The Exchange

What Pope Francis Gets Wrong About Capitalism

Rick Newman
The Exchange
Pope Francis waves as he conducts his weekly general audience at St. Peter's Square at the Vatican
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Pope Francis waves as he conducts his weekly general audience at St. Peter's Square at the Vatican November 27, 2013. REUTERS/Max Rossi (VATICAN - Tags: RELIGION)

We get it: Pope Francis cares about the little guy. He speaks passionately about the rights of the dispossessed, and more than that, shows solidarity with them through his own humble lifestyle and rather unpapal rejection of pomp.

The pope has gone a bit overboard, however, in his recent attack on free-market capitalism. In a lengthy “apostolic exhortation,” Pope Francis rails against “an economy of exclusion” and a “ financial system which rules rather than serves.” The pope points out that, in a time of miraculous technological progress, alarming numbers of people still live in misery and desperation.

“The culture of prosperity deadens us,” the pope writes. “We are thrilled if the market offers us something new to purchase; and in the meantime all those lives stunted for lack of opportunity seem a mere spectacle; they fail to move us.”

The pope clearly follows the news, because income inequality and the growing wealth gap, which he refers to several times, are hot topics nearly everywhere. But the pope has failed to notice a few other important trends. First, he’s hardly the only one who’s concerned about the plight of the have-nots. Income inequality has become a powerful political force in the United States and many other countries, for the very reasons the pope cites. As those economic trends worsen, pressure from below may very well cause political upheaval that at least somewhat reverses the rise of the rich.

Generous fat cats

The pope’s generalizations bring to mind the cartoonish image of a fat cat in a pin-striped suit smoking a cigar as he steps over a beggar in a gutter. But a lot of fat cats are quite sympathetic toward the disenfranchised, and some are putting their money where their hearts are. Bill Gates and Warren Buffett are the most obvious examples, with well over 100 barons of capitalism publicly committed to their “giving pledge,” agreeing to donate the majority of their considerable wealth to charitable causes.

Charity only goes so far, of course. But there are also many efforts to rework the rules of capitalism in the United States and other wealthy countries so the middle and lower classes have better economic opportunities and a fighting chance to improve their living standards. This is very hard to do, for a number of reasons. For one thing, it’s not easy to pinpoint the causes of growing income inequality, which means fixing the problem is almost never as simple as just taking one person’s money and giving it to something else. It’s also important to safeguard what’s good about capitalism — such as the rewards for innovating and the ability to create wealth rather than just moving it around — while fixing what doesn’t work. And of course those benefiting most from the current system have a vested interest in keeping it that way — along with high-priced lobbyists on the payroll who are skilled at doing so.

Still, machinery is grinding forward in an effort to roll back the latest incarnation of capitalism's excesses. In the United States, the 2009 Dodd-Frank reforms were an effort to rein in the financial sector, much as the pope advocates. Progress is slow and some problems, such as powerful banks deemed "too big to fail," may escape solutions. But if you ask Wall Streeters, they feel as if they're under siege, even if their paychecks remain inflated. It's a start, and it seems likely the U.S. financial sector is going to face tougher scrutiny and tighter limits on greed for the foreseeable future.

Switzerland, meanwhile, recently voted on a referendum that would have severely limited CEO pay and linked it to the wage levels of others in the same company. The measure failed at the ballot box, but the mere fact that Switzerland -- a bankers' haven -- would even consider such a scheme shows that the least among us are gaining at least a little bit of leverage.

Marxism is over

Finally, for all of capitalism’s flaws, there’s basically no other system that offers the world’s poor a better shot. The argument in favor of Marxist economies is basically over (despite the hysterical cries of “socialism!” by some frightened American conservatives regarding the Obama administration). A global century-long experiment with Marxism that ended around 1989 proved that it generates stagnation and corruption and oppresses the human spirit in the bargain. Even China, which has a communist government in both name and practice, has embraced capitalism as the economic system by which it hopes to become a dominant world power.

The pope doesn’t have much to say about what would be better than capitalism. He decries the “new idolatry of money” (new? really?) while encouraging those with wealth and power to share both with those who have less. Liberal idealists have been calling for that for centuries.

What has been a lot more effective at raising the living standards of billions, however, is cold, hard-edged capitalism and the riches dangled before those able to exploit it. Even now, in the raw aftermath of a global financial crisis, capitalism is improving lives throughout China, India, Brazil, many African nations and other long-suffering corners of the globe.

Capitalism need not be unregulated, and in fact it rarely ever is. A true free-market is freer, and crueler, than anybody really needs. With the right guidelines, capitalism is the best system ever devised for improving lives and speeding human progress. It’s the guidelines we need to reevaluate, not the free market itself.

Rick Newman’s latest book is Rebounders: How Winners Pivot From Setback To Success. Follow him on Twitter: @rickjnewman.

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