted by Time's editors as "The People's Pope" for his ministering to the poor and other disenfranchised people of the world. This Papal emphasis on the poor, and specifically the issue of global income inequality and the role of capitalism in this vexing conundrum, is most vividly displayed in the Pontiff's first solo apostolic exhortation, Evangelii Gaudium. This encyclical to the faithful, translated from the Latin as The Joy of the Gospel, was released to the public in late November. Time magazine's editors' note that in The Joy of the Gospel "he (Pope Francis) goes directly after capitalism and globalization."

In previous Papal encyclicals, Popes have questioned the morality of conspicuous consumption in the economically wealthy West. This latest encyclical, however, clearly establishes Pope Francis' views on global capitalism and its "failure" to lift the poor out of their economic impoverishment. Importantly, Francis exhorts that "to safeguard the value of human life, today we also have to say ‘thou shalt not' to an economy of exclusion and inequality. Such an economy kills (emphasis added)."

Pope Francis also believes that the existing global economic and financial system is an example of economic Darwinism, whereby "everything comes under the laws of competition and the survival of the fittest, where the powerful feed upon the powerless. As a consequence, masses of people find themselves excluded and marginalized, without work, without possibilities, without any means of escape."

While there have been both criticisms and accolades of Francis II's views on capitalism and inequality appearing in the media over the last month, a careful reading of the Pontiff's words can provide deeper insights into what the leader of 1 billion Catholics, and many would say Christianity, has to say about the state of capitalism and morality in the global marketplace.

Pope Francis argues that the "earnings of a minority are growing exponentially [but] so too is the gap separating the majority from the prosperity enjoyed by those happy few. This imbalance is the result of ideologies which defend the absolute autonomy of the marketplace and financial speculation." According to Pope Francis, "some people continue to defend trickle down theories which assume that economic growth, encouraged by a free market, will inevitably succeed in bringing about greater justice and inclusiveness in the world. This opinion, which has never been confirmed by the facts (emphasis added), expresses a crude and naïve trust in the goodness of those wielding economic power and in the sacralized workings of the prevailing economic system." In conclusion, the Holy Father argues that [W]e can no longer trust in the unseen forces and the invisible hand of the market."

For the Pontiff, these ‘free market capitalists' "reject the right of states, charged with vigilance for the common good, to exercise any form of control." The result, says Francis II, is that "[A]new tyranny is thus born, invisible and often virtual, which unilaterally and relentlessly imposes its own laws and rules (emphasis added). In this system, which tends to devour everything which stands in the way of increased profits, whatever is fragile, like the environment, is defenseless before the interests of a deified market, which becomes the only rule."

The Holy Father leaves little doubt of his disdain for a ‘free market capitalism' which embodies "the absolute autonomy of markets" and the economic inequality that it has allegedly wrought - a global economy "whose exclusion kills." But where does this ‘free market capitalism' that Pope Francis rails against reign - where business "rejects the right of states ... to exercise any form of control?"

I know of no countries operating under strong democratic institutions and embracing a largely capitalist economic system that have business interests actively rejecting the right of government to regulate commercial activities. While business interests question the effectiveness or appropriateness of certain government regulations, there is no widespread call for the wholesale deregulation of the business environment by the private sector. In fact, there is overwhelming evidence that the regulatory state in the developed economies of the U.S., Canada, and Western Europe has promulgated an unceasing volume of administrative rules regulating the operating behavior of their industries. As Mark J. Perry and I argue in our article "Myths of American ‘Cowboy Capitalism", (TheAmerican.com, March 3, 2013), the U.S. economy, an often cited model of ‘free market capitalism', since the 1930s has become increasingly regulated by the administrative state:

The Code of Federal Regulations (established in 1938) is where all the administrative rules of U.S. federal agencies are compiled and which American business, employees, and consumers must legally comply. To provide perspective on the growth of the U.S. regulatory state, the Federal Register, in its first volume published in 1936, contained 2,620 pages. In 2012, in its 77th volume, the Federal Register contained 77,249 pages - an increase of 2,948 percent.

One of the hallmarks of business interests operating in capitalist societies is to reduce environmental uncertainty for managers. Consequently, the establishment of legal and regulatory institutions is conducive for a stable business operating environment. In fact, government regulation in capitalist economies is justified by the economic concept of market failure and ironically, with both capture and rent-seeking theories evolving over the 20th century that justify how this regulation actually serves the interests of business firms.

Furthermore, the proliferation of competition (antitrust) laws is also noteworthy, as a response to the Pope's comment that "everything comes under the laws of competition and the survival of the fittest, where the powerful feed upon the powerless." According to antitrust scholar Anestis S. Papadopoulos (The International Dimension of EU Competition Law and Policy, Cambridge University Press, 2010), as of 2008, 111 countries had enacted competition laws which regulate specific uncompetitive business behavior, with 81 of these countries having enacted their laws within the previous 20 years. This global movement to extend the rule of law to restricting certain business behaviors by no means is a reflection of a global economy which has embraced ‘free market capitalism' and the "absolute autonomy of markets."

As to further addressing the ‘absolute autonomy of markets", Samuel Gregg, research director at the Michigan-based Acton Institute ("Pope Francis and Poverty", National Review Online, November 26, 2013), notes that:

In most Western European countries, for instance, governments routinely control an average of 40 percent of their nations' GDP [Gross Domestic Product]. In many developing countries, the percentage is even higher. How much more of the economy do we really want to put into the state's hands? Is there no upper limit?

The Pontiff's lifetime experience with Argentina's economic system has undoubtedly influenced his view of capitalism. According to The Wall Street Journal/Heritage Foundation 2013 Index of Economic Freedom ("Economic Freedom Index"), Argentina ranked 160 out of 177 countries on the basis of economic freedom. The Economic Freedom Index measures the following ten categories of economic freedom: property rights; freedom from corruption; business freedom; labor freedom; monetary freedom; government spending; fiscal freedom; trade freedom; investment freedom; and financial freedom. Argentina's overall score of 46.7 falls into what the Heritage Foundation analysts categorize as a "repressed" economic environment. Argentina now ranks 27 out of 29 countries in the South and Central America/Caribbean region. Argentina's political economy is far from representative of how capitalism should effectively operate, as it is a poster child for market distorting trade protectionism policies and political cronyism. According to the Economic Freedom Index:

The foundations of economic freedom in Argentina are increasingly fragile, severely hampered by structural and institutional problems caused by growing government intrusion into the marketplace. The judicial system has become more vulnerable to political interference, and corruption is prevalent.

Pope Francis also exhorts "the rich must help respect and promote the poor." Thus, the global financial system must serve rather than rule. He believes that existing financial system represents both "a rejection of ethics and a rejection of God" since "ethics leads to a God who calls for a committed response which is outside the categories of the marketplace", one who "calls human beings to their full realization and to freedom from all forms of enslavement." The Holy Father's solution is to call for an "[E]thics - a non-ideological ethics - [that] would make it possible to bring about balance and a more humane social order." And what would it take for "[A] financial reform open to such ethical considerations?" According to Pope Francis, "a vigorous change of approach on the part of political leaders."

No doubt that establishing "a non-ideological ethics", or universal business ethic for global capitalism, is a major and laudable challenge for business leaders, as business ethics matter. But if the Pontiff is citing "political leaders", then he is referencing those individuals who are lawmakers. These "political leaders" enact and enforce the laws that regulate national and global financial systems. And as Samuel Gregg notes in his article, "[T]he lack of law not only ranks among the biggest obstacles to their [developing nations] ability to generate wealth on a sustainable basis, but also hampers their capacity to address economic issues in a just manner."

Pope Francis has a deep, genuine concern for the poor and the disenfranchised - a subject of which he has first-hand knowledge - and a concern shared by this author and others. But when it comes to capitalism, his writings reflect what I hope is a naiveté, a lack of a deep, critical understanding of how the dynamics of political and cultural institutions and markets interact, and an appreciation of the empirical evidence that reflects the reality of this dynamic political institution-market interaction. This knowledge is readily available to the Pontiff, and for the sake of the 1 billion Catholics who he leads, I hope that Pope Francis will recognize the societal benefits that capitalism has brought to much of the Western world, and more recently the rapid improvement in the standard of living for hundreds of millions of people throughout Asia. Pope Francis needs to understand that "unfettered" capitalism - if it exists in the 21st century - is by no means how capitalism successfully operates in modern society. When allowed to operate with a reasonable level of efficiency governed by the rule of law and established ethical custom, capitalism can effectively emerge as the primary global driver for moving tens of millions of people out of poverty - a socio-economic end-game that Pope Francis should both encourage and applaud.