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Understanding speculation

SAM GREGG writes that the practice of speculation is morally justifiable as long as basic moral principles are followed. In specific conditions, he says, it can certainly have negative effects. Before Catholics condemn (or unreservedly praise) speculation, however, it’s important that we understand this important financial tool in all its complexity . . . 

Sam Gregg

Sam Gregg

Speculation is one of those words that raises many Christians’ hackles. It conjures up visions of people making easy gain for no apparent effort, and some associate it with financial crises.

So what’s a Christian to make of speculation? The Catechism of the Catholic Church identifies “speculation in which one contrives to manipulate the price of goods artificially in order to gain an advantage to the detriment of others” as “morally illicit” (CCC #2409).. This wording indicates that there are legitimate forms of speculation, though these are left unspecified.

The justice of different choices denoted as “speculative” depends upon the specifics of a given choice. Speculation that relies, for instance, upon telling falsehoods is wrong because choosing to lie is, in Christian terms, always wrong. It would be equally unjust for a financial firm to try and manipulate the futures market by expressing to others excessive optimism or negativity about the prospects for a given commodity.

These examples are very different from the type of speculation that involves making prudential judgments about what one buys and sells on the stock market in light of what one judges is likely to happen in the future on the basis of knowledge, experience and evidence. Speculation can be abused or used badly. But just because some banks issue credit to the wrong people doesn’t mean we should eliminate credit altogether, nor does misuse of speculative techniques necessitate a severe curtailing of speculation.

There are also greater and lesser degrees of speculation, depending on the size of the “bet” and how much one can reasonably forecast for the future. When a bank, for instance, grants a two-year small loan to an established business with a track record of on-time loan repayment, it does so with a high degree of certainty that the loan will be repaid.

The scale of the speculation — and the risk — increases in the case of, for instance, a hedge fund that chooses to borrow a large amount of money in order to speculate upon the future worth of a given commodity or currency over varying periods of time. “Forward dealings,” as they are called, seek to capitalize upon expected price movements that enable me to sell high and buy low. This can involve buying products, shares, or commodities in the expectation that, in the meantime, prices will fall (a “bear” transaction) or rise (a “bull” transaction). The degree of uncertainty surrounding all these factors means that the speculative risk is usually higher than a standard small-business loan.

Given the inevitable degree of speculation involved in any economic choice, it’s hard to see how speculation per se could be wrong in the sense that every act of adultery, for instance, is intrinsically evil. We should also recall that speculation involves taking a risk, and risk has always been understood as providing a just title to any ensuing profits.

Speculation, whether on currencies or commodities, is not a work- free exercise. When a hedge fund decides to go “long” or “short” on a commodity’s future price, it rarely does so because of someone’s mere whim. Such firms employ large numbers of forecasters, traders, and even mathematical modelers in an effort to make as accurate a speculative estimate as possible. Though often portrayed as an activity that results in enormous gain on the basis of little labor, speculation often involves quite large amounts of work undertaken by highly knowledgeable groups of people who may lose a great deal (including their jobs) if they make significant errors in judgment.

What’s important to note here is that someone’s ability to make a profit as a speculator does not emanate from cheating anyone — or from any magical ability on his part to make the price of necessities such as food increase and thereby put food outside the poor’s capacity to pay. Instead I derive a profit because I correctly estimate that, for instance, the demand for oil would be greater than the supply of oil over the future. Likewise, my loss would proceed from my failure to ascertain that the oil supply was going to outstrip demand in a year’s time.

We should also be attentive to the ways in which speculation can contribute to the better use of economic resources. Speculation —  be it in currencies, food, commodities — can, for instance, contribute to the relative stability of economic life by helping to calibrate the supply and demand of many goods beyond the short-term.

Much more could be said about speculation. In specific conditions, it can certainly have negative effects. But before Catholics condemn (or unreservedly praise) speculation, it’s important that we understand this financial tool in all its complexity. Only then can we render judgment on an act of speculation in the marketplace.

SAMUEL GREGG is the Acton Institute’s research director. His most recent book is “Tea Party Catholic.”

Join us at the Legatus Institute

John Hunt: The Legatus Institute presents a unique opportunity for business leaders . . .

John Hunt

John Hunt

The ethical and moral challenges faced by business executives in the administration of their duties are more myriad and convoluted than ever before.

Maintaining one’s equilibrium and sense of fairness, justice and integrity in the 21st century requires the cultivation of character, faith, and professional excellence unlike prior generations. The Pontifical Council for Justice and Peace recognized these components of a Catholic leader’s life when it convened a seminar in 2010 entitled “Caritas in Veritate: The Logic of Gift and the Meaning of Business.”

That seminar led to the publication of The Vocation of the Business Leader. This volume is a tremendous educational aid that speaks of the “vocation” of the businessmen and women who act in the broad array of business institutions and situations.

Legatus acknowledges the serious challenges faced by its members in a hostile culture. Accordingly, in fulfilling its mission to help its members to “study, live and spread the faith in their business, professional and personal lives,” Legatus will hold its inaugural Legatus Institute June 26-28 at the Union League Club of Chicago.

The theme, “The Vocation of the Catholic Business Leader,” draws on the gospel of Mark 7:37: “He has done all things well.” This timely addition to the Legatus calendar is an annual convocation of the finest minds whose expertise in a broad array of disciplines can be a tool for excellence in the lives of Legatus executives and their spouses.

Come and enjoy beautiful liturgies highlighted by Mass celebrated by Cardinal Francis George, archbishop of Chicago. Be inspired by speakers whose subjects will include the spiritual, financial, cultural, catechetical and political aspects of the life of the Catholic executive.

Come and be inspired and motivated by such speakers as Fr. Robert Sirico, president of the Acton Institute; Andrew Abela, dean of the School of Business & Economics, Catholic University of America; Harry Kraemer, clinical professor of management and strategy at Northwestern University’s Kellogg School of Management, and former CEO of Baxter International; Dr. Robert Kennedy, chair, Department of Catholic Studies, University of St. Thomas, and other highly regarded contributors to what will be an extraordinary spiritual, professional and personal development experience.

I invite you and your spouse to come to beautiful Chicago in the summer. Come and experience the excellence of the Union League Club of Chicago, the finest city club in the Midwest. Come and enjoy “The Legatus Experience.” See you in Chicago!

JOHN HUNT is Legatus’ executive director. He and his wife Kathie are charter members of Legatus’ Chicago Chapter.

Business and the option for the poor

SAM GREGG writes that lifting people out of poverty — and not just material poverty but also moral and spiritual poverty — does not necessarily mean that the most effective action is to implement yet another welfare program. There is no reason to assume that the preferential option for the poor is somehow a preferential option for big government . . .

Sam Gregg

Sam Gregg

Like the term “social justice,” the phrase “preferential option for the poor” is part of the Catholic lexicon. Some use the phrase to insist on interventionist economic policies. Catholic social teaching, however, leads to more nuanced conclusions — economically and theologically.

The term “option for the poor” gained traction in Catholic thought in the late 1960s and ’70s. The term had influenced various forms of liberation theology throughout that period, but such claims tend to downplay the fact that the Church has always maintained a special outreach to the poor.

Old Testament prophets spoke clearly against the oppression of the poor, not to mention Christ’s statements that he himself may be recognized in the poor and in those who suffer persecution. Moreover, love for the poor and marginalized was put into practice from the Church’s genesis. In the Roman Empire, for example, the pagan Greeks and Romans were astonished at Catholics’ willingness to aid the sick and disabled, the elderly and abandoned whether they were Christians or not.

The Catholic understanding of poverty, however, doesn’t make the mistake of imagining that poverty can be reduced to issues of material deprivation. In the 1980s, in the midst of the Church’s sharpest critique of liberation theology influenced by Marxism, the Congregation for the Doctrine of the Faith (CDF) reminded Catholics that poverty had a rather more expansive meaning in Christian belief, thought and action.

From Christianity’s standpoint, everyone is poor inasmuch that all of us are deeply inadequate in the face of God’s justice and mercy. Why else would Christ need to come into the world to save us from our sins and flaws? Indeed the Christian embrace of poverty involves everyone exercising detachment from material wealth: “It is this sort of poverty, made up of detachment, trust in God, sobriety and a readiness to share, that Jesus declared blessed” (Libertatis Conscientia, #67)

What does living out the option for the poor mean in practice? We must engage in works of charity — those activities that often address specific dimensions of poverty in ways that no state program ever could. And this means giving of our time, energy, and human and monetary capital in ways that bring Christ’s light into some of the darkest places on earth.

Yet this does not mean that Catholics are required to give something to everything, or even that Catholics must give away everything they own. As Fr. James Schall, SJ, writes, “If we take all the existing world wealth and simply distribute it, what would happen? It would quickly disappear; all would be poor.” Put another way, living out the option for the poor may well involve those people with a talent for creating wealth doing precisely that.

The option for the poor, however, does not rule out any form of government assistance to those in need. Yet lifting people out of poverty — and not just material poverty but also moral and spiritual poverty — does not necessarily mean that the most effective action is to implement yet another welfare program. There is no reason to assume that the preferential option for the poor is somehow a preferential option for big government. Often, being an entrepreneur and starting a business which brings jobs, wages, and opportunities to places where they did not hitherto exist is a greater exercise of love for the poor (and usually far more economically effective) than another government welfare initiative.

The Catholic understanding of the option for the poor also means recognizing that those who suffer from material deprivation are human beings graced with reason and free will. Hence, like everyone else, they are  also capable of engaging in some form of integral human flourishing. Sometimes a welfare program or new regulation is not the best way to help them — especially when such measures actually impede or discourage people from using their initiative and/or choosing to work.

Though we rarely think about it this way, deregulation is often a concrete way to promote the option for the poor. Living out the option for those in need could be manifested, for example, in working to remove tariffs that block the poor from global markets, or which encourage people to stay in U.S. industries that are becoming uncompetitive in a global economy. It might also involve making the process of creating a business faster, or providing more transparent, less bureaucratically burdensome ways for people to migrate to countries where there are more opportunities.

There are many ways of living out the option for the poor, whatever our vocation in life. With some of the creativity that’s essential for success of business, Catholics can indeed help bring liberty to many of those burdened by poverty.

DR. SAMUEL GREGG is research director at the Acton Institute and the author, most recently, of Becoming Europe and Tea Party Catholic.

Reforming capitalism for freedom

MICHAEL M. MILLER writes that our economy needs serious reform — business as usual is not acceptable. However, a correct diagnosis of the problem is in order before making significant changes. He also argues that the free market requires serious moral restraint — especially on the part of those with power like big businesses and government  . . . . 

Michael M. Miller

Michael M. Miller

In the wake of the financial crisis, one of the recurring themes among business and political leaders is the need to reform capitalism and create new ways to think about business and the role of profit.

The common narrative is that “business as usual” doesn’t work. We’ve tried the free market and while it made money for some, it also caused the housing boom, the financial crisis, and created a society where all that matters is making as much profit as possible. The financial crisis is calling us to come up with new models of how we should arrange the economy. There are two issues here: first, a new way of looking at business and second, the reform of the current economic system. Let me address both, beginning with business.

It’s good that business leaders are making an effort to understand that business is about more than just profit. Profit is important, of course, but as Blessed John Paul II reminded us, profit is not the main purpose of business. The main purpose is to serve human needs and wants. Profit is one of the indicators that reveals whether you are meeting those needs.

I also agree that business as usual is not enough. We’ve had some serious moral crises in business from fraudulent accounting to big banks colluding with the government to receive special bailouts. What’s more, business is not outside the requirements of morality. Most corporate social responsibility programs have a serious flaw — they are relativistic. You can’t build a culture of business ethics if there is no truth and no right and wrong. Though mainstream business leaders rarely talk about it, business has the moral and social responsibility to cultivate a healthy moral ecology. This means honesty and obeying the laws; it also means respecting families and not exploiting women to sell products.

Let’s move to the issue of reforming the economy. There is incessant talk about the need to reform capitalism, but my first question is: What do we mean by capitalism? Unfortunately, the term “capitalism” has become proxy for “that which is bad” and often becomes a substitute for the sins of greed and avarice. There’s another problem — and a more serious one. In common parlance word “capitalism” is usually identified with a free-market economy both by its detractors and defenders. But capitalism and the free market are not always the same thing. There are many different varieties of capitalism: oligarchic capitalism, corporate capitalism, crony capitalism, managerial capitalism, and free-market capitalism to name a few.

Most of the critics of capitalism lament so-called “market fundamentalism” or “unfettered markets,” but we don’t have anything of the sort. What we have in the U.S. is a type of managerial-crony capitalism where big business and big government collude to make regulations that serve their interests. When things went wrong with our managerial capitalist system, instead of assigning blame correctly we blamed this mythical free market.

Our economy does need reform, but if we are going to address a problem we have to identify it correctly. The problem is that our diagnosis is wrong. The source of the financial crisis was not “market fundamentalism” but a complex interrelationship of government regulation, lobbying by interest groups, the manipulation of interest rates and the money supply, big business and government collusion, and political and social policy all mixed in with age-old vices like greed and imprudence.

There is a tendency to think that the default position of capitalism is a free market and that regulations and government interventions are necessary to resist this return to what is called “unfettered” or “savage” capitalism. But this is a serious misconception. In practice, the free market requires serious moral restraint — especially on the part of those with power like big businesses, government and interest groups. They have to exercise restraint and virtue not to use their power to gain an unfair advantage by colluding or lobbying the government for protection. One of the most important, though often neglected, elements of authentic corporate social responsibility is for companies to help maintain and encourage a free and competitive economy that enables entrepreneurs to compete — even if this means a possible loss to their own business. Too often companies, once they become successful, look to government to undermine the free and competitive economy that they benefited from.

Free economies are like free societies. As William Allen said well, you cannot have self-government without self-governors. In the same way you cannot have a free economy without free and virtuous people. A real free and competitive market, to use Lord Acton’s line, is “the delicate fruit of a mature civilization.”

MICHAEL M. MILLER is a research fellow at the Acton Institute and director of PovertyCure, which promotes entrepreneurial solutions to poverty in the developing world.

Catholic Founder, Catholic businessman

SAM GREGG writes that Charles Carroll of Carrollton was the only Catholic to sign the Declaration of Independence. Like many other Signers, he was a true Renaissance man, but he also believed that  the accumulation of wealth cannot be justified as the chief end of existence. Gregg explains how Carroll’s life and writings have much to teach us today. . . .

Sam Gregg

Sam Gregg

Charles Carroll of Carrollton is known to most Americans as the only Catholic to sign the Declaration of Independence. In doing so, Carroll arguably put far more at risk than any other Signer.

In 1776, Carroll was most likely the wealthiest man in Britain’s American colonies. Indeed, after Carroll appended his signature to the Declaration, one bystander reportedly quipped, “There go a few millions.”

Both Carroll’s father and grandfather were successful merchants despite the anti-Catholic laws that prevailed in the Maryland colony throughout most of the 18th century. But Carroll turned out to be a successful entrepreneur in his own right. In fact, Carroll was so good at creating wealth that when George Washington thought of making Carroll ambassador to France in 1796, he eventually opted not to.

Carroll’s commercial interests extended far beyond those of the typical Marylander of his time. They ranged from grain products to livestock, small cloth factories, building crafts, cattle, mills, orchards, land speculation, and iron production. As well as investing in domestic and European markets, Carroll was in the business of making loans, charging market interest rates. He even authored a document defending the legality and morality of compound interest. And, it should be said, a portion of Carroll’s assets consisted of slaves.

Carroll’s commercial success did not mean, however, that what he often called the “habit of business” became suffocating for him. He would have thoroughly agreed with Calvin Coolidge that “the accumulation of wealth cannot be justified as the chief end of existence.”

Like many other Signers, Carroll was a true Renaissance man.Though he worked incredibly hard at expanding his business ventures, he was heavily involved in revolutionary-era politics. And in the midst of all this, Carroll somehow found time before, during, and after the Revolution to read the works of prominent philosophers such as Voltaire and Rousseau — and to find their critiques of Christianity thoroughly unconvincing.

But Carroll also had a very strong sense that the life of business was itself one full of potential nobility and purpose that went beyond utility. For one thing, Carroll never ceased to emphasize to his own family and friends the order and discipline which business and trade can introduce into people’s lives.

Though he never used the word, Carroll understood the folly of consumerism. His father had never ceased to remind him that conspicuous consumption was the road to moral (and sometimes economic) ruin. Much of the Maryland high society in which he lived was marred by what Carroll sharply criticized as the vices that flowed from mindless spending and taking on debt for purposes of consumption. Carroll specified, however, that one check on such habits was a conscientious attention to business itself. By this, Carroll meant allocating specific amounts of time to organizing commercial affairs and developing work habits which themselves relied upon cultivating virtues such as prudence, fortitude, and temperance.

Carroll’s underlying attitude toward such matters was not driven by something akin to a Protestant work ethic. His approach flowed from his sense of responsibility to fulfill the expectations of those who had gone before him, to provide for one’s family, and to pass on something to forthcoming generations.

In these matters, Carroll may have been influenced by a book of Catholic spirituality that is a must-read for us: St. Francis de Sales’ Introduction to the Devout Life (1609).

This 17th-century classic was in vogue among Maryland Catholics during Carroll’s lifetime and occupied a prominent place in his father’s library. Among other things, the book provides counsel on cultivating a prayer life and the necessary degree of detachment in the midst of material comfort so that people’s identity is not consumed by their wealth. In short, it seeks to teach Catholics living “in the world,” how to do so while remaining “not of the world.”

Charles Carroll’s life and writings have much to teach us today — as Catholics and Americans — especially regarding religious liberty and the other freedoms secured by the American Revolution. But for Catholics in business, there’s also much to learn from Carroll’s life about how to integrate the high moral calling that’s inseparable from Catholic faith into the world of commerce. To forget this is not only to overlook one Catholic’s peerless contribution to the American founding, it’s also to neglect a potential source of timeless wisdom for Catholics in business.

DR. SAMUEL GREGG is the Acton Institute’s research director. He has authored several books including “Becoming Europe: Economic Decline, Culture and How American Can Avoid A European Future” and his forthcoming “Tea Party Catholic.”

Community, liberty and freedom

Michael Miller writes that the battles for religious liberty are only beginning. Americans are faced with the choice of being governed by its citizens or surrendering the culture to a massive, uncaring government bureaucracy. He argues that one of the ways we can have the strength and integrity to stand up is by not being dependent upon taxpayer dollars . . .

Michael M. Miller

I’ve been thinking lately that much of the division in America about the role of the state, the Church, the family, and religious liberty comes down to a clash between the intellectual visions of two Frenchmen: Alexis de Tocqueville and Jean Jacques Rousseau.

Many of the differences can be boiled down to what we mean by community. Rousseau’s vision of community is what the sociologist Robert Nisbet called the “political community.” For Rousseau, the two main elements of society are the individual and the state. All other groups — including the Church — are viewed as inhibiting individual freedom and detracting from political community that is found in the state.

Tocqueville’s vision of community, on the other hand, is not reduced to the “political community” but instead means a wide variety of associations, different levels of groups, and layers of authority. Society is not made up of autonomous individuals and an omnicompetent state, but is a diverse group of overlapping associations like families, churches, schools, and mutual-aid societies.

Tocqueville worried that democracies could slide into what he called “soft despotism.” He said that this type of despotism “would be more extensive and milder and it would degrade men without tormenting them.” In Democracy in America, he wrote: “I see an innumerable crowd of like and equal men who revolve on themselves without repose, procuring the small and vulgar pleasures with which they fill their souls. Each of them, withdrawn and apart, is a stranger to the destiny of others.”

Over this multitude a massive government exists, “which alone takes charge of assuring their enjoyments and watching over their fate. It is absolute, detailed, regular, far-seeing, and mild. It provides for their security, foresees and secures their needs, facilitates their pleasures, conducts their principal affairs, directs their industry, regulates their estates, [and] divides their inheritances.” He says it would be like a father. But unlike a father, the state doesn’t want citizens to grow up; it wants to regulate and manage all their little decisions, even though the external forms of freedom remain.

He wrote this in the 1830s and his words today are prophetic. Think, for example, of President Obama’s “Life of Julia” campaign, where he envisions that big government is there to assist us at every stage of our lives. What was supposed to be a social safety net has become the social fabric of our lives.

Tocqueville believed that the way to counter the rise of soft despotism was to encourage people to get involved in their communities — and to work with their neighbors to solve problems rather than relying on the state. This requires active local politics, a rich diversity of private associations, and of course, religion. Religion, religious institutions, schools, and ministries play a central role in creating the conditions for freedom and resisting soft despotism. Religion helps fight the negative forces of “love of comfort” and “individualism” by providing an eternal perspective.

Intellectually, Christians need to be aware of these two visions of community and what they mean. We should reject the Rousseauian vision of community and adopt Tocqueville’s, where a diversity of organizations possess the local and appropriate knowledge to help those in need. His idea is similar to the Catholic social doctrine of subsidiarity. Subsidiarity not only limits the role of the state, but it enables authentic human interaction. The Church (this means us) needs to think creatively to provide local solutions to social issues.

From this, I believe that in our current political and cultural situation, Catholic institutions should be wary of taking government money, which can end up making these institutions an arm of state services. The Church needs freedom to follow God’s laws and to live out its mission, preaching the gospel, getting souls to heaven, and helping to create the conditions for human flourishing. Clearly it’s not wrong to take government money, but in today’s climate — with an increasingly secular state hostile to Judeo-Christian teaching — I wonder if this is the most prudent course.

The battles for religious liberty are only beginning and the road ahead will be hard. One of the ways we can have the strength and integrity to stand up is by not being dependent upon taxpayer dollars. What vision of community do we want? Rousseau’s with a small, isolated, and so-called emanciapted individual over whom hovers the protective, watchful state — or Tocqueville’s vision of a rich diversity and layers of association where citizens can find something much better than raw, amoral emancipation: They can find human flourishing and human love.

Michael Matheson Miller is a research fellow and director of media at the Acton Institute. He is currently leading PovertyCure, an international network of organizations promoting enterprise solutions to poverty rooted in a Christian understanding of the human person.

Defending the Free Market

Father Robert Sirico shows why free market capitalism works and must be preserved . . .

Defending the Free Market
Regnery, 2012
254 pages, $27.95 hardcover

The Left has seized on world economic troubles as an excuse to “blame the rich guy” and paint the free market as selfish, greedy and cruel. Father Sirico argues that the opposite is true.

He shows why free-market capitalism is not only the best way to ensure individual success and national prosperity, but is also the surest route to a well-ordered society. Capitalism doesn’t only provide opportunity for material success, it ensures a more ethical and moral society as well.

Order: Amazon, Barnes & Noble

The moral good of business

Sam Gregg writes that when the Pontifical Council for Justice and Peace issued a “note” last October on the global financial system, it would be an understatement to say that it generated a stormy debate. In March, however, the same Council released a new — and very different — document entitled The Vocation of the Christian Business Leader. Every businessman should read it.

Sam Gregg

When the Pontifical Council for Justice and Peace issued a “note” last October on the global financial system, it would be an understatement to say that it generated a stormy debate. In March, however, the same Council released a new — and very different — document entitled The Vocation of the Christian Business Leader (VCBL).

Although this new document doesn’t shy away from making pointed criticisms of contemporary business activity — and there is much to criticize — it articulates, perhaps for the first time in the Catholic Church’s history, a thoroughly positive reflection from a body of the Roman Curia about the nature of business.

This new analysis of business life is rooted in a sophisticated appreciation of Catholic moral and social principles — as well as a background of solid natural-law reasoning about what Pope Benedict XVI has called “integral human development.” VCBL also engages in a very welcome (and much overdue) “bottom-up” rather than “top-down” method of analyzing life in business.

The document has several key themes. The first is that business is not a necessary evil or a mere means to an end. Business, it states, is a vocation. It is “a genuine human and Christian calling” from God and therefore an opportunity to engage in human flourishing. Several popes have made this point in a roundabout way. Never, however, has a Curial text spelled out in so much detail the potential nobility of life as a business leader. Business, VCBL states, makes “an irreplaceable contribution to the material and even the spiritual well-being of humankind.” That’s powerful language. Not only is business the normative means by which many of our material needs are satisfied, it’s also a sphere in which people can acquire virtues.

Another theme is that we need to embrace a sophisticated appreciation of the challenges facing modern business leaders. VCBL recognizes, for example, that there are negative and positive dimensions to the financialization of much of the economy. This means that business leaders confront, often on a daily basis, enormous ethical and economic difficulties. The subsequent choices they need to make are not simple. While VCBL suggests that the state has a role in addressing many of these issues, it wisely refrains from entering into detailed policy recommendations about how governments should act in these areas. Instead, it indicates that in many instances the primary responsibility for addressing many such challenges lies with business leaders themselves.

The text also recognizes that most business activity occurs at the micro-economic level. The document subsequently focuses on helping business leaders to discern, accept and faithfully carry out their vocation by using their unique set of gifts to meet others’ concrete needs in ways that are just.

VCBL contains a powerful appeal to business leaders to live integrated lives. All of us — but perhaps especially businesspeople — are tempted to live fragmented existences, whereby we cordon off our work from our essential beliefs and moral principles. To that end, the document illustrates in a compelling way how business leaders can freely integrate the principles of solidarity and subsidiarity into the daily life of their companies, however big or small.

A further theme is that the relativism that disfigures many contemporary cultures represents a clear and present danger to a sound understanding of the vocation of business. For confirmation of this, one need only consider the consequentalist nonsense that characterizes most contemporary “business ethics” programs.

VCBL uses the words “creativity” and “initiative” over and over again. In one sense, this reflects the classic Christian position that the one thing which distinguishes humans from other species is our creativity. It also derives from the document’s recognition of a truth that becomes evident once you start talking to actual business entrepreneurs: that they “are motivated by much more than financial success, enlightened self-interest, or an abstract social contract as often prescribed by economic literature and management textbooks.”

Perhaps VCBL’s broadest message is indirect: Recognition that many Catholic leaders have not always taken the world of business seriously — and have tended to see it as a source of funds for various Church projects rather than a sphere for human flourishing. Indeed, VCBL even acknowledges that business leaders have sometimes been confronted by “a civil or ecclesiastical culture hostile to entrepreneurship in one or more of its forms.” To the credit of the Pontifical Council for Justice and Peace, this document represents a clear repudiation of such mindsets — something that will not only benefit business leaders but the Catholic Church as whole.

Dr. Samuel Gregg is research director at the Acton Institute. He has authored several books including his prize-winning “The Commercial Society” and the forthcoming “Becoming Europe: Economic Decline, Culture, and America’s Future.”

The invisible sources of entrepreneurship

Michael J. Miller contends that certain criteria must be in place for entrepreneurs to take a risk and start a new business. They require specific institutional and cultural foundations, without which they don’t emerge. We take these criteria for granted in the West, but in developing countries the foundation for business to flourish is weak .  . . . 

Dr. Michael Miller

There is great enthusiasm for entrepreneurship these days. There are social entrepreneurs, intellectual entrepreneurs, educational entrepreneurs and even intra-preneurs (entrepreneurs within their own companies).

Entrepreneurs like Steve Jobs and Bill Gates are held up as model citizens. Magazines like Entrepreneur and Fast Company highlight a culture of entrepreneurship. President Obama even has an initiative dedicated to promoting it. In short, entrepreneurs are cool.

This is a generally a good development, yet I fear a superficial one. While there are dangers to some current images of the entrepreneur as a radical individual beyond good and evil like those portrayed in the film The Social Network, entrepreneurs do play an essential role in society and it’s good that we celebrate them. What is often lacking, however, is a requisite appreciation of the moral and institutional foundations that allow for a culture of entrepreneurship to develop.

Entrepreneurs don’t just pop out of nowhere. Nor are they a type of superman that transcends the culture around them. Rather they require specific institutional and cultural foundations, without which they don’t emerge. Look for example at the poor countries throughout the developing world. As Peruvian economist Hernando de Soto has noted, the developing world “is teeming with entrepreneurs.” So why do these countries remain so poor? It’s not as if the people lack an entrepreneurial spirit. What they lack are the foundations that allow them to develop their entrepreneurial capacity and convert them into successful, wealth-creating businesses.

Entrepreneurs take risks, they see opportunities that others do not, and they turn those opportunities into businesses. It’s perhaps counterintuitive, but this risk-taking actually requires stable social foundations. Entrepreneurs need to know that ground is solid before they risk a jump. These foundations include rule of law, clear private property rights, freedom of association, free exchange, and strong families and communities that encourage a culture of trust. In the West, we take these foundations for granted, like fish do water. But without them entrepreneurship would dry up. Let’s look at a couple of them.

Private property. Clear private property rights are essential for entrepreneurship. In some parts of the developing world over 50% of the land has no clear title. Without title people are reticent to make any improvements because their work could be taken from them. Without title they cannot use their land as collateral for a loan to start a business. Imagine how much entrepreneurship we would see in the U.S. if we weren’t sure who owned the land our business was on. Do you think we’d invest a lot of money into developing it? The Catholic Church has always stressed the importance of private property rights — and for more than economic reasons. In his defense of private property in Rerum Novarum, Pope Leo XIII stressed the important role property plays in allowing families the space to live out their freedom and responsibilities.

Rule of law. Rule of law is the opposite of the rule of men. It means that there are clear, transparent rules under which everyone operates. How many entrepreneurs would take the risk to start a new venture if they couldn’t be sure that the contracts would be enforced in a fair manner? Again, predictability and justice are prerequisites for risk-taking.

Free association. In his defense of the new mendicant orders, St. Thomas Aquinas argued in 1256 that freedom of association was a natural right. Leo XIII relied on this for his defense of unions in Rerum Novarum, and it applies to businesses, universities and other voluntary associations that make up civil society. When the rules and regulations make it difficult to start or maintain a business, it undermines both freedom and entrepreneurship. There is a high correlation between economic freedom and prosperity.

Free exchange. When people have the freedom to buy and sell in a market (assuming it is not something morally evil of course), it creates incentives for entrepreneurs to build businesses. When markets are restricted, it’s usually the largest companies with the biggest influence that lobby the government to protect their industries and keep out competition. This not only stifles small- and medium-sized businesses, it hurts the poor who lack political and economic influence.

Culture of trust. Market economies that enable entrepreneurs to take risks and flourish do not long succeed if built upon the radical individualist type of entrepreneur portrayed in The Social Network. Sustainable market economies require deep levels of trust and honesty, otherwise transaction costs increase and entrepreneurship decreases. This culture of trust and human virtues that underlie it are not created by the market economy itself. They are developed in strong families, a rich religious and moral culture, and a vibrant civil society.

These are the foundations of entrepreneurship. Business people need to lead by understanding, explaining and defending them. Entrepreneurship is part of the American spirit — it’s in our blood, but it won’t last without the institutional and spiritual capital that gives it life.

Michael Matheson Miller is a research fellow and director of media at the Acton Institute. He is currently leading PovertyCure, an international network of organizations which promotes enterprise solutions to poverty rooted in a Christian understanding of the human person.

John Paul vs. unions

How public sector unions’ demands stack up against Catholic social teaching . . .

For many Catholics, the debate over changing state employee collective-bargaining “rights” is resolved with an easy answer: The Church supports unions so any move to tamper with longstanding contract provisions must be unjust.

But a closer reading of Catholic social teaching offers a perspective that may surprise people on both sides of the issue.

Dignity of work

The approaching 30th anniversary of Laborem Exercens, Blessed John Paul II’s 1981 encyclical on the dignity of work, presents Catholics and others with an opportunity to take a fresh look at what the Church has to say about work and the relationship between employee and employer, whether in union or non-union settings.

Published on the 90th anniversary of Pope Leo XIII’s landmark encyclical Rerum Novarum, which inaugurated much of the Church’s discussion about unions and worker rights, Laborem Exercens takes the 1891 encyclical to a deeper level.

George Wiegel

“The key themes of Laborem Exercens,” said George Weigel, distinguished senior fellow at the Ethics and Public Policy Center in Washington, D.C., “are the innate dignity of work, which is to be understood as an exercise in human creativity rather than a punishment for original sin, and human work as our participation in God’s ongoing creation of the world.”

Although the encyclical goes on to call unions “an indispensable element of social life” and recognizes the use of strikes as legitimate under certain conditions and within limits, it also says: “Just efforts to secure the rights of workers who are united by the same profession should always take into account the limitations imposed by the general economic situation of the country” (#20).

Even though Catholic social teaching contains a long-standing bias in favor of unions, the Church has always seen its social teaching as dynamic, according to Fr. Robert Sirico, president of the Acton Institute in Grand Rapids, Mich. This means that conditions described, for example, in Rerum Novarum are not necessarily the same as those occurring today in places like Ohio and Wisconsin, where state budget crises have led to restrictions on public-sector employee collective-bargaining provisions.

This spring, state governments across the country took swift action to limit the power of organized labor in public schools. Wisconsin, Ohio, Indiana, Idaho and Michigan were the first, and Tennessee’s governor signed a law last month ending collective bargaining and giving local school boards the full authority to operate their districts in the manner they choose.

As Weigel wrote in an April 1 column in The Pilot, the kinds of workers both Leo XIII and John Paul II had in mind in their encyclicals on work were very different from“unionized American public school teachers who make decent salaries with good health and pension benefits, often work nine months of the year and are sometimes difficult to fire even if they commit crimes.”

Weigel told Legatus Magazine that most Catholics, including bishops and priests, are relatively uninformed about the social doctrine of the Church, its themes and development.

Father Sirico said he thinks this is because many priests, especially younger ones, are not interested in these issues, and some older ones have failed to update themselves on the subject.

“Those who pay any attention today,” Weigel added, “know that the Church supported the trade-union movement in the late 19th century, and therefore assume that the Church must support everything unions propose today. That simply isn’t the case: The times and circumstances have changed, as has the nature of union activity.

“When unions support abortion-on-demand, they must be opposed. When unions oppose measures that offer enhanced educational opportunity to poor children, they should be asked to examine their consciences.”

Political action

Laborem Exercens also addresses another element of union activity seen today in the relationship between the Democratic Party and unions like the National Education Association and the American Federation of State, County and Municipal Employees. The encyclical cautions unions against having close ties with political parties.

“Unions,” John Paul wrote in Laborem Exercens, “do not have the character of political parties struggling for power; they should not be subjected to the decision of political parties or have too close links with them” (#20).

Fr. Robert Sirico

Father Sirico said the pope’s reference here was to the bogus unions of the Communist parties. But, he added, “We see that this really has happened in the U.S., especially with the publicemployee unions. They are in lockstep with one political party and they advance that agenda. What’s most troubling to good Catholics, especially those with a history of union membership, is that these unions have turned on the most fundamental teachings of the Church with regard to marriage and life. They have become the strongest political forces in our country.”

Furthermore, in Laborem Exercens, John Paul states that man must work out of regard for others, not only his own family, but for society, his country and the human family. He also is to consider future generations.

State workers who are being asked to accept limits on collective bargaining provisions because the states that employ them are struggling financially are finding it hard to see this obligation amid the present conflict, Fr. Sirico said.

“This is a whole historical trajectory that has taken place and a momentum that has built,” he said. “The workers themselves are kind of caught in the middle of this thing. Obviously their [union] leadership has not served them well. If they had given concessions over time and adapted to the marketplace, they would not be in the drastic situation they’re in now where they have to, in effect, hold an entire state hostage to achieve their own goals.”

Weigel added, “Public sector workers, like everyone else, have a responsibility to act for the common good, and not simply on their own behalf. A union that doesn’t look out for its own is an absurdity. A union that only looks out for its own is a problem.”

News reports about states’ efforts to limit collective bargaining typically call collective bargaining a “right.” However, Fr. Sirico said he sees no “right” to collective bargaining implicit in the social teachings of the Church, especially if it’s preserved at the expense of a foundering state budget. In the eyes of the Church, he said, even a strike has to be a last resort, not an ultimatum, and the disruption it causes must be proportionate to the expectation of good.

“You can’t just assert a right and not care about all the other effects that take place,” he said. “Wisconsin is a good example. If the unions don’t concede, if there aren’t some revisions to the way in which contracts and all of the benefits are administered, if they bankrupt an entire state, this is not supportive of the common good, which is what work needs to do. There has to be a proportionate benefit and not just for one section of people at the expense of others.”

Judy Roberts is a Legatus Magazine staff writer.

Rerum Novarum and Laborem Exercens are available online at papalencyclicals.net or vatican.va

Another good source for this topic is the Compendium of the Social Doctrine of the Church.