Pope Francis and the Myth of Radical Capitalism
Have we really witnessed, as Pope Francis says, the triumph of a radical capitalist ideology?
It’s no secret that Pope Francis has negative views of economic globalization. Occasionally, he has acknowledged the hard-to-deny benefits of global markets when it comes to reducing poverty. No one, however, would describe the pope as an optimist on this subject.
It’s true that globalization isn’t a cost-free exercise. Just think of the late middle-aged coal miner with no easily transferable skills thrown out of work when his mine shuts down. Advocates of free markets like myself should acknowledge these realities whenever we highlight the real benefits of global markets, such as the enhanced economic growth you need to reduce poverty as well as lower prices of goods and services for all.
A persistent difficulty, however, with the pope’s reflections on the issue is that many of his arguments don’t fit the evidence. That includes his oft-repeated suggestion that a radical capitalist ideology has taken hold throughout much of the world.
An Ideology of Capitalism?
Francis’s latest expression of this view was delivered in a speech to a gathering of the Roman Round table of The Global Foundation at the Vatican. After congratulating the group for promoting private efforts to combat what he often calls the “globalization of indifference,” the pope stated:
In 1991, St. John Paul II, responding to the fall of oppressive political systems and the progressive integration of markets that we have come to call globalization, warned of the risk that an ideology of capitalism would become widespread. This would entail little or no interest for the realities of marginalization, exploitation and human alienation, a lack of concern for the great numbers of people still living in conditions of grave material and moral poverty, and a blind faith in the unbridled development of market forces alone. My Predecessor asked if such an economic system would be the model to propose to those seeking the road to genuine economic and social progress, and offered a clearly negative response. This is not the way (cf. Centesimus Annus, 42). Sadly, the dangers that troubled St. John Paul II have largely come to pass.
Francis omitted to mention that the same paragraph from the 1991 encyclical Centesimus Annus affirmed a capitalism which “recognizes the fundamental and positive role of business, the market, private property and the resulting responsibility for the means of production, as well as free human creativity in the economic sector.” That type of careful distinction is, alas, often absent from Francis’s commentary on economic issues.
Putting this aside, is Pope Francis right to claim that a capitalist ideology that is unconcerned about the marginalized and leaves everything to market forces has run rampant across the world? The evidence, I’d suggest, doesn’t support this argument.
Some Economic History
In the lead-up to Communism’s collapse in the former USSR and Eastern Europe, there was a flourishing of ideas that challenged not only the basic premises of such command economies but also the Keynesian consensus which dominated Western countries.
That’s partly because socialism’s flaws became obvious. Likewise, mixed economies had proved unable to address the problems of rising inflation and high-unemployment which began afflicting the West from the 1970s onwards. In developing nations, there was an increasing willingness to acknowledge that programs, ranging from outright socialism to heavily-interventionist and protectionist policies, hadn’t much reduced poverty.
Following these failures, center-right and center-left government in the 1980s began to deregulate, lower trade barriers, reform labor markets, remove restrictions on foreign capital investment, and privatize state-owned industries. Markets consequently became more integrated, a process that technology accelerated.
Still, there was much that did not change. Can one really claim that a radical economic individualism has achieved a global ascendancy when, for example, government expenditures accounted for 38.9 percent of America’s annual GDP in 2016, almost half of which was on what are called “social expenditures”? In the same year, many Western European government expenditures consumed over 50 percent of GDP, well over half of which was on welfare.
Looking outside the developed nations, can it really be said that free market ideas have conquered the Middle East, North Africa or Russia? Crony capitalism — a polar opposite of free markets — is the norm throughout, for example, in Russia.
Until quite recently, many Latin American nations (including the pope’s native Argentina) were dominated by the decidedly anti-free market agendas of the left-populist governments which came to power in the early-2000s. I’ve often wondered why the pope seems so reluctant to criticize the “21st century socialist” policies associated with figures such as the late Hugo Chávez, which have inflicted destruction upon countries like Venezuela.
Even in East Asia, where poverty has been drastically reduced over the past forty years, it’s a mistake to assert that radical capitalist ideas are ascendant. China’s opening to global markets, for instance, has certainly transformed its living standards. Yet, as observed in the 2016 Index of Economic Freedom, “beyond nominal openness to trade and investment, genuinely liberalizing reform measures have not been undertaken, and policies continue to favor the status quo and promotion of the party’s interests.”
More Than Markets
Besides the fact that it’s hard to find countries with unbridled capitalism (let alone promoting radical capitalist ideas), the pope seems unaware that few free market thinkers believe that market forces are enough to resolve issues of marginalization and poverty.
Despite, for instance, lifting millions out of poverty through openness to trade, India continues to struggle economically. One reason is that India has, as the Index of Economic Freedom states, “long-standing institutional shortcomings.” A significant gap is “a well-functioning legal and regulatory framework.” Another challenge for India, the Index adds, is “uncertainty about land ownership.” This is described as “one of the biggest problems facing the economy.”
In other words, what’s missing in many countries are (1) institutions such as rule of law and clear property rights and (2) the cultural settings in which, as John Paul II’s Centesimus Annus insisted, markets must be imbedded if they are to work. It’s not hard to find free market economists — many of whom are Christians who take seriously the Gospel’s non-negotiable commandment to help the poor — who have focused on how to strengthen such institutions and cultures in countries where they are weak or don’t exist. Indifferent to poverty, they are not.
Far from being cheerleaders for radical individualism, these thinkers recognize that the capacity of markets to reduce poverty and promote human flourishing depends on the strength of many non-economic relationships. This is obvious from even casual reading of prominent free market thinkers such as the Nobel economist Vernon Smith or the long-deceased Walter Eucken and Wilhelm Röpke.
In his 2015 encyclical Laudato Si’, Francis showed some awareness that institutions and culture are crucial for social and economic development. It’s less evident he understands how much, or just how long, many free market economists have focused on this.
Grasping these points, however, requires the pope — and whoever’s advising him on these matters — to dispense with the myth that a radical capitalist ideology has sunk deep roots across the planet. Unfortunately, I fear, this may have to wait until the next pontificate.
Samuel Gregg is Research Director at the Acton Institute and author of For God and Profit: How Banking and Finance Can Serve the Common Good (2016).