Thought of the Day: The Pope v. Capitalism

By all accounts, the Pope is a man who cares deeply for the world’s poor. But he is less sound when it comes to matters of history and economics.

Like any vocation, capitalism is a pyramid, with a few successful people at the top. It is like an  army or a ship, where there is one commander. It is similar to sports and entertainment. Just as there is only one CEO at a company, there is only one Kobe Bryant and one Taylor Swift. There is only one Pope. By definition, success reflects inequality – in aspiration, talent, effort and luck. Equality of opportunity is a worthy goal. Equality in outcomes is not possible. It cannot be otherwise. Those on the left who scream loudest about inequality are themselves often at the pinnacle of a career – a success they would not have had in a flat society.

“Inequality” is a political “hot-button” word. It plays well in societies addicted to sound-bites and with people who lack perspective. What exactly do the words “inequality” and “redistribution,” and the phrase “fairness economy” really mean? Humpty Dumpty provided an answer when he said to Alice, “When I use a word it means exactly what I choose it to mean – neither more nor less.” Humpty Dumpty was referring to “glory,” but one may substitute any number of words whose definitions, in their ambiguity, are convenient for hedging politicians and moral relativists.

We must remember democratic capitalism has, over time, done more to reduce poverty than any other economic system, form of government, religion or church, including the Catholic Church. Two years ago, The Economist estimated that one billion people had been removed from the ranks of extreme poverty over the previous twenty years because of trade and free-market capitalism. (Extreme poverty, as measured by the World Bank, refers to those living on less than $1.25 per day.) In 2011, researchers at the Brookings Institute concluded that “…the world – even Sub-Saharan Africa – is in the midst of rapid poverty reduction.” They credited economic growth brought on by globalization. The collapse of the Soviet Union ushered in better standards of living for millions of East Europeans. China’s incorporation of capitalist ideas into Communism has, according to researchers at Yale, recorded “great feats in poverty reduction.”

The pursuit of profit is critical to a world that demands economic growth – a necessity to accommodate the natural growth in population and to allow for the eradication of poverty. Without profits, what incentives do people have to invest time, labor and capital? Without profits, businesses cannot expand and hire. Without profits, economies would grind to a halt, people would starve and disease would run rampant.

Why, then, did the Pope refer to profits as “the dung of the devil?” His remark was that of a man combating 19th Century robber barons or tilting at colonialism. The Western world depicted by Charles Dickens and Edith Wharton was one that did take advantage of labor. Their novels starkly showed societies’ inequalities. But today that world exists mainly in novels and history books. European colonialism did take advantage of third world nations, but it, too, died in the wake of World War II.

It is government, not capitalism that abets inequality. Complexity in the tax code works to the advantage of big corporations and the wealthy. Regulation is supposed to aid the consumer, when in fact it too often is used to bar competition. Challengers to the status quo like Uber run afoul of the Left. So-called liberals claim their interest is to represent (in the case of Uber) “contract workers,” when in truth they support unions and wealthy owners of cab companies. European exploiters of labor and natural resources have been replaced by governments run by totalitarian regimes, like we see in places like Cuba and Venezuela, and countries recently visited by the Pope – Bolivia, Ecuador and Paraguay.

Free market capitalism is not the issue. It is rules in developed economies that serve the wealthy and regulations designed to protect existing businesses. And it is regimes that ignore the rule of law and that do not honor property rights. Profits are not evil; they are necessary for the elimination of poverty, but they only work in societies where citizens have the rights of a free people. To blindly demean capitalism is to destroy the goose that laid the golden egg.

Where capitalism has failed is in extolling its virtues. Arthur Brooks, president of the American Enterprise Institute, has done more than anyone to lay out the case for moral capitalism. In a recent interview in the Wall Street Journal, he spoke of the paradox between socialism and capitalism: the former has higher ideals, but fails in practice, while capitalism succeeds in practice, even though it is based on greed. But it succeeds, he noted, not because it is based on greed, “but because the freedom to trade and do business with others is in harmony with our God-given nature.” Mr. Brooks concluded: “In the capitalist view, poor people aren’t liabilities to be managed by government; they are human beings with untapped potential.”

Every system needs critics, including free-market capitalism. It is why capitalism works best within a framework of democracy. In this instance, the freedom to criticize provides Left-wing populists like Bernie Sanders and Elizabeth Warren the opportunity to disagree. A pluralistic society, voting in self-interest, tends to rein in excess. But none of that should detract from the overwhelming evidence that free market capitalism has done more to eliminate poverty than anything else, including, as I wrote, the Church.

If the Pope truly wanted to focus on raising the well-being of the four or five hundred million of the earth’s population who still live on less than $1.25 per day, he should focus on those governments who deprive their citizens of their basic rights, including the right to succeed. He should call out those governments that do not abide by the rule of law and that do not protect private property. He should expound the moral case for democratic, free-market capitalism.

 

The Opinions expressed above are mine alone, and do not represent those of the firm Monness, Crespi, Hardt & Co., Inc., or of any of its partners or employees.