The Vatican has launched a stringent critique of widespread abuses in global economies, which are driving astonishing degrees of inequality, threatening ecological sustainability, and unleashing powerful reactionary political forces in response, as seen in parts of Europe and elsewhere.
The issues are keenly pertinent in Australia, as we see in the Australian Royal Commission into banking and financial services, writes Dr Bruce Duncan for Social Policy Connections.
Even in our hallowed financial institutions, there has been a corrosion of ethical practice and a culture of greed, resulting at times in outright fraud and corruption.
The title of the Vatican document Oeconomicae et pecuniariae questiones can be translated as On Economic and Financial Matters. It was written not by Pope Francis, but by the newly formed Dicastery for Promoting Integral Human Development, together with the Congregation of the Doctrine of the Faith. Approved by Pope Francis on 6 January, it was not released until 17 May 2018 in Spanish and Italian, with a very rough English translation rushed out at the last minute.
It reiterates the call by Pope Francis in Laudato Si’ for an urgent dialogue between politics and economics in favour of human life and wellbeing. “Money must serve, not rule!” (#6). Oeconomicae is directed primarily to the world of business and economics, though the English translation lacks the popular punch and directness of Francis’s writings.
The 10,000-word document encapsulates the strong critiques of forms of economics that are most responsible for many social and economic crises, drawing strongly from the documents of Pope Francis, but also from his recent predecessors and back over 125 years to Leo XIII. It is also informed by the thinking of many leading scientists and economists who have been advising the Vatican agencies, warning how urgent is the need to reduce extreme inequalities and address climate issues before they become truly catastrophic.
The critique in Oeconomicae centres on the growing influence of financial markets and the economic thinking which exaggerated the role of free markets, believing that markets of themselves, without adequate regulation, would produce the most efficient results, ignoring concerns about liberty, social equity, and human wellbeing.
Joesph Stiglitz on Inequality. citizens4taxjustice. flickr cc.
“At stake is the authentic well-being of a majority of men and women of our planet who are at risk of being ‘excluded and marginalized’”, while a rich minority, “indifferent to the condition of the majority, exploits and reserves for itself substantial resources and wealth”.
The document does not attempt to adjudicate between rival economic theories, and does not even use the term neoliberalism, although it is clearly implied, but insists that economics must not abandon the profoundly moral task of promoting the wellbeing of everyone as fully as possible, but especially of those most in need.
Social consequences of prolonged economic distress
The writers are acutely aware of the havoc economic crises are causing with very high unemployment, not least in much of Europe. It is not just the young who are disillusioned with democracy, as well as with social and financial institutions.
Yet the problems arising from concentrated economic power are far from over, as even political authorities can be overwhelmed by the power of “vast economic-financial networks” and their control of capital (#12)
The Vatican document recognises the great power of markets in coordinating production and delivering an abundance of goods to serve human needs, but argues markets are not able to govern themselves. They need non-market social forces to protect the environment, ensure real equity in bargaining, protect against fraud and oppression, eradicate poverty and inequality, and provide security in society.
Public authorities need to regulate financial markets to curtail financial malpractice. Experience has shown “how naïve is the belief in a presumed self-sufficiency of the markets, independent of any ethics”, and how necessary is “appropriate regulation” to protect all involved, and especially the more vulnerable. The authors call for regulatory authorities which are “independent and bound by the exigencies of equity and the public benefit”, in an agreed supranational system (#21)
The document does not condemn profit in itself, but insists on social responsibility to support civil society. “Money, in itself, is a good instrument”, as is the development of modern financing and stock markets. However, Oeconomicae rejects financial practices “concentrated primarily on speculative transactions of virtual wealth”, along with high frequency trading whereby, “the parties accumulate for themselves an excessive quantity of capital and remove the capital from circulation within the real economy”. (#15)
The document strongly approves of the social function of credit, but rejects usuriously high interest rates. It recommends developing cooperative credit initiatives, microcredit loans, and public credit schemes, especially in developing countries. (#16)
Echoing recent economic writings about distortions in the market because of unequal access to information, the document notes how “asymmetrical concentration of information and power tends to strengthen the stronger economic agencies and thus to create hegemonies capable of unilaterally influencing not only the markets, but also political and regulatory systems”. It warns that “massive deregulation” has resulted in increased moral risk and embezzlement, as well as “the rise of the irrational exuberance of the markets, followed first by speculative bubbles, and then by sudden, destructive collapse, and systemic crises”. (#21)
2013_12_190004 (t2) – Pope Francis. Gwydion M Williams. flickr cc.
Without specifically mentioning the 1933 Glass-Steagall Act used by the US to separate savings banks from investment banks, the document calls for a clear separation of investment banking from that of “mere business”, in order to increase financial stability.
Following the Royal Commission into banking, Australians will readily concur with the document deploring “the questionable activities of financial advisers” who mislead investors with hidden commissions, failing to act in the interests of their clients and even with “malicious negligence”. (#22)
In Australia, we have seen that seeking profit at any cost has indeed become commonplace, not just in finance, but also across whole sectors of business, including the underpayment of workers in fast food and petrol franchises, as well as in sectors of hospitality, and also of seasonal and other workers in agriculture. As the Vatican document comments, “the objective of mere profit easily creates a perverse and selective logic that often favours the advancement of business leaders who are capable, but greedy and unscrupulous”.
Business practices that disproportionately maximise profits for shareholders can damage others in the business, workers, and other stakeholders. The Vatican document calls for penalties comparable to the generous contracts and bonuses of managers who maximise short-term profits by taking excessive risks, “leaving companies weak and impoverished”. (#23)
Widespread fraud & corruption
Oeconomicae highlights the manipulation of markets, as in the subprime mortgages that helped precipitate the recent financial crises, along with problems with rating agencies and inter-bank lending arrangements which can create a “dangerous oligopoly” over credit markets (#25). The securitisation of derivatives fraudulently disguised economic risks, and contributed to the speculative bubbles leading up to the financial crisis. Such products, including the “economic cannibalism” in credit default swaps (CDS), became “a ticking time bomb ready sooner or later to explode”.
“The fact that this could have happened with impunity for many years shows how fragile and exposed to fraud is a financial system not sufficiently controlled by regulations, and lacking proportionate sanctions for the violations … which its stakeholders often encounter” (#27).
The impact of tax avoidance by the very wealthy
The authors of Oeconomicae also deplore the growth of the so-called shadow banking system, resulting in a loss of control by national authorities. Despite its legitimate roles, offshore finance thrives through mechanisms of tax avoidance and money laundering from international crime networks.
“Today, more than half of the commercial world is orchestrated by noteworthy persons who cut down their tax burden by transferring the profits into fiscal havens, and the costs into the countries of higher taxation.” Often, the money in these offshore sites is from criminal activities (#30). There has also been an “enormous outflow of capital” from many low-income countries, causing great damage to these countries. The document attacks the “hypocrisy” of states which profit from such operations.
To help control these capital flows, Oeconomicae supports calls for “a minimum tax” on offshore transactions. It also calls for transparency and public accountability in multinational companies, so that they pay appropriate taxes in the countries in which they operate (#31).
The document notes that “the accumulated private wealth of some elites in fiscal havens is almost equal to the public debt of the respective countries”. Such countries are left to carry the burden of the debt, which falls on millions of very poor people (#32).
Buy ethically : “vote with your wallet”
The authors urge consumers to “vote with your wallet”, choosing goods that are ethically responsible, without exploitation in supply chains, or damaging the environment. Though as an individual, the gesture might seem “banal”, when many others also embrace ethical choices, this influences demand, and businesses will respond. “Today, as never before, we are all called, as sentinels, to watch over genuine life, and to make ourselves catalysts of a new social behavior” for the good of all and for the planet (#34).
Oeconomicae et pecuniariae questiones reiterates the focus of Pope Francis on issues of global poverty and inequality, now exacerbated by global warming and environmental issues. He considers these of overriding moral urgency in the face of looming catastrophic threats to whole populations, and indeed to entire planetary life support systems.
He does not see the prospects as hopeless, but insists that we must take immediate action as individuals, as well as collectively. Whether we like it or not, we are all in this together, and never has this call to protect the common good been so dramatic and immediate.