For many if not most, the idea of a “moral economy” is a contradiction. I was reminded of this when reading some of the comments on my last blog post. The logic is straightforward: the “business of business is business”, which is to maximize profits, and as long as corporations don’t break any laws, they are not doing anything wrong. To claim otherwise would be seek perfection in a fallen world.
In my own field of economics, this perspective is pervasive. One of the first things you learn in elementary microeconomics is that consumers maximize utility and firms maximize profits. That’s just how things are. This view is summed by nicely by Branko Milanovic:
“I am thus intellectually sympathetic to the view that personal morality exists only outside economics or capitalism. I might like the guys who are nice and ethical, but when it comes to economics I really do not expect them to be so. I even very much doubt when they claim they are. I tend to see them as hypocritical. This is not in their job description.”
Milanovic makes a comparison with bobsledding—you can go as fast as you like, but you should not hit the fence. In other words, do whatever you can to maximize profits, but don’t break the law. So Milanovic refuses to condemn the behavior of the financial sector in the run-up to the crisis, because they were doing what they are supposed to do and (for the most part) not breaking the law.
I singled out Milanovic because he is not a libertarian type at all. His research focuses on inequality, and it is top notch (I wrote a review of his latest book). But he remains wedded to the dominant paradigm of neoclassical economics.
Of course, there are different shades of this argument. Our friends at places like Acton like to argue that ethics do indeed belong in economics, but they are really talking about personal traits like honesty and integrity—a focus that is too narrow and too shallow. Such a focus cannot get to grips with the deeper issues—the flawed understanding of the human person, the ingrained ideology that self-interest is virtuous, the corrupting influence of structures of sin in a globalized economy, the dominance of a technocratic paradigm that assesses economic decisions solely on the basis of utility and efficiency.
It helps to give some concrete examples. These could of course fill a whole book, but let me mention just four:
- Hedge fund manager John Paulson teams up with Goldman Sachs to put together a portfolio of assets he knew was worthless, and presents it to investors as a great prize. Paulson shorts the asset and makes a $1 billion profit.
- Pharmaceutical company Gilead buys the patent to a drug necessary for treating hepatitis C, a disease that kills 700,000 people a year. Although it costs only $1 a pill to make, Gilead raises the price to $1000—knowing that some people will die because they cannot pay for a full course of treatment.
- Although Walmart makes about $18 billion a year in profits, it refuses to pay its workers a living wage. Simply raising workers wages to a level whereby workers no long qualify for food stamps—still quite pitiable—would cost about $5 billion. But $13 billion in profits is too low for Walmart, so it forces the taxpayer to subsidize its workers’ wages.
- Exxon spent decades covering up evidence of climate change, and spending millions promoting misinformation—solely to protect its short-term financial interest.
I could go on…and on and on. I could talk about the $20 trillion squirreled away in tax havens. I could talk about the refusal of garment companies to adopt even the most basic labor standards in developing countries. I could talk about what Pope Francis refers to as an “ecological debt”—the all-too-frequent tendency of multinationals to befoul local environments.
But if you follow the standard lines of neoclassical economics, there’s nothing wrong with any of this. There’s no law breaking. It’s just market forces of supply and demand. And markets need incentives to work. I seriously doubt the Acton types who push for a virtuous economy worry about any of this either, because they too have bought into the ideology that animates it.
It goes without saying that this is not the perspective of Catholic social teaching.
The starting point for Catholic social teaching is that all sectors and elements of society must be oriented toward the common good, and that includes business too. Business is quite simply a community of persons who come together to serve the needs of others. As a society, we make prudential judgments over which tasks should be undertaken by government, and which tasks should be undertaken by the private sector. But all activity must be directed toward the common good. So even through the starting points differ, the destination is the same.
Yet most people probably don’t see it that way. A libertarian would argue that the only goal of business is to maximize profits, typically identified with shareholder value. Yet even progressives are at fault. Their solution is typically to have the government step in to clean up the mess, too often letting corporations off the hook.
In terms of Catholic social teaching, some of the most profound insights in this area are found in Caritas in veritate, Pope Benedict XVI’s social encyclical from 2009. One of the main themes of this encyclical is that “every economic decision has a moral consequence.” Accordingly, Pope Benedict calls for a “profoundly new way of understanding business enterprise”. He argues that when corporations see themselves as responsible only to their shareholders, the common good is not served. Instead, businesses are called upon to acknowledge a broader responsibility to a wider array of stakeholders—including workers, suppliers, consumers, the natural environment, and society at large.
In a key passage, Pope Benedict argues that:
“The Church's social doctrine holds that authentically human social relationships of friendship, solidarity and reciprocity can also be conducted within economic activity, and not only outside it or “after” it. The economic sphere is neither ethically neutral, nor inherently inhuman and opposed to society. It is part and parcel of human activity and precisely because it is human, it must be structured and governed in an ethical manner.”
So business cannot simply outsource ethics to government. Solidarity is not just for the state and civil society—it is a virtue applicable to business too. Making profits and fulfilling social responsibilities are complements, not substitutes.
So how exactly should business serve the common good? A detailed account of this is given in the Vocation of the Business Leader, published by the Pontifical Council for Justice and Peace—and updated informally to account for Laudato si’ in some recent speeches by Cardinal Turkson. The guide shows how business serves the common good in three distinct areas:
- Good goods: This means providing “goods that are truly good and services that truly serve”. In other words, business is called upon to produce goods and services that meet genuine human needs and facilitate real human flourishing.
- Good work: This means prioritizing the goal of employment over profits. It reflects the centrality of employment for flourishing—as Pope Francis puts it, work is “part of the meaning of life on this earth, a path to growth, human development and personal fulfillment.”
- Good wealth. This means creating sustainable wealth and distributing it justly. Again, businesses are urged to focus less exclusively on profit maximization, which too often leads to an economy of exclusion and the degradation of our common home.
At the end of the day, Pope Francis refers to business as a “noble vocation”. But to truly live out that vocation, it must realize its calling to serve the whole of society, not just its own bottom line.