Pope Benedict XVI says private enterprise should correct government failure
The pope calls on private enterprise to have a goal of contributing to the well being of society.
July 14, 2009
Fred Foldvary, Ph.D.

In July 2009 Pope Benedict XVI published “Caritas in Veritate” (Charity in Truth), his first papal encyclical on economic policy. He criticizes the concept that the goal of private companies should be to benefit the owners, such as the shareholders of corporations. The pope notes that the global economy has ruined the environment, generated great inequalities of wealth, and brought about a global depression.

The pope does not advocate state socialism, but rather calls on private enterprise to have as goals also the well being of society. Firms must pay attention to the moral consequences of their decisions. What’s wrong with that?

Regarding pollution and other environmental destruction, since the atmosphere and oceans have no private owners, they are owned by the people, and governments have assumed the role of agents for the people. Thus governments have the moral obligation to charge polluters for the social cost of dumping waste into these areas. When they do not levy pollution charges, then they give the polluters an implicit subsidy.

If government subsidizes an activity, we get too much of it, more than is optimal. One cannot blame private enterprise for accepting the pollution subsidy. If folks don’t like the pollution, they should tell their agent the government to stop the subsidy.

Now comes the Pope saying that business should not maximize profit, but incur the cost of polluting less, even though government is offering a subsidy to pollute. In effect, the pope is saying, don’t take the subsidy. But that’s not the way the world works. Firms are in competition, and a firm that has a lower cost will have a competitive advantage. So firms will minimize costs by accepting the pollution subsidy from the state. If firms got together and agreed to all pollute less, governments would accuse them of collusion and impose heavy fines.

The pope wants firms to pay their workers more and to help the poor. Some firms indeed do charitable works, but why is there poverty in the first place? Economies with greater economic freedom, such as Hong Kong, have lifted their populations out of poverty, while those with little economic freedom, such as North Korea, have stayed poor or, like Zimbabwe, gotten poorer. Poverty can be extirpated, removed by the roots, with free trade and a free market.

Remove taxes from labor, enterprise, and goods, and shift them to land value. That equalizes the benefits from natural resources, removing the root cause of poverty. But the pope is not advocating this. His policies let government perpetuate poverty, and then he calls on private enterprise to correct this government failure. Maybe this is one of those religious mysteries.

What about the Great Recession, financial crash, and economic gyrations? Governments control the money supply, push interest rates around, and subsidize real estate, thus creating the booms and busts. The pope wants private firms to correct this also.

Why does the pope not call on government to reform itself, to stop subsidizing pollution and land values, and to stop penalizing labor with restrictions and taxes? Why does he not prevent the problems rather than let them happen and get business to mop up?

I don’t know why the pope condones government failure and then blames private enterprise. But I do know that the social reformer Henry George wrote about how we can apply on earth the economy in heaven. In his speech “Thy Kingdom Come,” George asked how land would be allocated in heaven. Would the first resident claim all the land and charge the others rent? Heaven forbid! All angels and other heavenly residents would share equally in God’s creation, and so God’s will on earth as it is in heaven is that the profit of the earth be equally for all.

But the pope did not say anything like that. He lets the profit of the earth go to corporations, and then asks the corporations to give the earthly profits back to the people. Why not let the profit of the earth go directly to the people in the first place?

It may well be church authorities and not God that work in mysterious ways.

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Fred Foldvary, Ph.D.

FRED E. FOLDVARY, Ph.D., (May 11, 1946 — June 5, 2021) was an economist who wrote weekly editorials for Progress.org since 1997. Foldvary’s commentaries are well respected for their currency, sound logic, wit, and consistent devotion to human freedom. He received his B.A. in economics from the University of California at Berkeley, and his M.A. and Ph.D. in economics from George Mason University. He taught economics at Virginia Tech, John F. Kennedy University, Santa Clara University, and San Jose State University.

Foldvary is the author of The Soul of LibertyPublic Goods and Private Communities, and Dictionary of Free Market Economics. He edited and contributed to Beyond Neoclassical Economics and, with Dan Klein, The Half-Life of Policy Rationales. Foldvary’s areas of research included public finance, governance, ethical philosophy, and land economics.

Foldvary is notably known for going on record in the American Journal of Economics and Sociology in 1997 to predict the exact timing of the 2008 economic depression—eleven years before the event occurred. He was able to do so due to his extensive knowledge of the real-estate cycle.