The state’s role in the economy

Andrew Abela argues that the state’s role in the economy and how it should perform this role are found in two of the most important principles of Catholic social doctrine: subsidiarity and solidarity. After spending time in Italy recently, he says that country is stagnating economically because the state has promoted solidarity at the expense of subsidiarity . . . .

Dr. Andrew Abela

My family and I have been living in Rome for the past several months. While here, I’ve met with a number of business leaders, academics, and other professionals to hear their concerns about the economic conditions in Italy and the rest of Europe. Without exception, the biggest issue they all raise is the excessive amount of state intervention in the economy.

In the forthcoming Catechism for Business, we address the question: What is the state’s role in the economy, and how should it perform this role? The answer can be found in two of the most important principles of Catholic social doctrine: subsidiarity and solidarity.

The principle of subsidiarity says that it’s immoral for higher-level organizations to interfere with the legitimate functioning of lower-level organizations. It was first formally defined by Pius XI, who wrote: “Just as it is gravely wrong to take from individuals what they can accomplish by their own initiative and industry and give it to the community, so also it is an injustice and at the same time a grave evil and disturbance of right order to assign to a greater and higher association what lesser and subordinate organizations can do” (Quadragesimo anno, 79). The severity of the language never ceases to impress me: It is “a grave evil” — the stuff of mortal sin — for the state to interfere in the legitimate operations of lower-level governments, businesses or the family.

Italian business people lament the excessive government interference. A restaurateur specializing in locally grown food says it’s hard to source basic ingredients. Her local farmer can’t sell her eggs because of a new EU regulation that egg-sellers must first wash them with an approved device costing about $26,000.

The worst complaints came from senior executives in a health-care supply company. Since health care in Italy is run by the government, the government is both the regulator and the biggest customer of health-care companies. As regulator, it puts extensive constraints on how businesses are run. As a customer, the government is currently taking two years to pay its bills. How is one supposed to run a business with receivables aging 730 days?

Solidarity, according to Blessed John Paul II, is “not a feeling of vague compassion or shallow distress at the misfortunes of so many people, both near and far. On the contrary, it is a firm and persevering determination to commit oneself to the common good” (Sollicitudo rei socialis, 38).

Based on these two principles, John Paul taught that the state should play a role in enabling unemployment support, adequate wage levels, and humane working conditions, both directly and indirectly: “Indirectly and according to the principle of subsidiarity, by creating favorable conditions for the free exercise of economic activity. Directly and according to the principle of solidarity, by defending the weakest, [and] by placing certain limits on the autonomy of the parties who determine working conditions” (Centesimus annus, 15).

More specifically, the state has the role of determining the legal framework within which the economy operates, “and thus of safeguarding the prerequisites of a free economy, which presumes a certain equality between the parties, such that one party would not be so powerful as practically to reduce the other to subservience” (Centesimus annus, 15). In simple terms, the state’s main role with respect to the economy is to maintain a level playing field.

In understanding the role of the state in the economy, both principles are necessary. According to Pope Benedict XVI, the “principle of subsidiarity must remain closely linked to the principle of solidarity and vice versa” (Caritas in Veritate, 58).

Here in Italy, the country is stagnating economically because the state has attempted to promote solidarity at the expense of subsidiarity. Italian labor law, for example, makes it very difficult to lay off or terminate employees. As a result, businesses are reluctant to hire new employees for fear of being stuck with them. The unemployment rate among young Italians has hit 30%.

Subsidiarity is important because it “respects personal dignity by recognizing in the person a subject who is always capable of giving something to others. Subsidiarity is the most effective antidote against any form of all-encompassing welfare state” (Caritas in veritate, 57). Likewise, solidarity “is first and foremost a sense of responsibility on the part of everyone with regard to everyone [93], and it cannot therefore be merely delegated to the State” (Caritas in veritate, 38).

A Charter Member of Legatus’ Northern Virginia Chapter, Andrew V. Abela, Ph.D., is chairman of the Catholic University of America’s Business & Economics dept. He is co-author, with Joe Capizzi, of the forthcoming Catechism for Business.