Clifford, I remember waking up to the Today programme one day in September 2008 and to hear the seven o’clock news headlines say something along the lines of “Only one news story today – will the entire system of Western capitalism last the next 24 hours”. It seems we have forgotten how close to the brink we came just five years ago and are rapidly returning to the status quo ante. Why do you think that is?
It isn’t quite the same, Nick, because we now know for sure that western governments, with their theoretically unlimited capacity to create new money, now stand as the ultimate guarantor, as rescuer of last resort, for any financial enterprise – or at least those “too big to fail” – which behaves with the sort of recklessness we saw prior to 2008. Pure free market theory insists governments should get out of the way, not offer a gigantic expensive ambulance service when things go pear–shaped.
But this new role for governments – I would call this the post–neoliberal era – means that financial risk, and therefore loss, is no longer borne just by shareholders but by the entire community. As someone said, we’ve nationalised risks but privatised profits. That is an unfair and immoral situation and it cannot be stable, but it is unstable in a different way from before 2008. It’s also a long way from pure free market theory. To make the state the central pillar of the capitalist system isn’t free market capitalism at all. You could almost call it State Socialism.
Why do you say it is immoral?
The financial crash dumped an enormous amount of debt on all of us, as governments financed the bailing out of the financial sector. To repay that deficit we’ve had to endure several years of austerity, including massive cuts to social services, with several more years to come. Poor people have of course come off worse: they always do. A relatively small number of people at the top have done rather well out of it. And the risk of a repeat of 2008 is still with us. Some commentators even say it is inevitable. The too–big–to–fail problem has not been solved.
Why hasn’t there been a proper political debate about all this?
There is a political hiatus, actually. It is not in the interests of Labour to explain it this way, because the mismanagement of the financial sector happened under a Labour government; and it is not in the interests of the Tories either, who don’t want to admit that the financial system they’re most closely associated with let us all down. So they would rather blame Labour’s public spending “extravagance.”
Let me read you a quote from Charles Moore, a high Tory if ever there was one, who recently wrote in the Daily Telegraph, the paper he used to edit, as follows: “For six or seven years now, voters in the West have realised that capitalism was disastrously captured by those who operated it, so that it stopped benefiting the rest of us. No leader, of Left or Right, has yet worked out what to do about this. In Britain, both main parties have tacitly agreed not to discuss it at the next election.”
So the fundamental problems still haven’t been addressed?
Neither party has been prepared to challenge the fundamental assumptions of neoliberalism, which are still regarded as a kind of untouchable Holy Writ. And as Charles Moore says, it is still the case that nobody seems to know what to put in its place. That baffles me because we used to know. We used to think business existed to serve the community, to serve the common good. But that has been obscured, and in place of it we now think business exists just to make a profit, as big as possible and as fast as possible. It recognises the claims of only one stakeholder, the shareholder, ignoring all those others – including the planet itself – who have a stake in the business because they are affected by the way it is conducted. Our entire financial culture has become fixated on short–term results, the maximisation of shareholder value. And there is an underlying assumption that, to quote Margaret Thatcher, “there is no alternative” – that neoliberalism is the only option.
So what is the alternative?
It is to have proper regard to the common good, and not just the financial bottom line – to rebalance the forces in play; to balance short term against long term; shareholder interests against employee interests; the need for economic growth against the need to protect the environment; the interests of shareholders and employees against the interests of customers and suppliers; and so on. Those decisions require judgements which have a high ethical content, so they need to be made by people who are ethically aware and responsible, people we can trust – in short people who understand the demands of the common good. I’m afraid that means introducing an unpopular word into the argument – virtue.
Neoliberalism does not require virtuous business and financial operators, because even a computer can work out which of two numbers is the larger, ie which gives the better profit. But we can see where throwing virtue out of the window has got us. I’ve noticed that business leaders are rather ahead of economists in realising this. They are looking for ways to rebuild trust – which incidentally neoliberalism says doesn’t matter – because they sense that business is unsustainable without it. Catholic Social Teaching could be their greatest ally, precisely because it is not anti–business but in favour of better business, business rooted in age–old moral values like justice and prudence, integrity, moral courage, moderation, and trust. Catholicism didn’t invent those values – but it has acted as a carrier wave, bringing them to our attention just when we need them most.
Your critics will say that neoliberalism has done more than any other economic system to deliver economic growth over the last 70 years. Are they not right?
People who say that are confusing two things. As the predominant theory among Western economists, politicians and business leaders, neoliberalism is a relatively recent phenomenon. It replaced Keynesianism as the dominant idea in the 1970s and 80s. Keynesian capitalism had been remarkable successful on pulling economies out of the trough of the Second World War. But it seemed not to have answers to the problems of rampant inflation.
Neoliberals like Milton Friedman and Sir Keith Joseph said inflation was caused primarily by governments. But this quickly became a wider attack on the whole idea that governments should intervene in the economy, and instead insisted they should withdraw and let market forces take charge. Yes there was growth under neoliberalism, but quite a lot of it was driven by a credit boom, borrowed money, and by the great explosion in financial services after they were deregulated under Margaret Thatcher.
I think we now see that that was fundamentally unsound growth, in fact very dangerous to the world economy, as the 2008 crash demonstrated. It wasn’t about the creation of real wealth. In 2008, neoliberalism turned into a colossal engine of wealth destruction. It cost the world economy something like 30 trillion dollars.
But what about places like China, where capitalism has delivered huge increases in living standards and lifted millions out of poverty?
Capitalism comes in many shapes and sizes, and it is the neoliberal form that has done so much damage. China is an interesting case, but no–one would call the Chinese economy neoliberal. The government watches it very closely, and has no ideological objection to intervening if necessary. The state is the dominant factor in the Chinese economy, and the market is subservient to the state. Their problem is that their economy is not orientated towards serving the common good but towards serving the interests of the Chinese Communist Party. That is bound to lead to corruption. It privileges one interest group above all others.
We also need to remember that once you subtract from the remarkable Chinese GDP growth figures the costs Chinese industry imposes on the rest of the community – a figure called the Green GDP – in damage to the environment, the figures start to look very different. That reckoning will have to be faced sooner or later. Some experts have suggested that environmental damage due to Chinese industrial expansion has cost 200,000 lives so far, with people still dying every day.
Does neoliberalism have anything going for it in your mind? Rare is a system – political or economic – with no redeeming features.
Neoliberalism has the great virtue of teaching us how not to run a market economy. It is based on a false anthropology, a false account of what human life is like and what human life is for. It says we are all self–interested individuals who take no heed of the interests of others. That is palpably not true – humans are social animals. Unfortunately neoliberalism doesn’t just mean a system which harnesses self interest to serve the common good, creating a dynamic force that drives forward the economy. It makes the unfounded assumption that pursuit of self interest will necessarily and inevitably do that by itself, without the need to apply any outside corrective factors or set any other goals. Previous versions of capitalism, going right back to Adam Smith in the late 18th century, took the common good so much for granted as the ethical basis of capitalism that they didn’t even have a word for it. It was too obvious to need stating. I think it is the arrival of neoliberalism that has made the vocabulary of the common good necessary, as a kind of conceptual antidote.
There will be many non–Christians – I have spoken to one or two just recently – who will be deeply surprised to hear that Catholicism has anything meaningful to say to something as modern and “secular” as economic theory? Indeed, I daresay that there are a number of Christians, even Catholics themselves, who feel the same way. What would you say to them?
In 1889 Cardinal Manning of Westminster intervened to try to solve the London dock strike, because he felt it was intolerable for dock workers to try to support their families on such meagre wages and for them never to know where the next day’s work was coming from. He regarded such treatment as unworthy of the dignity of individuals made in the image and likeness of God, and redeemed by Christ.
The dock owners, of course, said they were simply obeying market forces. Catholics who don’t like the Church being involved in such issues – and there have always been some – only need to read one of the Church’s many official teaching documents in this area to see the close link between following Christ and working to make the world a better and fairer place. In most matters, Cardinal Manning was deeply conservative. The same is true of Pope St John Paul II, who did an immense amount to update Catholic Social Teaching and make it relevant to the modern age.
I would say to the Catholics you mentioned – to repudiate Pope John Paul II’s work in this area would be virtually to repudiate his entire papacy. Are you willing to do that? And the same applies to all the other Popes since 1891, when Pope Leo XIII wrote his famous encyclical Rerum Novarum (partly inspired, incidentally, by Cardinal Manning’s role in settling the London dock strike). I don’t think you can call yourself a Catholic and reject Catholic Social Teaching.
But they sense perhaps that Catholic Social Teaching is anti–business, anti–enterprise, and perhaps just a bit Marxist? That makes them very uncomfortable.
They needn’t be. Catholic Social Teaching is pro–business, pro–wealth creation, pro–markets, pro–just rewards for enterprise. None of those things is incompatible with being pro the common good. You could almost say it was a requirement. In fact, the evidence is that a system following the guidelines of Catholic Social Teaching would be even more efficient and more profitable than one based purely on neoliberalism, and in the long term fairer, more sustainable and more stable.
It is true Catholic Social Teaching has kept the workings of capitalism under close scrutiny, always insisting that the economy was made for Man and not Man for the economy and that the ultimate goal of economic activity should be to serve the common good. But it also insists that a market economy can serve the common good – it doesn’t have to obsess about maximising shareholder value come what may. Nor does it demand masses of government regulation; on the contrary, it applies the well know principle that too much regulation drives out virtue. People don’t need to be good if all they have to do is follow the rules. On the contrary, Catholic Social Teaching empowers people at all levels to take responsibility for what they do and how well they do it. Instead of business regarding virtue – moral character – as irrelevant, business is better seen as a school of virtue. I think an increasing number of business leader understand that. Certainly the regulators do.
There are many serious and deeply faithful Catholics, saying working for the Institute for Economic Affairs or the Acton Institute in American, who will take issue with your view of the current economic system, and justify their own stance on the basis of Catholic thought. How would you respond to them?
You say “my view “of the current economic system. This isn’t just my view: I am entirely mainstream in terms of Catholic Social Teaching. I have studied it closely for many years. I just take the plain meaning of the words in the page. There is a neo–conservative take on Catholic Social Teaching that tries to make it more sympathetic than it is, to the America free market model. They don’t much like the expression “the common good” for instance, which is at the heart of it.
Of course you can just quote every sentence you like and leave out every sentence you don’t like, and produce something more congenial to your prejudices. I’ve seen that done. But there are numerous quotations from papal documents in my report for Theos that they would have to explain away. And of course, Pope Francis has been unambiguous about the failings of the free market system. Right wing Catholics who distort the plain meaning of Catholic Social Teaching for their own ideological purposes are standing on increasingly thin ice, and I think they know it.
Your Theos essay is entitled Just Money, which has an obvious echo with Just War theory. Can you spell out how you see the parallels between the two?
There are very significant parallels but also significant differences. Just War theory evolved in reaction to the horror of all–out war waged simply to enrich or reward those fighting it. Rather than go to the extreme alternative – out–and–out pacifism – Just War recognises that there are circumstances when the Christian command to love your neighbour requires protecting your neighbour from harm, by force if necessary. So it establishes principles according to which war may be waged justly.
Similarly, making money regardless of everyone else’s interests can mean impoverishing some to benefit others, usually by exploiting disparities of powers between them. Making money – wealth creation – in order to benefit the whole of society, including oneself, is right and good – it is cooperating with and perfecting God’s creation of the world. We need clear moral principles to distinguish the two cases. Hence Just Money theory has similar moral roots to Just War theory in the command to loves one’s neighbor as oneself. But while one prefers peace to war, one doesn’t prefer poverty to wealth (provided it is at the service of everyone) and therein lays an important difference.
One of the real strengths of Catholic Social Teaching, particularly Catholic Social Teaching on the economy, is that although it is authentically Catholic and informed by deep scriptural roots, it also has a profound appeal beyond Catholics, indeed beyond Christians, to those with no religious faith and even those hostile to it. Perhaps CST is – to coin a phrase – a broad economic church? What should the church, think tanks like Theos, and indeed ordinary Christians do to give this oxygen?
How do you change the intellectual weather; how do you change the philosophical climate in which neoliberalism is still being taught in university departments and business schools as the only truth? This approach is meeting increasing resistance from students, by the way. One way is to create a critical mass of dissenting opinion that can no longer be ignored.
One reason I wanted to write this report was to give ammunition to those who instinctively feel neoliberalism is barking up the wrong tree, doesn’t do justice to human nature, and isn’t delivering the goods. They don’t have the time and the facilities to do the necessary spade work, and I did… I hope they are not put off by the label Catholic. I can’t say enough times; you don’t have to be a Catholic to find these ideas appealing. You just have to have a sense that there is something terribly wrong with neoliberalism which you haven’t yet been able to put your finger on.
I think the post–neoliberal era has already begun – in fact it began in September 2008, when Lehman Brothers crashed – and we have to think through what this means. Because they live in such a closed world, I suspect politicians will be the last people to notice – though some of them do seem to be awake to what has happened, thank goodness. I include people like the Labour MP Jon Cruddas and the Conservative MP Jesse Norman among the enlightened ones. That is the direction in which politics has to go.
I want to ask about direction. One of the phenomena – it’s the only suitable word – of the last year of so has been Thomas Piketty’s book, Capital – a 600–page economics best–seller! I sense that even though his is the most prominent example, there is a flood of books – and indeed a widespread concern – about inequality, as well as what our economic system threatens to do to our shared natural world (Naomi Klein’s recent book comes to mind here). How do you see things changing over the next 10–20 years?
Well Nick, the next chapter hasn’t been written yet. I agree there are plenty of people pointing out where things have gone wrong, but precious few suggesting what we can do about it. Diagnosis without prescription, you might say. My feeling is that neoliberalism as a system, an ideology, is just about burnt out, though there are some people – and I’m thinking of a whole generation of politicians who did their PPE at Oxbridge or wherever when neoliberalism was at the height of intellectual fashion – who will go treating it as the last word because they don’t know any better. Gradually, hopefully, these ideas will die out.
At the moment, sadly, they are still held by the people in charge. If you recall my quote from Charles Moore – “For six or seven years now, voters in the West have realised that capitalism was disastrously captured by those who operated it, so that it stopped benefiting the rest of us.” Those people – voters in the West – must sooner or later be listened to. The prize is great for any politician who can offer them a way forward. I strongly suspect that the solution lies in the direction indicated by Catholic Social Teaching.