Sell! Sell! Sell!
This week’s commentary is from Victor V. Claar, an economist at Henderson State University and the author of a new Acton Institute monograph, Fair Trade? Its Prospects as a Poverty Solution. Follow his economics blog here.
Poverty, Capital and Economic Freedom
By Victor V. Claar
When poor countries grow rich, it rarely has anything at all to do with how many mouths they have to feed or the abundance of natural resources. Instead, across the globe, poor countries of all sizes, climates, and endowments begin to grow rich as two key factors increase.
First, countries grow rich as their human capital improves. Human capital is the term economists use to describe the value that a country’s people possess through their accumulated experience and education. For example, there is little doubt that India’s recent growth explosion is due in large part to the education—including the knowledge of the English language—of its people.
Second, countries grow rich as they invest in and accumulate physical capital: the machines, tools, infrastructure, and other equipment that make the product of each hour of physical labor more valuable. That which both human capital and physical capital share is that they both transform the result of an hour of a person’s hard work into something of even greater value. As the value of an hour of labor rises, employers gladly pay higher hourly rates, knowing that their bottom lines will be the better for it.
If we want to be effective agents in aiding the poor, we should focus our efforts in directions leading to the enhanced value of an hour of labor. That is, we should help poor countries wisely grow their stocks of human and physical capital, all the while bearing in mind that markets and their prices send the best available signals regarding where our efforts can have the greatest impact. The newfound success of innovative micro lending efforts such as Kiva can help show us ways to effectively invest in the accumulation of physical capital by the global poor. Compassion International is a marvelous organization that works to further the education—the human capital—of poor children worldwide, with a financial accountability record above reproach. (more…)
On May 21, 2010, the United States Conference of Catholic Bishops released a media statement which sought to identify the way forward for Catholic engagement in the healthcare debate in light of the passage of healthcare legislation. The USCCB stresses that at the core of the bishops’ advocacy throughout the debate was a concern for three principles: (1) the protection of innocent life from the use of lethal force from conception to natural death; (2) the maintenance of conscience protections; and (3) the realization of universal access to healthcare for all, especially the poor and migrants. These, the USCCB stresses, will remain at the forefront of its contributions to the healthcare discussion. The USCCB consequently asks America’s “Catholic community to come together in defense of human life, rights of conscience and fairness to immigrants so we will have a health care system that truly respects the life, dignity, health and consciences of all.”
All this is well and good. Unfortunately, there is no mention in this text of a concern voiced by a good number of Catholic bishops throughout the debate: an assessment of whether the recent healthcare legislation can truly be said to reflect adherence to the principle of subsidiarity. For anyone who needs a reminder of what this principle means, here’s what the Catechism of the Catholic Church says (CCC 1883):
Excessive intervention by the state can threaten personal freedom and initiative. The teaching of the Church has elaborated the principle of subsidiarity, according to which ‘a community of a higher order should not interfere in the internal life of a community of a lower order, depriving the latter of its functions, but rather should support it in case of need and help to co- ordinate its activity with the activities of the rest of society, always with a view to the common good’.
It’s important to note that subsidiarity is not an “anti-government” or “anti-state” principle. Indeed it affirms that there is a role for government because (1) there are some things that only governments can and should do and (2) sometimes the state does need to intervene when other communities are unable to cope temporarily with their particular responsibilities. Nor, it should be added, does subsidiarity always translate into the very same policy-positions, precisely because some elements of the common good are in a constant state of flux.
That said, it’s puzzling to say the least that the USCCB, both during and after the healthcare debate, is not in the habit of referencing subsidiarity as a vital principle for Catholics to reflect upon as they consider the implications of what few now question amounts to the massive expansion of Federal government control over healthcare in the United States. Contrary to what some Catholics imagine (especially the professional social justice activists who dissent from fundamental church dogmas and doctrines while casting anathemas against anyone who disagrees with their own prudential judgments on any number of economic issues), striving to widen access to healthcare need not automatically translate into the state assuming a dominant role.
In their important joint pastoral letter of August 22, 2009, Archbishop Joseph F. Naumann of Kansas City, Kansas, and Bishop Robert W. Finn of Kansas City-St. Joseph listed subsidiarity as a vital principle upon which Catholics should reflect when thinking about health care reform. They even described subsidiarity as “the preamble to the Work of Reform”. Elsewhere in the document the bishops spelt out what this means for healthcare reform:
The right of every individual to access health care does not necessarily suppose an obligation on the part of the government to provide it. Yet in our American culture, Catholic teaching about the ‘right’ to healthcare is sometimes confused with the structures of ‘entitlement.’ The teaching of the Universal Church has never been to suggest a government socialization of medical services. Rather, the Church has asserted the rights of every individual to have access to those things most necessary for sustaining and caring for human life, while at the same time insisting on the personal responsibility of each individual to care properly for his or her own health.
During the healthcare debate, a considerable number of Catholic bishops expressed similar views. Bishops Walker Nickless of Sioux City, for example, was very specific:
… the Catholic Church does not teach that ‘health care’ as such, without distinction, is a natural right. The ‘natural right’ of health care is the divine bounty of food, water, and air without which all of us quickly die. This bounty comes from God directly. None of us own it, and none of us can morally withhold it from others. The remainder of health care is a political, not a natural, right, because it comes from our human efforts, creativity, and compassion. As a political right, health care should be apportioned according to need, not ability to pay or to benefit from the care. We reject the rationing of care. Those who are sickest should get the most care, regardless of age, status, or wealth. But how to do this is not self-evident. The decisions that we must collectively make about how to administer health care therefore fall under ‘prudential judgment.’ [I]n that category of prudential judgment, the Catholic Church does not teach that government should directly provide health care. Unlike a prudential concern like national defense, for which government monopolization is objectively good – it both limits violence overall and prevents the obvious abuses to which private armies are susceptible – health care should not be subject to federal monopolization.
Preserving patient choice (through a flourishing private sector) is the only way to prevent a health care monopoly from denying care arbitrarily, as we learned from HMOs in the recent past. While a government monopoly would not be motivated by profit, it would be motivated by such bureaucratic standards as quotas and defined ‘best procedures,’ which are equally beyond the influence of most citizens. The proper role of the government is to regulate the private sector, in order to foster healthy competition and to curtail abuses. Therefore any legislation that undermines the viability of the private sector is suspect. Private, religious hospitals and nursing homes, in particular, should be protected, because these are the ones most vigorously offering actual health care to the poorest of the poor.
These and similar views expressed by many bishops were dismissed as “libertarian” by whatever’s left these days of the Catholic left – as if only libertarians could possibly believe that limiting government power and encouraging private sector and civil society solutions to genuine social and economic problems are good things.
The truth, however, is that the USCCB’s professional social justice bureaucrats have a long history of playing down or even ignoring the implications of the principle of subsidiarity. Subsidiarity isn’t, for example, even listed as one of the “Themes of Catholic Teaching” on the Justice, Peace and Development section of the USCCB’s website. It is long past the time for that to change.
The Institute on Religion & Democracy’s Faith McDonnell:
Conducting “truth commissions” to denounce American armed forces and organizing divestment campaigns to cripple Israel are vital issues to some American church officials. Raising the banner of Intifada and expressing solidarity with Palestinians are also very important to this collection of liberal leaders. They “spiritualize” the Democratic immigration and health care reform agendas with pompous prayer, but their social justice-focused prophetic vision has strange blind spots. Leftist church leaders hardly ever see, let alone condemn, the imprisonment, enslavement, torture, and murder of Christians in the Islamic world, North Korea, and China.
Church officials and partner organizations such as the National Council of Churches (NCC) and the World Council of Churches (WCC) issue strident policy statements on such topics as “eco-justice,” broadband access for “economically depressed rural areas,” the Israeli “occupation,” and “unnecessary Department of Defense spending.” But one is hard-pressed to find these church leaders denouncing the recent appointment of the Islamic Republic of Iran to the United Nations Commission on the Status of Women. One searches in vain for an expression of solidarity with the Christian community in Jos, Plateau State, in central Nigeria, where hundreds of Christians were slaughtered by Fulani jihadists during March and April of 2010. If there are any such statements, they address vaguely “ethnic conflict” and are masterpieces of moral equivalency.
Such reticence to speak about persecution is not new for liberal church leaders. Downplaying or denying the egregious human rights violations of the Soviet system was symptomatic of Leftist hatred of America and Western values. It was also considered essential to the type of appeasement of tyrants necessary to achieve the liberal Utopian dream of a peaceful, nuclear weapon-free world.
Read “Embracing the Tormentors” on IRD’s Web site.
Some members of the Acton team were in Krakow, Poland, last week for the third conference in our series on Poverty, Entrepreneurship and Integral Development. This conference, which took place on May 19th, was on the topic of Building a Commercial Society: Culture & the Transition to Wealth, and was co-sponsored with the John Paul II Catholic University of Lublin, the Civil Development Forum, and the Polish American Foundation for Economic Research and Education.
With a massive debt crisis threatening Greece along with other euro-zone economies if not all of Europe, our conference speakers showed how the growth of the welfare state and the appetite for “free” (i.e. government-provided, taxpayer-funded) programs and entitlements have created all sorts of perverse economic, moral and cultural incentives and resulting maladies.
With a wide and impressive array of data, former Polish minister of finance Leszek Balcerowicz explained how the welfare state/entitlement mentality weakens incentives to work and save, and fundamentally alters relations within institutions such as the family, while also increasing and entrenching inequality and social transfer payments. A less dynamic, more resentful society with a few rich, politically-connected oligarchs and many frustrated entrepreneurs follows in much of the post-communist world.
Former Estonian prime minister Mart Laar related how Pope John Paul II’s moral culture of freedom did not and does not yet exist in post-communist countries, with negative consequences for the environment, the economy and the human soul. Estonia has succeeded in cutting government spending by 20 percent, has ignored the advice of the International Monetary Fund to raise taxes, and did not borrow money to finance the welfare state, which Laar called unsustainable and incapable of providing true welfare.
Dominican priest Fr. Maciej Zięba reminded us that the free economy includes more than private property and trade; it needs certain cultural and moral presuppositions about work, human dignity and equality, and decentralized social structures such as parishes, towns and businesses. Pope John Paul II’s encyclical Centesimus Annus was not “hyper-moralistic” but realistic in its reading of the free economy and urged us to do well and do good together.
In the afternoon session, Prof. Jan Kłos addressed the creative tensions of man’s relationship to nature and how it can be turned to our mutual benefit, while entrepreneur Andrzej Baranski spoke of the history of his family business in Krakow and the myth of the “human face” of socialism. Writer and journalist John O’Sullivan noted that Polish culture saved the nation during many trials and sufferings, and could save Europe again by recalling the modest, realistic yet vigorous Christian virtues Polish culture has long instilled in its people.
The conference concluded with the presentation of the 2010 Novak Award to the Lithuanian priest Fr. Kęstutis Kėvalas followed by his Calihan lecture on “The Market Economy in Benedict XVI’s Caritas in Veritate”. Fr. Kėvalas explained how the logic and spirit of giving need to penetrate the market economy, and indicated that Benedict may be developing a “theology of the market” akin to Pope John Paul II’s famed theology of the body. This theology would help shift the economic debate beyond aid and the culture of dependency on the welfare state towards one based on a fuller understanding of human nature.
Simon Johnson and Peter Boone wrote an interesting article the UK Telegraph Saturday called “The New Feudal Overlords of Europe will be the bankers of the ECB.”
Johnson is also the co-author along with James Kwak of a thoughtful and provocative book 13 Bankers as well as a blog on economics. Also on the ECB see my colleague Sam Gregg’s Piece at Public Discourse
Using Hayek’s famous phrase “The Road to Serfdom” Johnson and Boone argue the demise of Europe will not be the welfare state and the growth of government as Hayek predicted, but rather a “financial elite gone awry” They write:
Hayek had the sign and the destination right, but was wrong about the mechanism. Unregulated finance, the ideology of unfettered free markets, and state capture by corporate interests are what ended up undermining democracy both in North America and in Europe. All industrialised countries are at risk, but it’s the eurozone – with its vulnerable structures – that points most clearly to our potentially unpleasant collective futures.
As a result of the continuing euro crisis, the European Central Bank (ECB) now finds itself buying up the debt of all the weaker eurozone governments, making it the – perhaps unwittingly – feudal boss of Europe. In the coming years, the ECB and the European Union will dictate policy. The policy elite who run these structures – along with their allies in the private sector – are your new overlords
It is arguable who exactly are the peasants, the vassals and the lords under this model – and what services will end up being exchanged, but there is no question we are seeing a sea change in the post-war system of property, power and prosperity across Western Europe, just as Hayek feared. An overwhelming debt burden will bring down even the proudest people.
The ECB-EU approach will not return countries to reasonable levels of growth – the debt overhang is simply too large. The southern and western periphery of the eurozone cannot grow out of their debts under these arrangements and so will stumble from stabilisation programme to stabilisation programme – as did Latin America in the 1980s. This is bound to lead to hostile politics, social unrest and more economic crises.
The debt crisis must be addressed and I don’t disagree with their assertion that corporate-government collusion is a serious problem (See my article on Davos Capitalism) though I am unclear on how “Unregulated finance, the ideology of unfettered free markets, and state capture by corporate interests” exactly go together, or what they mean by “unfettered free markets.” Since Johnson and Kwak argue in 13 Bankers that we’ve had a type of oligarchic capitalism and Johnson and Boone matter of factly talk about “welfare socialism” I assume they aren’t arguing that the Europe or the US have had laissez faire free markets over the last decades, so I am not exactly sure what they mean. But on to their main points.
Johnson and Boone argue that current debt levels and the lack of political will to do anything about it will end up wreaking havoc on EU countries and ultimately on the US and the world.
The UK and US need to prepare themselves for more storms. The United States will be in the pleasant position as the world’s safe haven, but this will only encourage America’s profligate politicians to spend more and build more debt.
The UK will bear much more pain from euro devaluation and financial dislocation, all exacerbated by its own large deficit and debts. We might well see one more invasion across the channel, this time by bond vigilantes who question Britain’s ability to rein in inflation as it builds too large debts.
At the end of this great tumult, Europe and the UK will have sound fiscal regimes. Debt will be defaulted on or inflated away, and nations will have dramatically cut spending.
Hayek’s predicted demise of western society as he knew it will prove correct, but welfare socialism will prove the victim, erased by a political and financial elite gone awry.
Interesting and worrying stuff and the article is well worth reading as is 13 Bankers. But one thing the authors seem to ignore in this piece is that while welfare socialism may be the victim of the collapse (not a bad thing in my estimation), it is fully a culprit as well.
It is precisely a massive welfare state that is a part of the problem. It not only requires outlandish and unsustainable spending on the parts of governments who are afraid to address the challenge lest they lose popular support. But it also encourages a culture of irresponsibility, and inculcates a sentiment in the population that you can maintain an pleasant middle class life indefinitely without actually having to produce goods and services that people want and need. They suggest several austere measures as a solution but doubt the political will to achieve it. What may be really needed is a complete rethinking of the role of government and the whole idea of the current welfare state. That would not only require political courage, but cultural rejuvenation and this is something neither politicians nor bankers can provide.
Over at Public Discourse, a new article by Acton’s research director Samuel Gregg examines the deeper reasons behind the problems of the euro. In “Europe’s Monetary Sins,” Gregg points out that many of the euro’s present difficulties reflect a basic refusal of Europe’s political class to acknowledge some of the unpleasant economic realities associated with the EU’s social model, as well as a tendency to say one thing while really doing another. In short, Gregg argues that many of Europe’s economic predicaments flow from a crisis of truth, an unwillingness to recognize it, and the subsequent formulation of policy on the basis of untruths and half-truths. The most recent result of this process, Gregg says, is that the independence of the European Central Bank has been severely compromised:
Ever since its foundation in 1998, the ECB has been a whipping boy for European politicians from the left and right who argue that the ECB’s legally mandated priority of maintaining price stability has kept productivity and economic growth rates in the EU far below those of America. In reality, these problems have little to do with monetary policy and everything to do with low rates of entrepreneurship, unsustainable levels of welfare expenditure, an aversion to competition, high rates of public sector employment, and structural rigidities associated with some of the world’s most inflexible labor markets. Indeed, it is probable that the ECB’s avoidance of the low interest-rate policies adopted by the Federal Reserve in the 2000s may have made the 2008 recession in Europe more bearable than it might otherwise have been.
Against considerable political pressures, the ECB has hitherto doggedly defended its independence. All that, however, changed when the European Union decided to set up its 750-billion-euro bailout fund in early May 2010 to stabilize financial markets and rescue the holders of not only Greek government debt, but also, implicitly, the holders of any EU government debts that seemed shaky.
At the start of Washington’s unprecedented federal interventionism into the private sector and on the heels of a Newsweek cover heralding that “We Are All Socialists Now,” there was considerable angst that free market defenders had forever lost the public. Not so, says American Enterprise Institute President and author Arthur Brooks. Brooks says “America is a 70 – 30 percent nation in favor of free enterprise,” but the forces of statism have capitalized on the financial crisis and have an entire arsenal of federal power at their disposal to advance their agenda. This is one of the overarching themes in The Battle: How the Fight Between Free Enterprise and Big Government will Shape America’s Future.
What Brooks has crafted is a spirited defense of the free market economy and a challenge to its defenders to think more holistically, to be aware of spiritual value in a free economy. To fail to do so, would only sustain the well worn narrative of defenders of markets as greedy misers and swindlers.
One of the strengths of Brooks’s new book is the ability to not only explain the financial crisis, but to offer a superb description of the government’s role in the crisis. The problems in the mortgage industry are clearly linked to the federal pressure exerted on Fannie Mae and Freddie Mac to issue high risk loans. And if the financial crisis and mortgage industry are explained well by Brooks, so too is his analysis of the new health care law. Brooks explains that the bill is about government control and redistribution saying, “Obama and many in Congress even oppose the small degree of control that would come from letting Americans shop for health care plans from out-of-state insurance companies.”
The 30 percent agenda is what Brooks is most adept at exposing. “What do they believe to be the greatest problem of poor people in America? Insufficient income. What would be evidence of a fairer society? Greater income equality,” says Brooks. He understands that money is not always the root problem but there are many deeper life issues when it comes to poverty. Brooks’s account is the kind of book that draws a line in the sand, explaining why the stakes for the future of this country are so great. He, like many Americans, laments the slide of the country towards a European style of democratic socialism.
Another strength Brooks offers is the ability to connect free market principles with the founding of this nation and our deeper culture. “Free enterprise is not simply an economic alternative. Free enterprise is about who we are as a people and who we want to be. It embodies our power as individuals and our independence from the government,” says Brooks.
Perhaps Brooks’s greatest skill is articulating the moral case for the free market. He doesn’t just offer generic platitudes but understands deeper principles of human flourishing. Brooks talks about the value of “earned success.” Earned success is the ability to create value honestly and it taps into the entrepreneurial spirit. He also defends the dignity of the human person when he talks about fairness, especially the importance of fairness of opportunity over fairness of income, which is preferred by the 30 percent coalition. The human person rather should have an inalienable right to the pursuit of happiness, and creative space protected from the whims of the state.
At the closing of the book Brooks offers an inspirational defense of the greatness of this country. He contrasts the importance of principle over political parties, bailouts, and political power. Since this book is so aggressive in its denunciations of the agenda of the 30 percent coalition, it may not change many minds, but if 70 percent already side with Brooks, we should look forward to the mobilization of their voices.
[Here is a piece by Arthur Brooks in The Washington Post related to his book titled “America’s new culture war: Free enterprise vs. government control.”]
From OBL News (5/19/10):
Abba Seraphim will join a protest vigil to “Stand in Solidarity with Eritrean Christians” outside the Eritrean Embassy between 3-4 pm on Thursday, 3 June. The vigil has been organised by a number of Christian Human Rights’ organisations: Christian Solidarity Worldwide, Release Eritrea, Church in Chains, Release International and Open Doors. At a similar gathering in May 2008 Abba Seraphim handed in a petition at the Embassy calling for the resoration of His Holiness Abune Antonios, the canonical Patriarch of the Eritrean Orthodox Church and in June 2007 organised an Ecumenical Prayer Service in London for Abune Antonios. The British Orthodox Church also sponsors a website calling for the Patriarch’s restoration: Restore Patriarch Antonios to his throne. The Eritrean Embassy is at 96 White Lion Street, London, N1 9PF (near the Angel tube).
I had been scheduled to appear opposite Ray Nothstine at the most recent Acton on Tap last month to discuss the question: Are Tea Parties good for America? I had to miss that event, unfortunately, but this week’s Acton Commentary represents my belated engagement on these matters. Check out, “Missing the Boat on the Tea Parties,” and leave your comments here.
While you’re over there, be sure to read Ray’s commentary, “Will Tea Parties Awaken America’s Moral Culture?”
And speaking of Acton on Tap, if you are in the area be sure to join us tonight for David Michael Phelps, “Story & Syllogism: Why do artists tend not to be conservative? How can the works of conservative artists have a greater impact?” Be sure to check out Phelps’ site, The Artistic Vocation.