Pope Francis has launched a partnership between the Vatican and some of the world’s largest companies, nonprofits and government agencies to reform capitalism.
The Council for Inclusive Capitalism with the Vatican is led by Guardians for Inclusive Capitalism, a group of officials representing such entities as the Bank of America, BP, Dupont, the Ford Foundation, Mastercard, Merck, the Rockefeller Foundation, Salesforce, Visa and the State of California.
Under the Pope’s guidance, these “guardians” aim to “reform capitalism into a powerful force for the good of humanity” and create a “more inclusive, sustainable and trusted form of capitalism.” Too bad they’ve missed the reality that capitalism doesn’t need reforming and is already the most inclusive economic system in the world.
Under capitalism anyone can start a business and pursue their dreams, subject to basic laws governing fraud, theft and contracts. People are free to negotiate wage rates and set prices to compete in the marketplace. Entrepreneurs are free to invest capital, innovate with new technology, trade globally and hire the best employees. If schools are rotten or banks discriminate racially, entrepreneurs can launch competing operations.
Unfortunately, governments around the world do not allow free-market capitalism to flourish. They impose barriers to vigorous competition through occupational licensing, minimum wages, bank charters, housing restrictions, protections for government schools and incumbent healthcare providers, confiscatory taxes and even laws that oppress specific ethnic and religious groups.
It is cronyism that excludes participants, not free-market capitalism, which is inclusionary and also the fairest economic system.
The principle ‘you keep what you earn, and I keep what I earn’ is socially just. Problems arise when governments take wealth or income from one group and give it to another group that did not earn it only because the recipients have sufficient votes, campaign contributions, or political power. This is not fair, but Pope Francis supports it, calling for more “redistribution of economic benefits by the State” based on his false zero-sum view that poor people are poor because rich people are rich.
Government redistribution does not nurture a caring society or compassionate people. Instead, it pits one group against another, tearing apart the social fabric, creating disharmony and a culture of dependency, all while shrinking the economic pie. True compassion means self-sacrifice, ‘to suffer with,’ which equals private charity, chosen freely, to help those in need. There’s nothing compassionate about using the government to seize one person’s money to give it to someone else.
Free-market capitalism is also rooted in private property rights, which promote sustainability. When an asset is owned privately — a house, car, business, natural resource, etc.— the owner considers the effect of current actions on the future value of the asset. Private property rights align incentives with forward-looking resource stewardship.
Problems arise — known as the “tragedy of the commons”— when private property rights are not fully defined or enforcement is lacking. Then degradation occurs in the form of air pollution, water pollution, overfishing, species extinction, out-of-control wildfires, water misuse, and rampant deforestation. Those problems result from socialized property, not free-market capitalism. Francis and his new partners do not recognize this important distinction.
Capitalism is the greatest wealth creator the world has seen, lifting more than a billion people out of abject poverty during the past three decades alone. Wealth must first be created before it can be used to help others. It is always better to have more wealth when attempting to solve a problem, especially poverty, pollution, poor schools and disease.
Rooted in private property rights and uncorrupted competitive markets, capitalism is inclusive, fair, sustainable and the best hope for peaceful prosperity and human dignity. Pope Francis and the council should unleash capitalism worldwide and work to reform corrupt governments that deprive people of its blessings.
Lawrence J. McQuillan, a senior fellow and the director of the Center on Entrepreneurial Innovation at the Independent Institute, Oakland, Calif., is a contributor to the book Pope Francis and the Caring Society.