In a November 5 speech at Catholic University, and in an August web essay at First Things, U.S. Senator Marco Rubio (R-FL) publicly aligned himself with Catholic social teaching on the market. Quoting Pope Leo XIII, Pope Benedict XVI, and Pope Francis, Rubio calls his view “Common-Good Capitalism.” He has been criticized on all sides, both for throwing capitalism under the bus (here and here) as well as for not throwing capitalism under the bus (here).
The principles are attractive, not just for Catholics, but for Christians and people of good will in general. It is high time they were expressly articulated by U.S. politicians. In both the speech and the essay, however, Rubio’s main application of the principles misses the boat. Minimally, any application of Catholic social thought to the market needs to meet two conditions: The first is recognition that the market is made for man and not man for the market. The second is “do no harm” when trying to achieve the first condition. It is easy, even when unintended, to make market outcomes worse even with—or especially with—good intentions that reflect only the first condition but not the second.
Rubio’s project deserves attention, both praise for some aspects and criticism for others.
First, initially, Rubio’s express invocation of Catholic social thought is remarkable. US politicians of his stature rarely seem aware of the long tradition of Catholic social thought. Few serious candidates or politicians have ever publicly aligned themselves with it. While there surely is plenty of woolly headedness in the way partisans sometimes interpret and apply Catholic social thought, its core centers around the necessity of both freedom and solidarity for human flourishing. Its central concept of human dignity recognizes the need for human freedom against statist overreach while also understanding that formalistic overemphasis on freedom can result in outcomes that approach the state of nature rather than promote human flourishing.
Secondly, Rubio’s public embrace of Catholic social teaching represents a significant political gamble. This move provides him with a non-Trumpian means of speaking to core concerns of Trump’s constituency, yet also allows him to speak to a broader constituency. It provides him with an accessible yet principled and non-populist vocabulary that nonetheless speaks to populist concerns.
If he can pull it off, and if he sticks with it, it also provides Rubio with a principled synthesis allowing him to address concerns of post-liberal conservatism without rejecting the liberty commitment at the center of the last 60 years of conservative fusionism. In Catholic social thought, political freedom is fundamental to achieving human dignity. But freedom is not the sole dimension along which human dignity is achieved.
More substantively, despite the criticism he has received, Rubio really hasn’t said anything that early fusionists did not say. Writing in the late 1950s in A Humane Economy, for example, Wilhelm Röpke circles his broad argument around the Biblical maxim that “man shall not live by bread alone,” which he quotes repeatedly. So, too, in a line Rubio could have written without changing, Röpke writes
The highest interests of the community and the indispensable things of life have no exchange value and are neglected if supply and demand are allowed to dominate the field.
Similarly, on the limits of competition, Röpke writes
It cannot be said often enough that in the last resort competition has to be circumscribed and mitigated by the moral forces within the market parties.
Röpke articulates a version of the “partnership” between labor and capital that Rubio articulates. Röpke argues the need for what he terms a “moral aristocracy” of people with “close ties to the market”:
We need businessmen, farmers, and bankers who view the great questions of economic policy unprejudiced by their own immediate and short-run economic interests; trade union leaders who realize that they share with the president of the national bank the responsibility for the nation’s currency; journalists who resist the temptation to flatter mass tastes or to succumb to political passions and court cheap success . . .
To be sure, in asserting a desire for this type of partnership, Rubio faces the same problem that Röpke dodges even while calling for these partnerships: How does one create and sustain economic leaders who defer to diffuse, long-run outcomes instead of opting for immediate and palpable outcomes? Röpke argues that the alternative to doing so is a capitalist system that would not survive populist reaction. Current events seem to be validating Röpke’s hypothesis.
Rubio’s indictment of the current economy, however, focuses much of its criticism on what he terms “our financialized economy.” He quotes Pope Francis on the indictment. Patrick Deneen makes much of financialization, as do John Milbank and Adrian Pabst (as do left-wing postliberals). In doing so, however, Rubio follows Pope Francis and notable conservative postliberals down a wrong turn.
The mode of Rubio’s indictment is common enough. He recites numbers showing the increased magnitude of the activity and profitability of the financial side of the economy in recent decades. He decries that many corporations are “buying back their own shares” of stock rather than making new investments. The financial flows, he writes, are “detached from real production.”
Well yes, and no. First, the problem with mortgage-based financial instruments prompting the 2008 recession gives cover to the broad indictments of finance among post liberals. The problem with these mortgaged-based securities, however, was essentially fraudulent estimates of the value of the underlying properties and mortgages. That was a serious problem. But that’s a problem the market itself can deal with (at least if the possibility of government bailouts in the future do not create incentives for financial firms again negligently to monitor the underlying value of the real assets).
The postliberal indictment goes more broadly than this. Its criticism of “financialization” focuses on the outsized proportion of financial sales exchanging existing securities relative to those securities raising capital for new production. The vast proportion of financial activity that simply rearranges ownership of existing financial instruments, the argument goes, represents only social waste relative to activity deploying capital into new production. After all, the sales support no new productive investments.
The criticism, however, is myopic in the extreme.
That financial markets trade existing securities far more than raising capital for new projects is certainly true. But much of the demand for new securities derives from the ability to sell those securities to someone else when one needs money. What criticisms of “financialization” miss is the connection between willingness to fund new investments and the subsequent ability to trade those investments later on the secondary market.
Consider an analogy using a less abstract investment.
According to the National Association of Realtors, approximately 6 million homes were sold in 2018. Of those homes, 89 percent were existing homes, eleven percent were newly-built homes. Basically, nine out of ten housing transactions were sales of existing homes in 2018.
A criticism analogous to the “trading-existing-securities-is-nothing-but-social-waste” argument applied to the housing market would say, “Look,http://bit.ly/2rfUeBF almost 90 percent of the activity in the housing market in 2018 was movement of ‘nonproductive’ residential property. It represents only the rearrangement of existing housing stock, and does not add one square foot of new housing stock.” Noting the disproportion of the sale of existing housing stock to new stock, our critics then lament the social and economic waste represented in the housing market. The critics declaim, “What society needs to do is to adopt policies that induce families to make real additions to their current houses or to buy new houses rather than simply to buy existing houses.” Calls issue forth to tax or regulate housing sales to encourage the building of new housing stock or building new additions to existing houses, and to discourage the mere transfer of existing housing stock.
But, of course, the willingness of many families to buy a brand new home depends in part on what a family can do with it if they want to sell it. Limiting the secondary market for housing works its way back to the market for new houses. Restricting or penalizing the sales of existing homes would reduce the addition of new houses to existing housing stock, not increase it. Secondly, existing housing stock actually provides value—a family can live there even if the house was first owned by someone else. So, too, while more abstract, financial instruments are part of the assets people use to support all sorts of choices. Their decisions about work, retirement, paying for their children’s education, consumption, other investments they make, all depend in part on the value of these existing financial instruments. All of these other factors go into demand for new economic production. Even with corporate buybacks, the capital does not disappear, it simply goes to individual investors who sell their shares back to the corporation. These investors now have additional funds to invest, save, or spend productively elsewhere.
There are any number of reasons to regulate different aspects of financial instruments to insure that people don’t get ripped off and that the instruments serve their intended purposes. But the notion that “financialization” represents intrinsic social waste is fundamentally shortsighted, and misguided.
Rubio links “financialization” to a host of social ills in the U.S., including declining church attendance and a decline in life expectancy caused by an increase in “deaths of despair.” There are numerous theories floating about to account for these phenomena; it is implausible that “financialization” by itself is a critical cause of these ills. Simply consider that church attendance in the U.S. began a slow but consistent decline around 1960, long before the current economic travails.
Rubio needs to think more broadly about these problems. For example, both conservative and left postliberals commonly cite Karl Polanyi’s book The Great Transformation as their touchstone for how the “autonomous market” shreds personal lives and the social fabric.
What these same postliberals usually ignore, however, is Polanyi’s solution. Polanyi does not advocate stopping the economic changes he chronicles. He recognizes the immense productivity of the market system even as he criticizes the human effects of the autonomous market. Rather, Polanyi’s solution to the problem he identifies is to slow down the rate of change to a level commensurate with the ability of humans to adapt to those changes, or at least to buffer people from rapid chages. That’s it. Just slow down the pace of change to a human dimension, or provide buffers so that those affected have time to adjust. The speed of economic changes has only increased since Polanyi wrote, with the ability of capital to cross national borders with the stroke of a computer key, and with the ability of people to traverse thousands of miles in a few hours. Policies that would slow down or buffer against the pace of change are not as easy to derive as it may sound. That second condition has bite. Unintended consequences can easily make matters worse than without intervention. And “temporary” measures to ease transitions can too easily become permanent measures with vested constituencies.
Nonetheless, focusing on easing the pace and impact of these transitions is more in line with Catholic social thought than populist denunciations of “financialization.”
To be sure, the devil is in the details. Nonetheless, Rubio’s embrace of Catholic social theory, with its central recognition that human flourishing requires both freedom and solidarity, offers a sensible way forward for the ills that bedevil the U.S., at least if Rubio and others apply these central principles with prudential understanding and judgment.