Pope Francis and the Paradox of Poverty
“It goes without saying that part of this great effort is the creation and distribution of wealth. The right use of natural resources, the proper application of technology and the harnessing of the spirit of enterprise are essential elements of an economy, which seeks to be modern, inclusive and sustainable. Business is a noble vocation, directed to producing wealth and improving the world.” Pope Francis to the U.S. Congress
For those who fear that Pope Francis has nothing but bad to say about business and markets, those words during his speech to Congress Thursday were welcome ones. That being said, he surely remains a staunch critic of modern capitalism and the free market in general. Many political conservatives have responded to his anti-capitalist rhetoric with strident dismissals along with terminology that is likely lost on the pope. This is unfortunate because economic freedom, rightly understood, has helped to lift hundreds of millions of people out of extreme poverty around the globe. So it’s worth slowing down and trying to find fresh ways to talk about this reality in order to move beyond entrenched labels and assumptions
The Argentinian Model
In his exhortation Evangelii Gaudium, Pope Francis wrote, “We can no longer trust in the unseen forces and the invisible hand of the market.” He continued:
Some people continue to defend trickle-down theories, which assume that economic growth, encouraged by a free market, will inevitably succeed in bringing about greater justice and inclusiveness in the world. This opinion, which has never been confirmed by the facts, expresses a crude and naïve trust in the goodness of those wielding economic power and in the sacralized workings of the prevailing economic system. Meanwhile, the excluded are still waiting.
Many have argued that his visceral dislike derives from his negative experiences with crony capitalism in Argentina, where the wealthy collude with the government for special privileges and exclude the poor. I think this is only a partial explanation, but in my visit to Argentina and living for several years in Nicaragua it was clear that our experience of capitalism in the United States is quite different from what passes for capitalism in much of Latin America. As Argentine professor Rafael DiTella of Harvard explained, when Americans and Argentines hear the word “capitalism” the word might be the same, but the meaning is radically different.
True Economic Freedom Means Inclusion
The paradox here is that while the pope is a sharp critic of capitalism and industrialism, he also stresses the need to create an economy that brings about inclusion and prosperity. If we look at economic history, what generally creates inclusion for the poor and enables people to create prosperity for their own families and communities is quite clear. They are the institutions of justice like private property and clear title to land, justice in the courts for rich and poor alike, and freedom to engage in economic activity without undue burden from the state.
We take the institution of private property for granted here in the U.S., but in many countries up to 50 percent of the land has no clear title, which means there is no incentive to develop or steward it because it can be taken away. Access to justice is also lacking. This includes not only due process and getting one’s court case heard, but the ability to register a business in the formal economy and so receive legal protection and other services crucial to business success.
In my travels for the PovertyCure initiative, and for the documentary Poverty, Inc., I spoke to several hardworking people for whom a land title and a license for their small business was a pure fantasy. Good luck getting a business loan at a reasonable interest rate without having either of those things. They were trapped in what development economist Hernando de Soto calls the informal economy.
De Soto tells the story of some of his students, with the help of a lawyer, needing almost 300 days of focused work to register a small sewing business in Peru. The legal hurdles were almost insurmountable. World Bank research has shown that this is by no means unusual in the developing world, with it often taking close to a year and costing five to ten times average income. So the poor don’t bother and, consequently, lose access to business loans and many other things crucial to developing a business.
A third institution of justice missing in many parts of the developing world is the ability to engage in economic activity and bring your goods to the market without having to navigate complex bureaucratic regulations dominated by big business and powerful interests. The regulatory challenges that business owners decry here in the United States are indeed excessive in many cases, but they are nothing compared to what aspiring entrepreneurs face in many parts of Latin America and Africa.
Christendom — The Original Soil of the Free Economy
These institutions that we in the United States take for granted — private property, rule of law, freedom of association and exchange — these institutions are not solely or even primarily economic, but are cultural and essential for creating space for families to live out their responsibilities and contribute to a culture. These institutions, moreover, were nourished and flourished in the soil of Jewish and Christian traditions, traditions explored and underscored in Catholic social teaching. It’s no coincidence that the first major civilization to give rise to a broad middle class was Christendom, a historical truth that is now conventional wisdom among historians of the European Middle Ages and Renaissance.
Those institutions are not primarily economic. They play an essential role in religious liberty and protection of the family, but they do have profound economic consequences. They create the conditions for entrepreneurship, innovation and economic growth, which the pope himself concedes play a role in promoting justice and a broadly shared prosperity.
I would surmise if we addressed each of the institutions of freedom and justice individually — property rights, the rule of law, freedom of exchange — the pope would support them. They are forces for inclusion, protection and opportunity for the poor, all of which the Holy Father desires. But taken together these same institutions are the foundations of a free and competitive economy, which Pope Francis consistently decries.
This is the paradox of the pope’s message. He seems to want two mutually exclusive things — prosperity for the poor without a free and competitive market economy, the only system that has ever really enabled it.