Homeless in New York City (Lionel Derimais/Alamy Stock Photo)

The Fallen Idol

A Catholic alternative to neoliberalism

 

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Something has gone awry over the past four decades. Despite record-setting global prosperity, the common good is threatened by ever more extreme economic and social dysfunctions. Although we’ve witnessed impressive gains in poverty reduction—driven largely by China—we still have enormous levels of poverty, deprivation, and exclusion in a world of unprecedented wealth. According to the World Bank, about one in ten people alive today lives in extreme poverty, eking out a meager existence on less than $1.90 a day. Around 6 million children die each year before their fifth birthday, and almost all of those lives could be saved by cheap and straightforward medical interventions.

Inequality within countries has also skyrocketed over the past forty years. According to the World Inequality Report, since 1980 the world’s top 1 percent have profited twice as much from economic growth as the bottom 50 percent have. The big winners of this era were the global super-rich. As a percentage of global GDP, the wealth of the world’s billionaires has doubled over this period. This staggering inequality is the consequence of a toxic combination of trends. Technological changes have benefited high-skilled workers and the owners of capital; globalization has allowed corporations to set up camp in countries with the lowest taxes and the fewest regulations and social protections; and the increasing plutocratic capture of the political system has led to policies that favor the rich. The result has been the hollowing out of the middle class and the evisceration of the working class in advanced economies. No wonder the global financial crisis, when bankers were bailed out and ordinary people left to sink, left a bitter legacy of resentment in its wake.

Grave social problems have arisen in tandem with this concentration of wealth. As Robert Putnam has documented in the United States, social ties have become frayed over the past few decades as neoliberal ideology has undermined our sense of solidarity. Signs of this fraying are all around us. They include obesity, substance abuse, and mental-health disorders. Indeed, such problems have become so common and so grave that life expectancy is actually falling among some key demographics.

Hovering over all of this is the existential environmental crisis threatening to destroy the conditions for human flourishing. The greatest threat here is surely climate change, which is driven by the relentless burning of fossil fuels to power the economic juggernaut of our global economy. The energy unleashed by the burning of these fossil fuels powered the Industrial Revolution and laid the groundwork for our global prosperity. But the continued use of those fuels will gradually destroy that prosperity, along with the health of the planet. The concentration of greenhouse gases in the atmosphere is higher than at any time over the past 3 million years. Climate scientists predict that without a major course correction there will be a devastating rise in global temperatures, causing more floods, droughts, fires, and severe weather events. In the years to come, climate change will have enormous impacts on agricultural output, economic growth, poverty, human health, migration, political instability, and conflict.

Blame for the current state of affairs can, to a large extent, be laid at the feet of an ideology known as neoliberalism. That ideology involves an extension of the values of neoclassical economics—values like individualism, efficiency, and competition—to all aspects of society. According to neoliberalism, free markets always and everywhere promote well-being, economic growth will always trickle down, and the private sector needs to be unshackled from the grip of government to be efficient and innovative. Public services should be privatized, industries deregulated. Capital should be allowed to move freely across borders in search of the best investment opportunities.

But neoliberalism has failed, even on its own too-narrow terms. As the economist Robert Gordon has observed, total factor productivity—that portion of economic growth attributable to innovation and technological advance—was three times higher in the United States in the period between 1920 and 1970 than in the following period of fifty years, when neoliberal policies were systematically implemented. Those policies simply did not deliver the supply-side miracle their champions promised. And while growth slowed across the board, it was the poor who saw the largest decline.

There is a tight correlation between extreme inequality and the loss of trust in institutions of all sorts, including the government.

The failure of neoliberalism has brought us to a dangerous juncture. As the poor and working classes are left behind, and as social and psychological problems mount, the backlash has the potential to be ferocious. We are already seeing the warning signs. The sense of shared purpose a society needs in order to pursue the common good seems elusive. Instead, economic frustration and anxiety play into the hands of demagogues with easy answers. There is a tight correlation between extreme inequality and the loss of trust in institutions of all sorts, including the government. When that happens, democracy itself is in jeopardy. The history of the early twentieth century teaches us clear lessons in this regard.

Yet in the middle of that century, Europe and America managed to crawl back from the abyss—largely by embracing social democracy, which yoked the market economy to an activist state. Three forces account for the emergence of this era. First, the Great Depression led to a loss of faith in the power of self-correcting markets. Second, the shared wartime experience jump-started social solidarity, which was extended into the postwar period, and took a generation to fade away. Third, the democratic world eyed communism nervously, and sought ways to dampen its appeal to the working classes. It is no coincidence that neoliberalism reached its apogee only after the final collapse of communism.

The social-democratic era was marked by robust welfare states, wide-ranging financial regulation, control of monopolies, strong unions and collective bargaining, and high marginal tax rates. These institutions encapsulated a spirit of solidarity and shared purpose. In stark contrast with the neoliberal era, the social-democratic experiment was a huge success on both sides of the Atlantic, marked by robust, broadly shared economic growth and strong financial stability.

 

The question to be asked is this: Can our present crisis be resolved by a new social-democratic moment, attuned to the particular circumstances of the twenty-first century? I believe the answer is yes, and that the solution can be informed by the principles of Catholic social teaching. To see this, it helps to explore the role that Catholic social teaching played in the first social-democratic moment. As the historian Tony Judt noted, the postwar European Christian Democratic movement—largely inspired by Catholic social teaching—found common cause with left-wing social democracy against laissez-faire economics. Christian democracy supported a “social market economy” to protect families from the vagaries of capitalism. James Chappel has recently argued that during the twentieth century, Catholic social thought was largely divided between two tendencies: what he calls “paternal” Catholicism—which vigorously opposed communism and elevated the family as the basic unit of society—and “fraternal” Catholicism, which tended to be more left-wing. Yet these two strands came together in the domain of economics during the postwar period. Both supported the state’s role in regulating the economy to promote the common good, providing universal social services funded by taxes and social contributions, and empowering unions as a bulwark against excessive corporate power—the kind of power that greased the wheels of fascism.

Although there was never a Christian Democratic movement in the United States, President Franklin D. Roosevelt’s New Deal was influenced by Catholic social teaching—especially under the tutelage of social ethicist Msgr. John A. Ryan. The New Deal limited the excesses of the market, encouraged just and harmonious industrial relations, created dignified public employment for those in need, and protected people from various kinds of market risks. Its goals extended well into the postwar period and were widely accepted on both sides of the partisan divide. Dubbed by some the “Treaty of Detroit,” the set of institutions combining high taxes on the rich, robust minimum wages, and strong collective-bargaining rights helped usher in a remarkable period of industrial stability and shared prosperity. President Lyndon B. Johnson extended the New Deal with his War on Poverty in the 1960s, which led to the creation of Medicare and Medicaid.

“The New Deal,” by Conrad A. Albrizio (National Archives and Records Administration/Wikimedia Commons)

So what are the prospects for a new social-democratic moment informed by Catholic social teaching? To answer this question, one must first appreciate the differences between the principles of Catholic social teaching and those of neoliberalism. The latter have had enormous influence in recent decades, so it makes sense to pick them apart.

The first question to ask is what motivates the person. In neoclassical economics—and by extension neoliberalism—the answer is self-interest. This is often traced to Adam Smith’s famous dictum that without self-interest, businesses would not supply the goods we need and want. By contrast, Catholic social teaching elevates such principles as solidarity, reciprocity, and gratuitousness. It insists that a core human motivation is willing the good of the other, including the person on the other side of an economic transaction. Recent evidence from psychology, neuroscience, and evolutionary biology affirms that there is something to this view—that we are deeply social creatures, honed for cooperation. But if society consistently sends the message that people are selfish and care only about themselves, many people will internalize these values.

The next question to ask is what constitutes the good of the individual. For neoclassical economics, the answer is straightforward: you seek to maximize your subjective preferences. Put simply, you try to consume the most you can, in line with your personal tastes, with whatever resources are available to you. This answer has a number of implications. First, preferences are subjective and hedonic: you like what you like, and questioning the value of another’s preferences is ruled out. Under this framework, anything that is legal can be a valid preference, no matter how well or how poorly it contributes to human flourishing. Second, it tends to treat all goods as commodities, things to be bought and sold. It sidelines the non-material aspects of well-being, including relational and spiritual goods. Third, the logic of maximizing one’s preferences has no internal limit. All that restricts you from consuming more is your income. This leads in turn to the goal of endless economic growth, which runs into grave problems on a finite planet.

When Catholic social teaching ponders the good of the individual, it points in a sharply different direction. It emphasizes instead integral human development, which is the good of the whole person and all people. Thus, it goes beyond the material to emphasize all dimensions of well-being. In an Aristotelian sense, it calls for the fullest development of each person’s potential. Implicit in this is a more objective notion of the good, a good common to all people that sets natural limits to their needs and desires. It does not confuse happiness with the maximal satisfaction of appetites. And that means it does not confuse our collective well-being with maximal economic growth.

But neoclassical economics has no concept of a truly collective well-being, a common good worthy of the name; it can conceive of nothing beyond the aggregated well-being of individuals, which it measures by adding up monetary values. This explains why gross domestic product (GDP)—the summation of all production of final market goods and services in a single economy—acts as a stand-in for the common good under neoliberalism. This is an additive standard (what matters is the total) so it is compatible with staggering levels of exclusion and inequality. As Stefano Zamagni has pointed out, the common good is in this respect more geometric, which means that if one person is a zero, the whole thing is zero.

This brings us to the normative standard of judgment. For neoclassical economics, this standard is efficiency—more precisely, Pareto efficiency, the point at which all voluntary trades are exhausted and it is no longer possible to make somebody better off without making somebody else worse off. Economists often argue that this notion of efficiency is rational and value-free, but it really boils down to the best way to maximize your preferences. Notice the implication: Pareto efficiency rules out redistribution and is thus compatible with extreme inequality. As Amartya Sen put it, “A society or an economy can be Pareto optimal and still be perfectly disgusting.” Catholic social teaching flips this standard of judgment on its head, emphasizing the universal destination of goods and the preferential option for the poor. The standard is therefore meeting the needs of all people and giving special priority to those at the bottom.

For neoclassical economics, not only are consumers supposed to maximize utility, but firms are supposed to maximize profits. Neoclassical economics holds up “perfect competition” as the norm. What does this mean? It assumes a set of market conditions that is not at all common in the real world: an industry where no single producer can influence the price of the good, where the good in question is standardized, and where there is free entry and exit from the market. Under these ideal conditions, the free-market equilibrium is deemed to be Pareto efficient. But notice the number of hoops that economists need to jump through to reach this conclusion—from the highly unrealistic assumptions that hardly ever hold in practice to the role of Pareto efficiency as the highest standard of judgment. Catholic social teaching does not reject market competition outright; it simply appreciates that cooperation is just as—if not more—important, especially as exercised through the principles of solidarity and reciprocity. There is no support in the tradition for central planning or for completely throwing out the price signals that come from markets.

 

What, in all of this, is the role of the environment? In neoclassical economics, there really isn’t one. The underlying ethos is one of extractivism in the service of ceaseless economic growth. Catholic social teaching, by contrast, recognizes a positive injunction to care for creation, and this includes taking strong actions to curb climate change. It elevates the principle of integral ecology, suggesting that hurting the planet means hurting people, especially the poor.

Though neoclassical economics comes out of the utilitarian tradition, it has also absorbed some aspects of libertarianism, owing to its emphasis on unencumbered markets. Like libertarians, neoliberals fear that the state will suffocate the natural potential of the private sector to unleash innovation and growth. They believe that the proper role of government is to act as a neutral referee, guaranteeing the property rights that are essential for free enterprise. Catholic social teaching, on the other hand, has no truck with libertarianism. This is because libertarianism repudiates the idea of a common good—in this framework, “common” entails some element of coercion and insisting on the “good” negates freedom. It should be acknowledged that neoclassical economics does not go quite as far as libertarianism. Since its only standard is efficiency, it approves government intervention if it can be shown to enhance efficiency. For this reason, it will allow government to provide public goods, regulate natural monopolies, and properly price externalities such as pollution. This is better than nothing, but it isn’t enough.

Under Catholic social teaching, the common good in the economic sphere is the proper domain of government.

Under Catholic social teaching, the common good in the economic sphere is the proper domain of government. And the government can best serve the common good by deploying the twin principles of solidarity and subsidiarity. Solidarity calls on the government to ensure the provision of the basic goods necessary for integral human development and the common good, including income security, decent jobs, nutrition, health care, education, housing, and a sustainable environment. It is important to note that the market, left to its own devices, tends to under-supply many of these goods. That means that the state must assume a more active role if people are going to get enough of what they need. It does not mean that the state always needs to supply these goods itself. It can sometimes outsource provisions to the private sector, but one way or another it must ensure that these goods are provided. And owing to the principles of the universal destination of goods and the preferential option for the poor, the poorest must take special precedence in policymaking.

Subsidiarity calls for higher-order associations, including the state, to promote but not usurp the responsibilities of lower-order associations. It calls for a proper balancing of the scales, with government support for what John Kenneth Galbraith called institutions of countervailing power—including unions, small businesses, consumer organizations, cooperatives, and regional and local banks. When establishing the rules of the game, the government should strive to respect, assist, and promote the interests of all participants in the economy, not only the interests of the wealthy and well-connected.

Catholic social teaching also has much to say about the relative roles of capital and labor. Neoclassical economics does not. As noted, neoclassical economics assumes that the sole role of the corporation is to maximize profits, typically equated with shareholder value, and hence that the corporation has no wider social role—this view was stated most forcefully by Milton Friedman. In this framework, labor is simply a factor of production. In labor market equilibrium, which again leans heavily on the assumption of competitive markets, the worker is paid in terms of what they contribute to productivity. Once again, neoclassical economics finds a natural ally in libertarianism as not only wage-efficient but also just, because the wage represents the outcome of free choices between worker and employer and the worker is paid in line with what she contributes.

Catholic social teaching takes a different perspective. Under its principles, the role of business, just like the state, is to further the common good. This has numerous implications. First, it calls on businesses to produce goods and services that further genuine human flourishing rather than support mere preference satisfaction. This casts a moral pall over many goods in our modern economy, including addictive products, advertising, luxury brands, pornography, and the fossil-fuel industry. Second, business must support decent work, putting this goal above profits—Catholic social teaching recognizes the priority of labor over capital. Work is also seen as a vocation, as people reach their full potential through dignified, meaningful work. Profit cannot be the number one criterion, a core argument against the principle of maximizing shareholder value. Relatedly, Catholic social teaching holds that business should support a wider array of stakeholders than shareholders alone—including workers, suppliers, customers, society at large, and the environment. It suggests a model whereby business can both make a profit and enact a social benefit, in the form of hybrid enterprises. At the same time, business is called upon to promote and protect the natural world, both by refraining from harming the environment and by supporting sustainable development solutions.

Catholic social teaching also has much to say about the role of labor. It starts from the premise that a worker is not merely a factor of production but a human being who possesses dignity and agency. From this perspective, decent work is a path toward fulfillment and flourishing, core dimensions of integral human development. A key priority, then, must be the promotion of secure and dignified employment as a central goal of public policy. A just wage is central to the concept of dignified work. Indeed, a just wage is regarded as one of the main ways to achieve the universal destination of goods in practice. And, importantly, a just wage is not synonymous with a market wage. Along with just wages, Catholic social teaching recognizes an array of rights for the worker. These include pensions, unemployment benefits, affordable or even free health care, family support, adequate rest, vacation time, and safe work environments. Crucially, Catholic social teaching also respects the right to form unions and to bargain collectively.

Catholic social teaching also affirms the right of workers to share in both profits and the management of the firm. Worker cooperatives are an example of the former; the latter is evident in the model of codetermination found in Germany and other continental European countries. The German model of industrial relations is based on worker representation on boards, work councils that give employees a stake in decision making, and wage negotiation at the regional or sectoral level underpinned by strong unions.

Neoliberalism, in contrast, places a high premium on what it dubs “flexible labor markets.” The logic is straightforward: if wages are the outcome of competitive labor markets, any interference in the labor market would hinder efficiency and only generate unemployment. Thus neoliberalism opposes what it sees as excessive interference in labor markets—including minimum wages, protections against workers getting fired, social benefits, and unions. Yet the reality is different. Because workers lack power and options, flexible labor markets tend to generate jobs that are low paying and insecure, most recently in the so-called gig economy. In this system, flexibility is synonymous with insecurity, inequity, disengagement, and a decline in workplace trust. It is a poor substitute for institutions centered on collective bargaining, profit sharing, and codetermination—which can be simultaneously productive, competitive, democratic, and equitable.

 

We are now in a better position to map out the contours of a new social-democratic movement modeled on the principles of Catholic social teaching. But before we do, it would be useful to recall what led the postwar social-democratic model to unravel. The French economist  and historian Thomas Piketty lists three things: the failure to develop a more just approach to property ownership, the difficulty of sustaining progressive taxes on income and wealth, and the failure to address inequality of education within neoliberal meritocracy.

With regard to the first two items on that list, Catholic social teaching offers a compelling path forward. For a start, it promotes a vigorous role for the state in guaranteeing the material bases of integral human development—including food, housing, health care, education, social protection, decent work, leisure and family time, and a safe environment. To fund this, governments have ample scope to raise taxes on high-income earners, holders of great wealth, and large corporations—a policy that would reduce inequality and lessen the likelihood of our government being controlled by wealthy interests. Given the centrality of decent work, it makes sense to promote full employment as a goal of policy, and maybe even to offer guaranteed public employment to all who wish it at the prevailing minimum wage. Here, a heroic push to decarbonize the economy and shift toward renewable energy—possibly under the auspices of a Green New Deal—will surely entail enormous employment opportunities. To address the last problem on Piketty’s list, it will also be important to invest heavily in both education and vocational training. Indeed, governments might want to consider making some forms of tertiary education, vocational training, and early-childhood education cheap or even free.

It will also be important to focus on those institutions that go beyond education and redistribution—areas where Catholic social teaching offers much guidance. For a start, governments should ensure that unions are sufficiently strong to enable collective bargaining for just wages, benefits, and working conditions. They should promote democracy in the workplace, through worker representation on governing boards and in the internal management of enterprises. They should also promote worker cooperatives and other forms of profit sharing. At the same time, governments should implement corporate-governance reforms to make sure that businesses are responsible not only to shareholders but also to all other stakeholders.

An overriding priority must be to solve the climate crisis and other environmental concerns. This is a global challenge. It will require the decarbonization of our energy system by the middle of this century at the latest. Otherwise we will have little hope of preventing global temperatures from rising to more than 1.5 degrees above pre-industrial levels. That would undermine the very basis of human flourishing.

Respecting the global commons is a crucial component of an ethical approach to globalization. Yet such an approach goes well beyond climate change. An ethical globalization would be based once again on the twin principles of solidarity and subsidiarity—solidarity because responsibility to care for the other has a global dimension, and subsidiarity because the appropriate level of decision-making is sometimes multilateral. An ethical globalization would have numerous dimensions. It would implement environmental protections. It would fight pandemics, partly by ensuring the equitable distribution of vaccines. It would curb tax havens (as the G-20 is finally trying to do). It would design mechanisms to relieve excess sovereign debt. It would finance sustainable development in poor countries. And it would regulate trade and capital flows in accordance with the common good.

One final point: I mentioned that a failure of neoliberalism lies in its focus on GDP growth as the only standard of well-being. GDP certainly has value as a measurement and should not be simply discarded. But it needs to do a better job of accounting for distributional factors. One way to do this is to calculate the income growth of the rich, the middle class, and the poor—and to use these calculations as indices of economic well-being and guidesaaa to policy. More imaginatively, this could be complemented with broader measures of well-being, including happiness studies that ask people to evaluate their life satisfaction. Such studies show that, along with per-capita GDP and health, people care about social support and trust in institutions. In the context of the United States, while per-person income has tripled since 1960, self-reported levels of happiness have been flat. Social problems have multiplied even as purchasing power for a wide range of consumer goods has increased. A narrow focus on GDP misses all this, whereas a focus on happiness and well-being would better account for all the various factors that go into integral human development.

This policy roadmap is heavily influenced by the values of Catholic social teaching. Yet these prescriptions can be embraced by Catholics and non-Catholics alike. All that is required is an appreciation of the fact that the current system is failing and that new values are needed. I would argue that circumstances call for a fuller engagement with both the principles of Catholic social teaching and the policies inspired by it, which have been rigorously developed over the past century. Ordering the global economy along these lines would counter the excesses of neoliberalism and redress some of the social and ecological damage it has caused. It might also help us save our democracy.

This essay is based on Anthony Annett’s new book, Cathonomics: How Catholic Tradition Can Create a More Just Economy (Georgetown University Press).

Published in the January 2022 issue: 

Anthony Annett is a Gabelli Fellow at Fordham University and a Senior Advisor at the Sustainable Development Solutions Network. 

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