The Common Ground Between Free-Marketers and Pope Francis: Driving the Cronyism Out of Capitalism
In 2013 Pope Francis released his apostolic exhortation Evangelii gaudium (Joy of the Gospel). Newsfeeds immediately fluttered with papal pull quotes. The words of the newly-elected Pontiff, a Jesuit from Argentina, seemed to confirm the fear that this papacy was no friend of the free market, but instead harbored a fondness for Marxism. A pre-emptive strike of editorials before his recent visit to the U.S. cautioned the Pope to stop blasting free enterprise and instead acknowledge how capitalism has been a force for good, bringing millions out of poverty.
His remarks to Congress appeared to do just that by referencing a passage from his environmental encyclical, Laudato si’:
Business is a noble vocation, directed to producing wealth and improving the world. It can be a fruitful source of prosperity for the area in which it operates, especially if it sees the creation of jobs as an essential part of its services to the common good.
But suspicions remain. And they are due to a much more fundamental problem. They are using very different language and lenses to describe the scene, differences that obscure some important common ground.
Does the market produce better outcomes because it is a force for a moral and just order? Or does a moral and just society help give rise to a market that produces the best economic and social outcomes? Francis and many economists share common ground here. For a market to produce good outcomes, such as reducing poverty, distributing wealth more widely and creating opportunities for innovation and employment, the rule of law matters.
Where a people are governed by the rule of law rather than by the arbitrary rule of men, the laws governing human conduct are discernible and consistently enforced for rich and poor alike. No place on earth has ever done this perfectly, but compare the United States and Argentina, or Hong Kong and the Congo, and it quickly becomes obvious that some places get much closer than others to achieving the ideal. Getting closer to the ideal leads to economic growth for rich and poor alike, since justice for all frees people to use their God-given creativity to pursue enterprise and create new wealth.
Where the rule of law is the order of the day, the marketplace isn’t just a game for the rich and well-connected. But such a culture doesn’t happen automatically. Our moral framework matters. In a real society, rules first emerge in informal “institutions,” such as customs, laws, belief. These informal institutions lay the foundation for the rule of law and only then can a legal framework consistent with ordered liberty emerge. Otherwise, you get the arbitrary rule of the well-connected and powerful rather than the rule of law.
New institutional economics is the study of how such rules work. It also helps us understand why countries endowed with great natural resources and human capital can remain stagnant. A country that doesn’t protect private property, is riddled with regulatory barriers, and grants legal favors or privilege to the politically powerful may claim it is pro-market, but it is actually dysfunctional, rife with legal distortions, corruption and cronyism.
The pope’s description of markets is in some ways a result of how economists often speak of them. A common free-market claim is that the government hampers growth and innovation — that the market will work wonders if the government will just get out of the way. So it’s no surprise that in Evangelii gaudium Pope Francis seems to characterize the market as a lawless Wild West. Thinking of markets and the state as two separate spheres may be a useful shorthand but not if taken as prescriptive.
Confusion can also arise by fixating on just one or two components of a free economy to the exclusion of others. A country may have a simple tax climate favorable for business enterprise, but if that country supports oligarchy or ethnic discrimination, if its riddled with legal and cultural barriers that prevent all but a few from fully participating in economic life, then it’s hardly a free market
A careful read of Evangelii gaudium suggests Pope Francis not only appears open to such new institutional ideas, but in fact describes them. For instance, he cites the problem of corruption and lack of access to education and employment as symptoms of a wounded economic and social order. As journalist Andrea Gagliarducci puts it, Pope Francis “never said that he wants to abolish the market, but that the market needs a purification.” On this point many free-market economists and the pope can agree. In order for markets to produce the best outcomes for society, our choices and our institutions matter. This requires removing rules that permit corruption, cronyism and barriers to employment, education and opportunity.
The gap between free-market economists and Pope Francis’s perspective is not only bridgeable but may be exaggerated. On the goal of achieving property rights and rule of law for the poor — justice for all — there is agreement, even if the two sides often talk past each other.
Eileen Norcross is a Senior Research Fellow at the Mercatus Center at George Mason University. She is the author with Christopher Koopman of “Pope Francis and the Economy: Evangelii Gaudium, New Institutional Economics and the Search for Consistency Across Disciplines”