'CARITAS IN VERITATE'

Here is a nuts-and-bolts commentary on CIV that actually projects a practical application of ethics in economics which resonates very much with people like me who have worked directly on 'development projects' on a human scale and at a micro-level in the Third World....

Front Porch Republic (FPR) is a commentary site opened by a group of like-minded Americans, generally political conservatives and mostly academics, when the world economic crisis emerged full-blown last year.


Closing the circle:
An economy of values,
and where to look for it
By Adam K. Webb

17 August 2009


It is no surprise that many of us connected with FPR welcomed the release in mid July of Pope Benedict XVI’s latest encyclical, Caritas in Veritate.

As John Médaille and Patrick Deneen have both noted, it touches on many of the concerns about the ethical dimension of modern economic life that animate our discussions. The encyclical affirmed that “every economic decision has a moral consequence.”

It identified a fiction behind many of the ills of today’s society: that production and exchange can be treated as “ethically neutral,” with decency, charity, and friendship divorced from the hard-headed logic of commerce.

The general tenor of the encyclical follows in a long line of Catholic and traditionalist social thought. It sets the contours of ethical economic life in contrast to both capitalism and socialism. Given “man’s darkened reason,” a pure free market descends into the perversity of merely contractual relationships of exploitation, of “giving in order to acquire.”

In much the same way, the socialist strategy of using the state to temper economic Darwinism ends with top-heavy bureaucracy. In the kingdom of edicts without ethics, charity yields to the folly of “giving through duty,” via compulsory taxes and the like. Either way, something of human responsibility for one’s fellows gets lost.

Perhaps the most distinctive new proposal in this encyclical, and one that has attracted the attention of many of us who think about economic alternatives, involves Benedict XVI’s praise for a new type of enterprise.

“Space also needs to be created within the market,” he suggests, “for economic activity carried out by subjects who freely choose to act according to principles other than those of pure profit.”

This new type of business enterprise would be economically efficient while taking a broader view of its activities than the conventional bottom line.

Beyond a rather vague gesture to religiously inspired experiments that have proved the viability of such a model, the encyclical leaves undeveloped the details of this new space that would straddle the market and civil society.

The idea of a more multidimensional economy is attractive for obvious reasons. By focusing on the spirit of economic decisionmaking rather than top-heavy regulation, it promises to avoid many of the rigidities from which socialism suffered.

It also challenges head-on the orthodoxy of economic theory over the last generation. It has become conventional wisdom — and the gospel behind some nefarious policymaking — that the market can admit no ethical colouring. Any more humane aspirations pertain to politics or to private charity.

Merely affirming the possibility of doing things differently is going to grab the attention of many of us. The hope of broadening economic decisionmaking also crops up beyond those familiar with Catholic social thought.

In much the same vein, Muhammad Yunus, the founder of the Grameen Bank, proposed in his Nobel Prize speech a couple of years ago that the best weapon against poverty would be a new type of “social business,” oriented to the common good rather than mere profitability. The appeal runs both deeply and widely.

[I had hoped before CIV came out that the Pope was going to mention Yunus's extremely successful low-tech small-loans, no-collateral rural banks that has been replicated in other places in Asia besides Bangladesh. In fact, I believe Cardinal Sepe, using his own personal donation as seed money, has started something similar in Naples.

These small loans help the urban poor set up a modest neighborhood enterprise and country poor to start a small vegetable garden, poultry or piggery - and even if they are on the micro end of the economy, they can lead to productivity of otherwise idle persons,some measure of self-sufficiency, and even the start of an enterprise that could grow beyond the micro scale.

Growing up in the Philippines, I have a deep appreciation of what 'little people' can do with a modicum of assistance and guidance, having had experience with developing self reliance and self-sufficiency in my own home and with my family's tenants and dependents, and as as adult, with actual community development work on an intimate scale.]

Once one thinks more about it, however, some problems of execution come to light. None of these proposals go into the nitty gritty of how multidimensional businesses can really fit into the broader economy. They might help relieve poverty, and some of them might even be able to stay afloat.

But the pressures of the broader economy of lucre-lust favour a race to the bottom. I have yet to see any compelling account of how such alternative businesses could redefine the global economic landscape, as their advocates obviously wish for them to do.

This gap, I suspect, is because shifting that landscape inherently requires outgrowing one’s rivals and conquering some of their territory.

To outgrow one-dimensional capitalism is no easy matter. It is like putting a normal person and a tidiness fanatic in adjacent rooms, and expecting the former’s room to be tidier than the latter’s.

However tormented the tidiness fanatic might be, and however much he might drive others up the wall, in any measurable sense he will always triumph in the sphere of his own obsession.

A further shortcoming of these proposals, beyond their vagueness as to design and strategy, is a certain inattention to historical context. As an alternative to the excesses of the last two centuries, the idea of a multidimensional economy would be much more complete if it could fit into a narrative of history and cultural change.

Simply putting it forth as a way to counteract some excesses in our own time runs the risk of leaving us blind to how we got here. More importantly, it overlooks where we might find concrete inspiration and a living example of how more humane economies work.

Those who have read my earlier postings know that I have spent some time in villages in the developing world, and even more time thinking about them. I believe that severe rural poverty creates both demand for a real alternative to global capitalism, and space for experimentation.

I also believe that these communities, neglected and dismissed though they usually are, can offer us some useful lessons for how to humanise the global economy at large.

In short, I do urge a turning upside down of the usual narrative of progress. Inspiration need not flow only one way, from the modern to the traditional. We might be better off with the reverse.

Here is the crux of the issue. We tend to admire much of the spirit of traditional life, and to welcome any efforts to ensure its survival. Thus we see defences of local crafts, small family farms, and the like.

We also want to humanise the modern economy so it can take a wider range of values and aspirations into account, or at least not work so relentlessly against them.

That is why we condemn companies that ruin the livelihoods of thousands for a trivial increment in their quarterly balance sheets. I want to argue here for the best way to close the circle, to connect these two sentiments.

We must think about how lessons from traditional economies can help flesh out the design of a different mode of economic decisionmaking, as favoured by Benedict XVI, Muhammad Yunus, and other voices of our time.

One thing that has always struck me in traditional communities is the widely held view that economic life is about more than just making a buck. Small shopkeepers or middlemen who forget the small decencies of loyalty, generosity, and friendship are swiftly cut down to size.

[The 'honor system' that operates in traditional societies is sacrosanct. Your neighborhood store will give you credit whenever you can't pay for what you need at the moment, because the storekeeper knows you are in temporary straits and will pay him back; and you will pay him back as and when you can because it's a matter of honor, good conduct, and gratitude.]

And peasants often have a well-founded image of modern, urban life as rather too cutthroat for their tastes. This sentiment is recognised in a long line of writing by thinkers who challenge the homo economicus model of orthodox economists — and who are usually dismissed as anathema by them as a result.

One of the best known such thinkers, Karl Polanyi, insisted that “man’s economy, as a rule, is submerged in his social relationships.” A peasant might be quite calculating about how to advance his social prestige, but he would rarely treat profit as an end in itself that should trump all others.

Any broad view of modern economic history and cultural change must see the vanishing of this multidimensionality — this unleashing of the profit motive to run amok — as central.

Polanyi himself said that the theory of a self-regulating market, divorced from society, wrought havoc in the nineteenth century when translated into policy. Millions suffered “social exposure” as they were torn loose from their villages and thrust into factories to live hand to mouth.

Jürgen Habermas observed that much of modernisation has involved splitting the market off from a traditional universe of social norms, so that it can follow its own relentless logic. A conversation about values gives way to the soulless prodding of money and administrators.

And Karl Marx traced the collapse of traditional society, with all its entangling of norms, status, and class, into the “icy bath” of pure profit-seeking. There is, he averred, nothing so powerful in remaking society as the pressure of a low price.

If we step back from these time-tested observations, however, we see a gap that still needs bridging. The world once had economies with a built-in broader view of their purposes, and of how profitability and human flourishing should interact.

Some patches of the world still have residues of this old 'commonwealth', even though the leviathan is bearing down on them. And we aspire to correct the excesses of modern capitalism by taking a broader view of economic life once again.

How these fairly obvious facts might link up with one another, and inspire an alternative capable of gaining ground in our own time, is rather less clear.

Three kinds of solutions seem on offer. The debate seems likely in this century to crystallise around them.

First, socialists and social democrats rely on using the state to regulate economic life, smooth its rough edges, and redistribute resources from rich to poor. Without saying as much, they buy into the notion that the market per se is irredeemable.

Rather than acting directly on the motives of those who make economic decisions, they think it simplest to confine those economic decisions within certain politically imposed limits. At the same time, they insulate some consumption needs from the ravages of what the market, in the aggregate, brings about.

Some goods like medical care and education are taken out of the market, or purchasing power for them is evened out. As critics hasten to point out, this approach has led in recent decades to top-heavy bureaucracy and inefficiencies.

It also tends to be morally debilitating, by empowering administrators and disempowering precisely the same plain folk who often desire a more humane economy in the first place.

Second, many economic traditionalists take a quite different tack. This camp includes many of the readers of FPR and the thinkers who resonate with them. They see the best buffer against both market and stage as economic localism, a defence of place and limits.

The themes of subsidiarity and direct participation show, I think, a deeper appreciation of what humane living requires than we get from the socialists. The emphasis on local self-reliance also shows an astuteness about the dangers posed by the present global economy and its technocratic masters, and a plausible strategy for protecting oneself from them.

It has obvious shortcomings, however. I noted a couple of weeks ago that it sacrifices real and necessary economies of scale. It has little prospect of remaking the global economic landscape, simply because it cannot outgrow mainstream capitalism enough to displace it.

And, in a deeper sense, focusing on scale — and, in some versions, specific forms of traditional economic life — rather than the content of the economic virtues can limit one’s creative energy and ability to adapt how they are expressed.

Third is what the encyclical and other proposals for a multidimensional economy are hinting at but not developing sufficiently.

They do not just want to move the boundary between market and state, or confine the market within smaller units in the hope that smallness will humanise. Rather, this approach inclines to fling open the energies of economic life, but at the same time act directly on the motives that channel them.

I think a useful analogy for what this looks like is what I call “the virtuous millionaire.”

She is a millionaire because we must recognise that some undertakings require larger concentrations and flows of capital than an economy made up only of small proprietors can offer.

She is virtuous in the sense of wanting a decent return on investment, but also to promote worthy social purposes. And because we are dealing with a mind in which these goals merge, decisionmaking is quite seamless.

Our virtuous millionaire might choose to invest in the more ethically run of two equally profitable enterprises; or to accept a lower rate of return to support a worthy cause; or to mix support of some very profitable and ethically adequate enterprises with others that merely break even while bringing impressive social benefits.

In a society with many such virtuous millionaires, moreover, one would have the best of both worlds. On the one hand, capital would be allocated in ethically conscious ways. On the other hand, the economy would benefit from the dynamism of many independent decisionmakers, with complementary knowledge of the market and not overly bound by regulations from above.

Despite everything else with which we might disagree in the writings of F.A. von Hayek, he was right in noting the advantages of the market in pulling together the dispersed knowledge of many independent actors.

This image of the virtuous millionaires is not merely an abstraction. A glance into history reveals many examples of something quite like them.

The owners of large traditional estates, while often responsible for exploitation that should be named and blamed as such, also were somewhat confined by religious and customary norms of stewardship. [The benign and beneficial paternalistic nature of many so-called 'feudal' arrangements is often overlooked or ignored, but it is very real in the Third World.] They took a broader view of economic decisionmaking than does a modern investment banker with a spreadsheet.

Premodern societies also had collective versions of the virtuous millionaire. The monasteries of mediæval Europe and the waqf endowments of the Islamic world oversaw large concentrations of wealth for the public benefit.

And before the enclosure movement of the sixteenth to nineteenth centuries broke up and sold off the village commons, whole communities had large reservoirs of wealth that were used in accord with local norms rather than only to increase the bottom line.

This aspect of capital ownership and allocation is, I suspect, the missing dimension of what an ethical economic alternative will look like.

Put capital in the hands of the mercenary or those who are pressed by necessity into shortsightedness, and capital will behave in a mercenary or shortsighted way. (It will also tend to flow out of the hands of the necessarily shortsighted and into the hands of the mercenary, by the time the dust settles.)

Put capital in the hands of something like the virtuous millionaire —most often, this would be something like community-based endowments, or ethically driven investment funds — and you will get something rather different, without the top-heaviness, rigidities, or high walls of the other ways to temper capitalism.

It is an “economy of values” in many senses: it has dynamic flows and its own equilibrium, and it merges multiple priorities into a relatively seamless and decentralised model of decisionmaking.

This way of shaping behaviour is rather like dealing with a stadium of people, some of whom are intoning poetry while others shriek profanity.

We might take the heavyhanded approach and simply ban certain speech or speakers. Or we can give megaphones to the poets and turn up the volume for the most inspiring ones.

In the same way, allocating capital preferentially to more ethical enterprises has a way of amplifying their good deeds in the long run. By rewarding good habits, it also subtly reshapes behaviour. Because performance and decency are seamlessly woven together, as for the virtuous millionaire, it is more likely the desired norms will be internalised by economic actors.

The cultural terrain would shift over a generation or two. Let us tweak the psychology of the investment bankers and CEOs directly.

As a project of restoration, this model would make quite clear that it sees the one-dimensional economy of the last two centuries as an aberration in history.

In closing the circle between a respect for traditional decency and our present day economic hopes, we also have to take seriously what remains of a multidimensional economy.

The old commonwealth survives most fully in rural communities in poorer regions of the world. Where we can build on their lived experience, and mobilise what remains of their “unenclosed” wealth in this way, we might have the kernel of an experiment.

[YES!!! I have seen so many examples of developing self-reliance' in small communities, rural and urban, having worked for years with government projects concerned with assuring them of 'basic human needs' - homes, food, drinkable water, livelihood, health care, education, religious and cultural opportunities.

Government never has enough to do it for all the villages and neighborhoods in the country, but you target the neediest communities first and help them be a model for the area where they are located, and in many cases, they do have a multiplier effect. It's too bad subsequent governments in the Philippines did not pursue the vision of that Ministry of Human Settlements and the inspiration and faith of the lady who made it possible.]

We could weave among these communities networks of cooperation and circuits of an alternative capital market. At the same time that this offers the economies of scale that I argued were indispensable in an earlier posting, it could build a practical example of something like what Benedict XVI and Muhammad Yunus are proposing.

Severe poverty and a shortage of capital also offer the advantage, ironically, of a high enough growth rate in the medium term for such an experiment to outgrow the established global economy and reconquer some space from it. There are both social and strategic advantages to focusing here.

This is, of course, only a very broad outline of some pressure points that I think are worth probing further. I detail some more nuts and bolts of how such an experiment on the ground might work in my recent book on the Andes.

But most importantly, I want to underline the importance of this fundamental debate. What if any historical antecedents might we point out as inspiration for our efforts today? What is our narrative of what went wrong over the last two centuries? What are the key pressure points that might reshape the economic terrain? Are they matters of scale, regulation, dispersal of ownership, or, as I have suggested, of how capital is allocated? And where might we look for fertile ground in our own time?