I will be presenting a paper at the Pontifical Lateran University in Rome on Wednesday, November 21.? Here is a draft of the paper:
?
We used to joke that the Social Doctrine is the Church?s
?best kept secret??a valuable treasure that was too well hidden, because no one
knew anything about it. This was always more true in the United States than in
Italy, and fortunately it is less true
today, since through the efforts of many, including people in this room, it is
now more widely and better understood. However, there are two parts of this
teaching that are still not sufficiently appreciated, it seems to me, and yet
which have great significance for development and self-reliance. The two parts
I want to focus on are subsidiarity
and private property.?
The general point I wish to make is that concentration of
wealth and power?which is opposed by
the principles of subsidiarity and private property?is harmful to the growth of
self-reliance.?
I will
begin with an argument made by the Austrian economist Friedrich Hayek in his
1944 work The Road to Serfdom, which
he attributes to the English historian Hillaire Belloc, who made the argument
in a book called The Servile State,
published exactly 100 years ago in 1912. Beyond the obvious questions of
justice, Hayek, and Belloc, make the case that concentration of wealth is not
politically sustainable in a society that is based on principles of freedom and
equality, because when wealth, and therefore power, are concentrated into a few
hands, the majority of the population do not feel so free or so equal, and this
leads to social unrest. It is remarkable how well this explains the unrest we
have seen with the global Occupy movements and their concerns about the ?one
percent? who own the majority of the capital.?
Because of the instability of a society based on
concentration of wealth, Hayek and Belloc argue that unless more widely held
property ownership can be achieved, the system will predictably move in the
other direction, towards further
concentration of property ownership, leading ultimately to totalitarian
government.?
Unfortunately for us, once we reach a point of highly
concentrated ownership?as we have done?then moving in the opposite direction
towards more widespread property ownership is very difficult.? It works against the grain, because
people no longer expect to rely for their security upon their own property.
They have exchanged self-reliance for ?other-reliance.? What is it we ask of
our politicians, and what do they offer us, from all different political
parties?? ?Jobs!?? Not the freedom and opportunity to make
our own way, but a wage in someone else?s establishment.? And therefore it is almost impossible
to achieve a more just distribution without a renewed understanding of the
importance of self-reliance and therefore of the essential role of private
property and subsidiarity.?
Today there exists a serious misconception about what is
private property is. It is commonly understood to be a source of pleasure and
comfort, or a conspicuous display of one?s wealth.? The original idea of private property, as the foundation for self-reliance, needs to
be recovered.?
The Social Doctrine of the Church offers one of the
strongest and most consistent defenses of private property. The Second Vatican
Council affirmed that private property is ?wholly necessary for the autonomy of
the person and the family.? The wording is interesting: the Council did not say
that because we are free, we have the
right to private property; instead the reverse: private property itself is necessary for the exercise of that
freedom. Humans are material beings, and we need material goods to live.? But interestingly, the Social Doctrine
does not place the justification of private property primarily in that it helps us provide for our daily material needs.
Ahead of such needs, the Catechism of the
Catholic Church places the role of private property as ?guaranteeing the
freedom and dignity of persons.? Because as a property owner, you are free in
practice, not just in theory.? For
example, if you find yourself in an unacceptable situation at work?say you?re
being pressured to do something you think is wrong?if you have no property, no
savings, then your ?freedom? to walk away and find some other work is much more
limited (especially in a weak economy) than if you had some property to live
off while you look for another position.?
In
earlier days, a family?s security was largely based on the property that it was
able to accumulate and put to work. In the past century, however, we have moved
from relying upon private property for our security, to relying in large part
upon government transfer payments. When times are tough, or when I retire, I am
dependent less on my property, and more upon unemployment support, welfare,
or social security.
There is a fundamental assumption underlying this shift:
that property and income are equivalent. I would like to
argue that this assumption is false. They appear to be equivalent: property can
be invested to generate income; income can be saved to accumulate property. But
this assumption only holds if the purpose of private property is solely to help
meet your needs and those of your family, which it isn?t. Unlike private
property, income from government transfer payments does not do much to allow
you to exercise your freedom and
self-reliance. With private property, you have the freedom to decide how
much to save, how and where to invest, and when to draw from your savings. You
also have the responsibility to make those decisions carefully and correctly?to
exercise self-reliance.? Your
Social Security ?contributions,? on the other hand, are compulsory, you have no
say in how they are ?invested,? and the amounts and timing of both
contributions and withdrawals are determined for you.? A government transfer payment doesn?t foster much
responsibility: it arrives monthly, and all you have to do is cash the
check.? But private property
requires you to invest it, care for it, make decisions about it and reinvest it
as necessary?to work with it in order to ensure that you are getting a good
return out of it, and in doing so to exercise and grow in self-reliance. Nobel
economist Amartya Sen is famous in part for his work on how unemployment
benefits are an acutely inadequate substitute for real work, because of the
loss of dignity, personal development, and responsibility associated with
unemployment. Private property enables freedom and encourages self-reliance;
government transfer payments do neither.?
And here?s how the misunderstanding of private property
arises.? When we give up much of
our reliance on private property for our economic security, and place it
instead upon government transfer payments, we relinquish responsibility, but we
still keep our natural desire for
property. Helped with the force of mass marketing, this desire is
redirected in part towards luxury or status goods. But luxury or status goods
are not very effective at providing either of the benefits of private property:
they don?t give us much opportunity to exercise our freedom and responsibility,
nor do they support our material needs very efficiently.? Mostly, they just provide pleasure: a
home that I own and rent to others is a source of income and independence,
while a vacation home is a source of pleasure; a fishing boat gives me security
and food, while a yacht gives me pleasure.
The purchase of luxury goods is indeed an exercise of ones freedom, and so it is
not my suggestion here that we should be prohibiting luxury goods. What is
important to recognize is that certain kinds of purchases encourage freedom and
self-reliance, while others do not. Yachts and vacation homes are not evil
things. Each in their own way can help spread joy among families and friends:
an evening cruise on the Tyrrhenian Sea or a weekend in the mountains, for example,
can be very good things. The point is simply that when we think about private
property today, we tend to think about these
kinds of luxury goods or status goods.
We need to restore the idea of private property as productive property, which is so essential for self-reliance because it enables us to
provide for our own security. Goods such as rental housing, shares in a
business, tools and equipment?these are true private property: productive property. But when the
majority of people come to depend on government instead for their security,
then the natural desire for productive property is perverted towards luxury goods. At this point, the institution of
private property itself becomes very difficult to defend.? If private property is just yachts and
vacation homes, a luxury of the rich, rather than the foundation of the
security of the majority, then we should not be surprised at all to see more
and more attacks on the right to private property and on ?greedy capitalists?.?
Hayek and Belloc warn about the dangers of concentration of
wealth and power, of what we now call crony capitalism. Supporters of the
market are deeply suspicious of, and generally hostile to, concentration of
power in government.? But according to
Hayek and Belloc, the problem starts with concentration of power in both business and government. It seems
to me that advocates of the market have had a big blind spot with regard to
this issue for the past several decades: well aware of the dangers of
concentration of power in government, but apparently unaware, or unconcerned,
about the perils arising from concentration of power in business.
This is
perhaps because of a certain discomfort among champions of the market with any
criticism of big business?isn?t a big business, after all, nothing other than a
very successful small business??
Isn?t criticism of big business therefore a criticism of the market? Not
necessarily.? After they reach a
certain size, some companies choose to move outside the market to apply
political power to defend and grow their businesses. Economies of scale and
scope take you so far; beyond that, the temptation to grow or protect profits
in ways that are anti-competitive proves to be too great to resist in many
cases.?
Perhaps the clearest example of this is the phenomenon of ?regulatory capture,?
a concept described by Nobel economist George Stigler.? Regulatory capture is where government
regulation is turned, over time, to favor those it is intended to regulate.
Regulatory capture happens because the interest of regulated companies in how
they are regulated is very, very great, given its potential to impact their
bottom line.? They are also very
small in number, so it is easy for them to organize to influence that regulation.
And they are usually successful in their efforts, because consumers are vastly
more numerous and too busy with the details of their daily lives to provide
much effective countervailing efforts.?
How much time did you spend in
the last year thinking about the price of electricity, for example, or, still
less, organizing your neighbors to lobby the government about it? How much time
and effort do you think the electrical utilities spend on the same
question??
In
opposition to the concentration of power in both government and business, the
Social Doctrine of the Church proposes the principle of subsidiarity. If there
is some confusion about the meaning of private property, there is even more
scope for confusion about the meaning of subsidiarity. In a recent article in
the Journal of Markets & Morality,
Prof. Donati noted that secular interpretation of the term ?subsidiarity? has
wavered between bringing assistance on the one hand, and preserving autonomy on
the other (Donati, 2009, p. 212). As a result, plenty of misunderstandings
arise (ibid. p. 214). He clarified the different meanings or types of
subsidiarity, in particular vertical, horizontal, and lateral subsidiarity (p.
229) and then offered a generalized definition of subsidiarity to mean ?helping
the other to do what he or she should? (Donati, p. 229).
What I want to focus on here is what kind of help?what
aspect of subsidiarity?can serve as a check against the concentration of
power.? Because when we think of
what we are doing as helping people,
it is sometimes easy to slip, without realizing it, into harming their self-reliance. There is a phenomenon that
psychiatrists have identified called ?learned helplessness??where a human being
(or an animal) learns, through various ways, that it is unable to rely on
itself to improve its situation (Seligman). We can see this most clearly with
children.? My wife and I have six
young children, and I have seen this time and again?if you try to do too much
for children, it impedes their development.? (This is in fact one of the central insights of Dr. Maria
Montessori?s approach to child education).? And it is relevant to adults also: doing too much for
someone can create learned helplessness, and so sometimes the best ?help? you
can give someone is to leave them alone.?
Of course, when people do not have the bare necessities of life, this is
not the time to be ?helping? them by leaving them alone. But we must be
vigilant to ensure that our attempts at help are not in fact harming the
development of self-reliance.?
And
thus I believe that it is not accidental that Pius XI formulated his definition
of subsidiarity in the negative, and
with such strong language: ??that most weighty principle, which cannot be set
aside or changed, remains fixed and unshaken in social philosophy: Just as it
is gravely wrong to take from
individuals what they can accomplish by their own initiative and industry and
give it to the community, so also it is an injustice
and at the same time a grave evil and
disturbance of right order to assign
to a greater and higher association what lesser and subordinate organizations
can do.? (Quadragesimo Anno, #79 [#80
in Italian edition]; emphasis added). It is this aspect of subsidiarity, as
defined in the Social Doctrine, which opposes concentration of power, and is
relevant for the creation of self-reliance.?
This is
evident in the moral justification for subsidiarity, which is not one of
efficiency?i.e. societies function more efficiently when decision-making is
widely decentralized.? It is indeed
true that subsidiarity can promote efficiency, but this is not the primary
moral rationale for it.? The
primary rationale for the principle of subsidiarity is liberty.? The Catechism of the Catholic Church,
echoing St. Thomas Aquinas, explains it as follows: ?The way God acts in
governing the world, which bears witness to such great regard for human
freedom, should inspire the wisdom of those who govern human communities??in
other words, if God rules us with such profound respect for our freedom, then
our human rulers should do likewise. It seems to me that this strong, negative
formulation is a response to the recognition that in mass society?with the
power of the mass media to influence society so strongly?the lust for power is
among the greatest and most dangerous personal disorders we face, especially when hidden in the guise of
the desire to serve the public good.
Let me
provide just one example.? The
debate about Keynesianism is a large and ongoing one, and it is not my
intention to enter into it in any way here. But I think it is fair to say that
one result of Keynes? General Theory of
Employment, Interest, and Money is that it gave generations of politicians
an excuse to give in to the temptation to exercise more personal power, though
deficit spending. Instead of being restrained by natural limits on the ability
tax, they now had apparently unlimited spending ability?a sort of political
consumerism, if you will, with the same negative consequences that consumer
debt has on consumerism, i.e. the ability to magnify it greatly.
The
dangers of the violation of subsidiarity are displayed very well in an
extensive study by the late professor of development economics John Powelson.
His book, Centuries of Economic Endeavor,
tries to explain why sustained economic development?across a long period of time
(centuries)?has only occurred in Europe, North America, Australia and
Japan.? The same policies, tried
elsewhere, seem invariably to have failed.? Powelson?s explanation is that in the successful regions,
power was diffused, widely held, whereas everywhere else it was concentrated.
Concentration of power seems to lead, inexorably, to economic stagnation and
decline.?
The long-term economic dangers of concentration of power are
so great, that it even makes sense to oppose concentration when such opposition
itself might seem economically inefficient.
An example of this is what Prof. Luigi Zingales of the Chicago Booth School of
Business has identified in the US as a ?populist anti-finance bias,? which ?led
to many political decisions throughout American history that were inefficient
from an economic point of view, but helped preserve the long-term health of
America's democratic capitalism.? In the past, Americans valued freedom more
than the supposed efficiency that would arise from consolidation of banks,
because they feared the power that such large banking entities would
wield.? Zingales points to
President Andrew Jackson?s opposition to renewing the charter of the Second
Bank of the United States in the 1830s, to numerous state-level banking
restrictions, and to the Glass-Steagall Act of 1932, as examples of this
populism. He admits that from a purely economic point of view, such
restrictions are ?crazy,? but also recognizes that positive side effects
arouse.? The fragmentation of the
banking industry that resulted from such regulation led to the rise of a
thriving securities industry and prevented for a long time the massive
political power that banks now wield.
Deregulation of the US finance industry over the past few
decades has overturned these restrictions.? Attempts at re-regulation of the finance industry, and
specifically the 2010 Dodd-Frank act, are of a very different kind. We can
divide regulation into two types, those that foster subsidiarity and those that
hinder it. Glass-Steagall was largely of the former type; Dodd-Frank is of the
latter.
Regulation that hinders subsidiarity tends to focus on
activity and outcomes: you may or may not do this, that, or the other; if you
do, you should do it in this way; and you should get these kinds of results,
and not others.? Environmental
protection regulation is largely of this type. Anti-trust regulation is too: it
focuses not on the absolute or even relative sizes of firms, but on whether
their market power is expected to affect consumers negatively. ?By its nature, regulation of activity or
outcome requires a large bureaucracy to implement it, because one needs to
monitor almost everything that firms do, and well as the results they achieve.
Regulation that fosters subsidiarity tends to focus instead on size and scope
restrictions?you may not be bigger than x, you may not do business in an area
wider than y, etc.? It is therefore
much easier and therefore cheaper to monitor: you don?t have to watch everything
firms do, you just have to keep an eye on their size.
Because our current regulation is predominantly hostile to
subsidiarity, we experience the perverse result that smaller enterprises, who
typically violate regulations least, pay a disproportionate cost of
regulation.? In the US, despite
some attempts at regulatory relief over the years, in general, small business
is still far more heavily penalized by most regulation. For example, businesses
with fewer than 20 employees incur 44% more in per employee costs of regulation
in total; for environmental regulation, they pay over 300% more. And yet
ironically, even though regulation costs them more, in many cases they need it
less, usually because it is easier for small businesses to regulate themselves
and to be scrutinized by the local community; one recent study showed that
manufacturing facilities owned by small companies tend to have significantly
lower employee injury rates, for example.
Let me bring this to a
close.? I have argued that two
principles of the Social Doctrine of the Church, subsidiarity and private
property, are vitally important for the creation of self-reliance. When these
principles are violated, development policy tends towards concentration of
power, and a weakening of self-reliance, and ultimately a weakening of economic
prosperity itself.?
?
Andrew V. Abela, Ph.D.
Chairman, Department of Business & Economics
The Catholic University of America, Washington, DC
?
Source: http://www.catholicbusinessethics.org/2012/11/lateran-university-conference.html
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