Fall 2008 finds the United States in its most significant fiscal crisis since the "Great Depression" of 1929.But in fact, a clear warning of the lack of a moral compass by Wall Street and the need for reasonable government fiscal regulation goes back to 2001 and the Enron meltdown.
Before its bankruptcy in late 2001, Enron employed approximately 22,000 people and was one of the world's leading electricity, natural gas, pulp and paper, and communications companies, with claimed revenues of $111 billion in 2000.
Fortune named Enron "America's Most Innovative Company" for six consecutive years.
At the end of 2001 it was revealed that its reported financial condition was sustained substantially by institutionalized, systematic and creatively planned accounting fraud, sometimes called the "Enron scandal."
Enron has since become, to many, a popular symbol of willful corporate fraud and corruption. In 2005, taped conversations by Enron traders surfaced that revealed a depth of greed that was unbelievable. Reported The Washington Post:
"The taped conservations have added a graphic new dimension to public understanding of the company's record of greed, callousness and complicity in the western power crisis of 2000 and 2001. Traders gloat on one tape about jacking up the electricity bill of 'Grandma Millie.' On another, they scheme to shut down a Nevada power plant in the midst of rolling blackouts in California."
While the wheels were coming off at Enron, apparently some of its executives were trying desperately to cash out their own stocks. The Shanghai Star reported in January 2002 that, "Enron Corp's Chairman Kenneth Lay called Treasury Secretary Paul O'Neill and Commerce Secretary Donald Evans to warn them of Enron's mounting financial problems last fall. O'Neill and Evans said they opted to do nothing."
In fact Treasury Secretary O'Neill said at the time, "I didn't think this was worthy of me running across the street and telling the president.... I frankly think what Ken told me over the phone was not new news."
Unfortunately, this was not the end of the story. Other unregulated and greedy strategies by major financial institutions combined to bring about what is amounting to a global financial crisis. On Sept. 29, the Dow lost a record 777.68 points, after the House rejected the government's $700 billion bank bailout plan, and knocked out approximately $1.2 trillion in market value, the first post-$1 trillion day ever.
Ultimately, governments throughout the world have stepped in, in ways that are unprecedented, to stabilize the markets. In the U.S. more than $700 billion is guaranteed by the government of taxpayer money to prop up an economy in crisis. The government is even contemplating buying stock in some faltering financial institutions. Some folks are evoking concern about a new kind of "socialism" creeping in through the back door.
Rerum Novarum: A concern for the 'common good'
What does the Church have to say about this? Are there some moral teachings of the Church that may help Catholics assess the ethical issues that precipitated this crisis?
While morally questionable personal choices certainly played a part in this crisis, there are also systemic issues, what the Church calls "structures of sin," that were involved and so demand a critical moral analysis provided by the Social Teachings of the Church. In fact, it could reasonably be posited that Pope Leo XIII, in his groundbreaking 1891 social encyclical, Rerum Novarum, has some things to say to us today.
At the end of the 19th century, conditions were not entirely different from today's. The Industrial Revolution was well underway and liberal capitalism was reigning almost unchecked in the U.S. and Western Europe.
Catholic leaders of the time were beginning to be concerned about the harsh plight of industrial workers (lack of benefits for health and retirement, wages that could not reasonably support individuals, let alone families, child labor).
In the U.S. the majority of bishops supported the Knights of Labor, the burgeoning union comprised of many Catholics.
At the end of the 19th century, Communism was not much more than an idea struggling for political purchase. The Russian revolution was still almost three decades away. Rerum Novarum, the first in a 100-year body of Church social documents, was primarily concerned with the excesses of burgeoning laissez faire (free markets unchecked by any government regulation) capitalism. The teachings of Leo XIII are worth remembering today:
* The encyclical makes it clear that the Church rejects a central thesis of the "capitalist theory of realism" that labor is merely a commodity to be bought and sold at market prices determined by the law of supply and demand rather than the human needs of workers (Rerum Novarum, n. 16-17, 33-34).
* Catholics must have a "social conscience." In other words, one of the central tenets of economic life must be a concern for the "common good."
Leo XIII challenged two prominent principles of capitalism:
* The assumption that the "laws" of economics should be treated as though they were laws of nature: "…there underlies a dictate of natural justice more imperious and ancient than any bargain between employer and employee, namely, that wages ought not to be insufficient to supply a frugal and well-behaved wage earner" (RN, n. 34).
* The sacrosanctity of the wage contract: "[If] through necessity or fear of a worse evil" the worker accepts a wage less than that required for frugal living, then "he/she is made the victim of force and injustice" (RN, n. 34).
Basically, Pope Leo XIII makes it clear that human labor cannot be treated simply as a commodity, because to do so is a denial of human dignity and a reduction of a worker to the status of a thing.
Centesimus Annus: The duty of government
From this first of its social encyclicals, the Church has gone on to make it clear that reasonable regulation by government of economic policies is a part of just government. Pope John Paul II takes up this theme in Centesimus Annus (1991), the most contemporary of the social encyclicals.
He warns that good government must guard between the two extremes of either a "welfare state" which disregards the principle of subsidiarity, creates unneeded bureaucracy and deprives people of responsibility, and laissez faire capitalism, where profit tramples persons:
"The State has a duty to sustain business activities by creating conditions which well ensure job opportunities, by stimulating those activities where they are lacking or by supporting them in moments of crisis. The State has the further right to intervene when particular monopolies create delays or obstacles to development. In addition to the tasks of harmonizing and guiding development, in exceptional circumstances the State can also exercise a substitute function.
"The Pontifical Council for Justice and Peace teaches that, 'The fundamental task of the State in economic matters is that of determining an appropriate juridical framework for regulating economic affairs. It is necessary for the market and the State to act in concert, one with the other and to compliment each other mutually. In fact the free market can have a beneficial influence on the general public only when the State is organized in such a manner that it defines and gives direction to economic development and making direct interventions when the market is not able to obtain the desired efficiency…'" (Compendium of The Social Doctrine of the Church, n. 352).
Absolute deregulation: The bane of capitalism
Ultimately, the Church's teachings about the sanctity of every human person, the importance of the common good, and the responsibility of economics to serve the people --- not for people to serve economics --- make it clear that capitalism without reasonable regulation is outside the Catholic moral vision.
Countries cannot rely merely on the moral compasses of individuals for the development and implementation of just fiscal policies; it is incumbent that every good government provides both regulation and oversight of economic matters without micro-managing the economy.
Self-centered individuals and the call for absolute deregulation have always been and continue to be the bane of capitalism. The answer is found in both the development of virtuous individuals involved in markets and market capital, and in earnest and reasonable oversight and regulation of those same investors and markets by a government.
Our Christian discipleship challenges us to create a society that is truly of the people, by the people and for the people. In other words, the Catholic social vision is "person driven," not "profit driven."
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Sotto Voce
(Source: NCR)