— The Financial World According to Inya Column, by Inya Ivkovic, MA
Since the Great Recession was pegged to be what it is, investors have believed that many chief economists around the world had some explaining to do. One question: how come most of them never saw it coming? Certainly, many tried to say they actually predicted it long before it happened, but whoever rang the bell of doom later than mid-2007 would have been better off staying quiet.
So, was there anyone who actually predicted the global financial crisis and not just a couple of months in advance? According to Italy’s Minister of Finance Giulio Tremonti, the answer is yes. There was someone who predicted it alright, and almost 25 ago at that. Only this amazing insight didn’t come from a renowned economist, a famous investor or a legendary trader.
The source is rather unlikely: it was a German cardinal named Joseph Ratzinger, who is now Pope Benedict XVI. Back in 1985, Cardinal Ratzinger wrote and presented in Rome a paper titled, “Market Economy and Ethics.” It argued that “ethical rot” can actually contribute and even cause the laws of the market to simply disintegrate. Ring a bell, anyone?
At the time, Cardinal Ratzinger questioned the soundness of the assumption that, “The market’s inner logic should free us from the necessity of having to depend on the morality of its participants.” He also wasn’t convinced that, “…the free play of market forces can operate in one direction only, given the constitution of man and the world, namely, toward the self-regulation of supply and demand, and toward economic efficiency and progress.”
Cardinal Ratzinger also argued that, while the two assumptions “that the natural laws of the market are in essence good and necessarily work for the good, whatever may be true of the morality of individuals,” neither of them are “universally applicable and correct, as is evident in the problems of today’s world economy.” Unfortunately, almost a quarter of a century later, Cardinal Ratzinger’s writing has turned out to be nearly prophetic, as greed and relentless pursuit of profit has left our systems of values seriously skewed and prone to failure.
As it turned out, as Pope Benedict XVI, this unlikely, but quite insightful non-professional economist hasn’t lost his touch. Just
before the G8 were to meet in Italy, the 82-year-old pontiff published his third encyclical, the highest form of papal writing, arguing, among other things, that the search for profit at any cost has nearly destroyed the global economy and that, without creating a new corporate system of values that is going to be governed by ethics and focused on pursuing the common good, we will have learned nothing from our mistakes and risk repeating them again. The pontiff’s encyclical was a 144-page paper titled, “Caritas in Veritate” (“Charity in Truth”). It analyzed a wide range of topics, from globalization, to birth control, to financial aid, to the environment.
Obviously, Pope Benedict XVI had a message to deliver and his timing is hardly coincidental. After all, the G8 summit is supposed to address issues such as fixing what has gone wrong with the global economy, figure out an affordable way to help the poor countries, ensure there is enough food to feed the planet, and at least slow down climate change, if it cannot be stopped.
Papal encyclicals dealing with secular issues are hardly a novelty. Pope Pius XI writings were known for denouncing both communism and hard-line capitalism. John Paul II identified the Cold War as the primary reason why the world development was so imbalanced. It took far too many precious resources from the global economy and too much political will to finance a war that really wasn’t a war, just an expensive and dangerous game for adults. And now, Pope Benedict XVI writes, “Profit is useful if it serves as a means towards an end. Once profit becomes the exclusive goal, if it is produced by improper means and without the common good as its ultimate end, it risks destroying wealth and creating poverty.”
The Pope is not denouncing everything about the modern global economy. For example, he is not against globalization per se, acknowledging it did some good by redistributing wealth. However, the wealth redistribution hasn’t been pursued to its fullest extent, while the pursuit of growth and profit has led to reckless exploitation of the planet’s resources, ruining the environment, and shattering peoples’ faith in level playing field in the world markets. Outsourcing hasn’t fared any better, because it put the interests of shareholders ahead of those of workers, consumers and broader society.
The pontiff is not only criticizing. He is also offering solutions. He is calling on the United Nations, International Monetary Fund and World Bank, and the G8 leaders to consider giving the underdeveloped world and emerging markets a voice and a seat at the table. He is calling for the creation of a new world authority that will be unbiased, that will focus on managing the global economy, that will secure the food supply and that will protect the environment. And he is not limiting himself just to Roman Catholic Church doctrine. He has ensured the G8 leaders hear what he has to say, too, as he met with them this week in Italy.