In Caritas in Veritate Pope Benedict XVI writes:
Economic activity cannot solve all social problems through the simple application of commercial logic. This needs to be directed towards the pursuit of the common good, for which the political community in particular must also take responsibility. Therefore, it must be borne in mind that grave imbalances are produced when economic action, conceived merely as an engine for wealth creation, is detached from political action, conceived as a means for pursuing justice through redistribution (no.36).
I cannot imagine a starker contrast to this claim than the economic “analysis” offered by Alessio Rastani a couple weeks ago on BBC television.
His viewpoint is nicely summed up in the comment, “You see, I’m a trader. I don’t worry about that kind of stuff.” His job, he informs us, is to make money. And if we know what to do during a market crash, we too can turn it into an opportunity to grow rich. This is why so many people are pissed off. This is why the Occupy movement has taken such hold. This mindset of purely commercial logic with absolutely no concern for or attentiveness to the common good is why so many have despaired of the culture which currently governs the financial sector.
I played this clip for my students and asked them why Mr. Rastani’s comments might make people’s jaws drop, as the interviewer remarked. Only one person in the class seemed to get it; he said, “it doesn’t seem to bother this guy if his profits come from the misfortune of others.” “But he said that anyone could do it, and he told us all how,” remarked another student, who was quick to defend Mr. Rastani. And yes- that was the student who just happened to have a pretty sweet internship at Merrill Lynch last summer.
Now I would like to give Mr. Rastani the benefit of the doubt. I have no idea what it is like to trade stocks: what skills are involved, what knowledge is required, what the margin is between success and failure; but certainly the logic of “I’m just doing my job” is woefully insufficient. Not to put too fine a point on it, but we all know where we’ve heard that kind of explanation before: “I was just doing my job, just taking orders…” The same blind spot is at work, though: a blindness to the relation between particular action and the common good as a whole.
Pope Benedict again:
The market is subject to the principles of so-called commutative justice, which regulates the relations of giving and receiving between parties to a transaction. But the social doctrine of the Church has unceasingly highlighted the importance of distributive justice and social justice for the market economy, not only because it belongs within a broader social and political context, but also because of the wider network of relations within which it operates. In fact, if the market is governed solely by the principle of the equivalence in value of exchanged goods, it cannot produce the social cohesion that it requires in order to function well. Without internal forms of solidarity and mutual trust, the market cannot completely fulfil its proper economic function. And today it is this trust which has ceased to exist, and the loss of trust is a grave loss (Caritas in veritate no. 35).
The myopathy of the “I’m just a trader” mindset may be professionally advantageous, but as we have seen, if extended to an entire sector of the economy, it is deeply pathological. It erodes the basic solidarity and trust that form a much deeper part of society’s foundation than the structure of its financial transactions. The success such a mindset might bring is not worth the price.
The antidote which Catholic social teaching prescribes for this pathology is simply a deeper awareness of the profound interdependence of the contemporary world.
The principal new feature [of the contemporary world] has been the explosion of worldwide interdependence, commonly known as globalization…. It has been the principal driving force behind the emergence from underdevelopment of whole regions, and in itself it represents a great opportunity. Nevertheless, without the guidance of charity in truth, this global force could cause unprecedented damage and create new divisions within the human family. Hence charity and truth confront us with an altogether new and creative challenge, one that is certainly vast and complex. It is about broadening the scope of reason and making it capable of knowing and directing these powerful new forces, animating them within the perspective of that “civilization of love” whose seed God has planted in every people, in every culture.
The well-being of each affects the well-being of all. For the Church, this claim isn’t just a pleasant sounding slogan; we actually think this is the case. And yet I’m not sure I can think of a practical principle more at odds with the mentality displayed by Mr. Rastani and those like him. I do not mean to single out this one gentleman as if he is somehow a living encapsulation of social sin. Whatever his qualifications as a representative of the financial sector (and they appear pretty meager indeed), he has nevertheless become the face of the discontent surrounding the current eurozone crisis. While he may just be a normal guy angling for attention in the international media, his comments betray a culpable blindness to the common good that a growing number of us consider to be rampant in the corridors of Wall Street. If nothing else, this viral interview puts on display the persistent tension between the search for short-term profitability and the long-term demands of integral human development.
Excellent post – and I would add (or underline what is already contained in the block quotes above) to this that a particular business model has arisen over the past few decades that emphasizes profit as the sole reason a business exists. But Catholic social teaching says that the purpose of a business is for the fostering of human community. It does not exist in some kind of weird separate sphere untainted by the demands of real human beings driven by something other than profits.
Of course, still, this never convinces holders of those economic models that suggest there is no such thing as the common good, only individuals’ desires, which is certainly not a Catholic view – but then this is one of the reasons why we, as a society, are quite happy to put religion in a different weird supposedly private sphere.
Thanks, Patrick. Jana is right about the necessity of countering the Friedman idea that profit is the sole good of the business.
But there’s a further issue here: the guy is in the “business” of finance. There’s a big difference between him and, say, Steve Jobs. One can argue about whether Steve Jobs’ inventions made the world a better place… or even whether Apple employs monopolist business tactics. But he certainly sought to make good products as a fundamental end of the business… and this is how he made money.
These questions about finance, however, are not entangled with product-making. It is pure profit-making, as if the subprime mortgage scandal never happened. The financial world is, often enough, not even about making good financial products. Michael Lewis’ The Big Short is the best bedside read on this!
In light of the failure of the big banks, couldn’t we say that the profit-only approach to business is bad business even for the finance industry? Perhaps the business of making money is not so different from the “product-making” industries, after all.
Your essay jostled a memory of a blog entry for the Harvard Business Review that Alan Mulally posted in April 2010. It’s about how Ford turned things around by abandoning the profits only approach:
http://blogs.hbr.org/schwartz/2010/04/alan-mulally-making-ford-a-mod.html
Great point, Steve – as far as I can tell in my reading of the economic literature, one of the biggest sticking-points is the question of short-term profits versus long-term profits, and secondarily, how the structures are set up to reward individuals within a particular business or area of business.
The problem here with the trader is not only that he has no sense of the social common good, but it is not even clear if he has the common good of the business in mind. The goal is to maximize short-term gain. And quite frankly, as he makes clear, one can likely best do that by speculating – although you can also lose your shirt. Rational financial systems put limits on speculation, and on other short-term behavior in markets (for example, the financial transactions tax) that do not actually do what financial markets are supposed to do: make savings available for genuine investment.
Steve- that Mulally piece is great. One of the urgent questions it raises is, what are the requirements for allowing new and creative business models to emerge? One of the things that makes the short-term profit window so pathological is that it severely limits the scope of experimentation and exploration. Hitting my mark at the end of the quarter gives me very little room for failure, and also puts significant pressure on me to nuance and spin what is actually going on so as to make the situation look better than it is.
The kind of limitations and restrictions that David mentions are not the outgrowth of ideology, but simple pragmatism. They are the “immune system” of the free market. It’s just a fact that monopolies destroy the free market (because they make it less free), and that speed-of-light computer trading (the kind featured on 60 Minutes not too long ago) clearly make market dynamics much more volatile. It’s not so much about class warfare as it is about adjusting the mechanics of the system. The idea of the “smoky back room” full of rich conspirators is a convenient fantasy. Likewise the notion of the noble 99% being victimized by these conspirators.
I personally think one of the reasons people are flocking to Herman Cain is because he defines himself by a concrete plan of action. His whole political identity is nothing but a practical proposition, which is repeats ad nauseum. People seem to care less about its potential chance of success (since it seems to evaporates the moment one begins to think of its on-the-ground implications for the middle class), but at least this guy is dealing in the real of PLANS.
Obama actually has a pretty good plan, it seems, but nobody is identifying him with it politically because very early on he decided to brand himself ideologically. “Hope” and “change you can believe in” seem like pretty empty concepts in the face of the current crisis. Likewise “wealth redistribution” and “class warfare” ring just as hollow. In my opinion, people are sick of the way every concrete problem gets hijacked by ideology.
Practical solutions like the millionaire tax or the consumption tax are not matters for prudential discernment in light of particular demands, but rather the Trojan horses of vast ideological conspiracies to re-shape the nation. I think we are all in agreement that the current system doesn’t work. Why can’t we also agree to stop looking at the brokenness as an opportunity for advancing an agenda? Rahm Emmanuel supposedly said one “should never let a good crisis go to waste.” Can’t we all agree that that is a deeply cynical and destructive attitude to take? It is, after all, the same principle which Mr. Rastani is applying here.
David and Patrick, it’s a great delight to read your comments. They shed light on area of Catholic social thought–the ethics of finance–that’s not sufficiently illumined. Toward that end, I think there’s something about money that makes it a unique commodity. Money’s never really consumed like other products; it’s just passed around. In some ways, then, it’s like air. But it’s also not like air because it is distributed and possessed. And yet even when we possess our money, we don’t hold onto it; rather, we allow banks and other institutions to loan it out to other people.
All this suggests to me that money has more of a public character than most commodities. Thus, the institutions and relations that are relevant to its generation and movement, and to the preservation of its value, need to be subjected to a different sort of ethical analysis than one would apply in other areas of economic life. These are the lines of thought that I find developing in the Compendium of Catholic Social Doctrine and, more recently, in Caritas in Veritate. I’ll confess that my own thought is not well informed in this area, so forgive me if I’m simply stating the obvious!
Steve and Patrick– Great exchange here! It is definitely a great opportunity for “clarification of thought,” as Peter Maurin would say.
Patrick’s point about ideology is both true and troubling. If the only way we can confront the real problems of the financial system is through park protests and slogans about the “99 percent,” we are in trouble. It seems to me that we face two problems: one, any serious public discussion of these matters is virtually impossible because certain inane notions end up trumping the more complex solutions that are in fact needed. A “wall street vs main street” slogan comes up against language that opposes any and all taxation and calls everyone who has money “job creators.” All of this is just irresponsible. When one reads about the turn of the century populists and the extraordinary work they did to educate farmers and workers about the economic system (without the Internet), we just look tragic. Two, the possibilities of “certfied smart people” coming in and doing complex legislative things that are simply pragmatic and bi-partisan always seems to get hijacked. Frankly, by taking over GM and Chrysler, Obama probably saved an industrial depression – but sadly something like a financial transactions “fee” still can’t get passed.
Steve gets to an even deeper question. Karl Polanyi’s classic The Great Transformation argues that dreams of “marketizing” everything have always been blocked by land, labor, and money – when you try to make these things into commodities (that is, make them obey supply and demand, etc., like a farm or industrial product), they simply won’t behave properly. Yet they are huge components of an economy. In principle, I think I agree with the Catholic distributist John Medaille that right now, we wrongly rely on the fractional reserve system and allow banks to “create” money (i.e. by loaning it out, money is created, since the banks do not actually take the 200K from your savings and give it to someone to buy a house with), which creates very problematic incentives toward debt. Instead, we should rely on government directly to create money, because it serves a public purpose. But this is very tricky – it CAN go wrong, as well. Money is meant to facilitate flow, as Steve notes, and so it is really symbolic of public trust, and not gold or something like that. But when people treat it like a thing – instead of recognizing that money is only valuable insofar as it serves some human good – it doesn’t actually act like a “thing.” It acts more like an irrational idol!