Christianity and Free Enterprise
By Robert Clark

‘You shall love the Lord your God with all your heart, and with all your soul, and with all your mind. This is the great and first commandment. And a second is like it, You shall love your neighbour as yourself …’ (Matthew 22: 37-39)

‘…for I was hungry and you gave me food, I was thirsty and you gave me drink, I was a stranger and you welcomed me, I was naked and you clothed me, I was sick and you visited me, I was in prison and you came to me.’ (Matthew 25: 35-36)

In recent times there has been much criticism from a purportedly Christian perspective of free enterprise and of ‘free enterprise’ style reforms such as privatisation. This criticism has come from groups traditionally regarded as both to the ‘left’ and ‘right’ of politics.

This paper argues against the validity of any presupposition that free enterprise is ‘un-Christian’ or ‘anti-Christian’. To the contrary, I argue that free enterprise, in a proper context, is fully compatible with Christian teaching and satisfies the human spirit and fits with society’s broader roles better than other actual or posited economic systems. I point out that this conclusion is strongly advocated by perhaps the most prominent Christian leader of our times, Pope John Paul II, in his 1991 encyclical Centesimus Annus.1

A Christian approach

The two quotations at the commencement of this paper encapsulate what I consider to be the appropriate Christian approach to economic issues – there is much more to life than economics, but love for our neighbours nonetheless makes it important for us to seek the economic system that will best ensure our neighbours are fed, clothed and cared for.
I submit that two basic propositions regarding free enterprise can be derived from Christian principles and teaching and from the experience of both history and contemporary society:

•  free enterprise, in a proper context, is fully compatible with Christian teaching and better satisfies the human spirit and fits with society’s broader roles than other actual or posited economic systems (Novak 1993).
•  free enterprise, in a proper context, is abundantly more successful than any actual or posited alternative in meeting humanity’s material needs.

Centesimus Annus

There is, of course, currently no earthly spokesperson accepted as authoritative by all Christians. Thus Christians of different denominations derive their understanding of Christian teaching on economic matters from a variety of sources which their denominations acknowledge as authoritative or persuasive.

However, Centesimus Annus is a key document in consideration of Christian attitudes to free enterprise. I say this not because I am Catholic, since I am not, but because Centesimus Annus is a detailed, reasoned and authoritative statement by a prominent Christian leader on behalf of one of the largest Christian churches, and in turn draws upon and further develops a long history of Christian teaching. Furthermore, while Catholic organisations and spokespersons have been at the forefront of Christian participation in public debate on social and economic issues, the significance of the encyclical for a Christian assessment of free enterprise appears to have been largely overlooked in Australia.

Centesimus Annus commences by dealing with the failings of the most commonly proposed alternative to free enterprise, namely socialism. Socialism treats the individual simply as a molecule within the social organism. Not only does it misunderstand human nature and the importance of freedom of the individual and of the individual’s participation in a range of social groups, it fails to recognise and allow for the capability of persons to do evil. In trying to create a perfect society on earth, it in fact gives rise to violence and suppression (sections 13, 25).

Over human history, cooperative work between individuals – work with and for others – has become increasingly important as a productive factor, as have in modern times know-how, technology and skill. The importance of organising these productive factors to best effect has in turn made initiative and entrepreneurial skill increasingly important. These considerations help make the free market the most efficient instrument for meeting those human needs which can be purchased (31-32, 34).

There are, however, limits to free enterprise. Other needs must still be met, and those lacking the necessary skills need to be helped to enter the market economy. There is also a need to protect workers and ensure the market is used to satisfy the basic needs of the whole of society. Profit is legitimate, but it is not the sole measure of proper functioning of a business. As well, there is a risk that economic freedom can degenerate into consumerism or other alienation of the individual (33, 36-41).

Overall, therefore, an economic system which recognises the fundamental role of business, the market, private property and free human economic creativity is the model for economic and civil progress. However, it must be within a juridical framework which recognises that it is but part of a total freedom, the core of which is ethical and religious (42).

The Catholic Church does not put forward any particular economic model. However, ‘the Church offers her social teaching as an indispensable and ideal orientation, a teaching which, as already mentioned, recognizes the positive value of the market and of enterprise, but which at the same time points out that these need to be oriented towards the common good’ (43; original emphasis). Thus, I would argue, while Centesimus Annus does not represent endorsement by the Catholic Church of any particular implementation of free enterprise, it strongly affirms not just the desirability of the positive values underlying free enterprise but their necessity for proper human development. It is therefore in marked contrast to the anti-free enterprise starting point of much Christian commentary in Australia.

I now turn in more detail to the reasons why free enterprise is consistent with Christian principles, and what the appropriate ‘context’ or ‘juridical framework’ for free enterprise consists of.

The human spirit and society’s broader roles

There is nothing intrinsic about participation in free enterprise in a proper legal and social context, that impedes or interferes with one’s love of God or one’s neighbour. A wrongly motivated pursuit of wealth, or willingness to exploit or mistreat one’s neighbour, is of course sinful. However, such willingness to pursue material ambitions or to harm one’s neighbour is a human failing that can equally manifest itself in any economic system. Only the means of implementing that sinful motive will vary from system to system. One person may be greedy for wealth through stock market speculation, another may be greedy for wealth through the spoils of high office in a one-party state.

The Gospels contain numerous references to free enterprise transactions:

• the employment of workers for the vineyard (Matthew 20:1)
• the merchant who sells all he owns to purchase a rare pearl (Matthew 13:46)
• the servants charged with making productive use of their master’s talents (Matthew 25:14)
• the man who sells all he owns to purchase a field containing buried treasure (Matthew 13:44)

These references occur in parables whose purpose is to illustrate other teachings, but it could hardly be supposed that Christ would illustrate good conduct by analogy to conduct which was intrinsically sinful.

As Centesimus Annus points out, when motivated properly, free enterprise provides individuals with the freedom to give effect to their innate creativity, initiative and self-responsibility. It also encourages virtues such as diligence, industriousness, prudence, reliability and honesty, as well as courage in carrying out difficult but necessary decisions. Indeed, to be successful in free enterprise generally requires one to give attention to how to best serve and help one’s neighbour. This may in turn encourage better internal motivation of individuals. Even if not, it will result in conduct which helps others.

Further, free enterprise can have the remarkable benefit of limiting the harm, and actually producing good for others, from even wrongly motivated behaviour. The stock exchange speculator who proclaims ‘greed is good’ may act from the worst of motives, but the act of speculation does not harm other market participants. Indeed, it improves the market by adding to it liquidity and whatever superior insight into the future the speculator brings. By contrast, in other economic systems the greed of the individual may have no legal outlet, and thus manifest itself in violence, fraud or abuse of office, all of which cause definite and serious harm to others.

This benefit of free enterprise is not to be underestimated. All humans sin, and any economic or social system that cannot cope with a degree of sin, particularly sin that manifests itself in small omissions, is doomed to failure. One clear example is the failure of economic or social systems that require a consistently high level of dedication, diligence and concern for the public by persons in the public sector. Indeed, as Centesimus Annus argues, an attempt to create paradise on earth, ignoring sinfulness, is likely not only to fail but to result in violence and deceit.

Michael Novak makes the further point in The Spirit of Democratic Capitalism (1982) that free enterprise also provides a number of ‘collateral’ benefits for human freedom and spiritual development, such as:

• a reduction in discrimination – people become more equal in the marketplaces both for goods and services and for the sale of their labour
• greater freedom of movement – established ‘protocols’ for interpersonal economic dealings allow people to deal more readily with strangers, thus reducing the difficulty of moving to different places
• the legal recognition of bodies corporate, allowing non-profit community organisations to develop more freely

It should be emphasised, as Centesimus Annus makes clear, that a free enterprise economy alone, even if properly regulated, will not of itself ensure a good society. Free enterprise can operate efficiently to satisfy materialistic, hedonistic or other harmful desires. Free enterprise can operate efficiently in a society without democratic government or freedom of speech or political or cultural association and where, outside of economic relations, the rule of law does not prevail. (It may be that, over time, such deficiencies in either the moral or the legal spheres will in turn undermine the operation of free enterprise. But in the meantime, free enterprise will continue to operate in a deficient society.)

In assessing any economic system from a Christian (or any other) perspective, it must be remembered that the economic system must successfully form part of a broader social structure, and that all elements of that broader social structure must function well in order to produce a good society.2 Christian commentators should not as a first reaction try to attribute to free enterprise whatever problems occur in a society with a free enterprise economy.

The point should also be made that in assessing how well an economic system enables a society to serve the objective of caring for its members, we must remember that a society has other roles in addition to directly and immediately helping those in acute need at any point in time.

Many of society’s roles are ‘preventative’ for the benefit of all within its jurisdiction, and the importance of those roles can be easily overlooked when they are being performed adequately. But many members of society would rapidly fall into acute need should those roles cease to be performed adequately. Such roles include defining, enforcing and adjudicating criminal and civil law, provision of defence, and funding certain services collectively through taxation or other means. A critique of an
economic system needs to take into account the value of these ‘preventative’ roles of the system, and the critique will be deficient if it does not.

What is the ‘proper context’ for free enterprise?

Few, if any, supporters of free enterprise would disagree with the proposition that to work for the benefit of humanity, free enterprise must operate within an appropriate framework. But what are those specifications and limitations which should apply to free enterprise to optimise its operation in serving the ultimate goals of humanity?

Aspects of the legal and social framework recognised by conventional economic theory as being necessary for, or compatible with, free enterprise include the following:

• free enterprise needs to be governed by an efficient set of property, contract and competition laws
• particular attention needs to be given to the way in which changes are made to laws in reliance on which people base their economic conduct – a move to a better law may still impose a transitional cost on some people, and the risk of such costs being imposed in future may create a ‘sovereign risk’ which impedes the effective operation of free enterprise
• society must decide whether or not to prohibit or restrict free enterprise from producing various ‘bads’, e.g. prostitution, drugs, weapons, dissemination of harmful communications, excesses of consumption
• there are some goods and services which, due to externalities, freeloading and the impracticability of requiring user payment, it is preferable to fund from taxation and provide in a manner determined by collective decision. Which goods and services these are will vary with circumstances, but common examples include roads, parks, abstract scientific research and environmental protection
• society may provide for the imposition of taxation in order to furnish assistance to people in need.

As well, few free enterprise economists would disagree with the proposition that there are many aspects of social activity to which, at their core, free enterprise is irrelevant or inapplicable, such as worshipping God, loving one’s neighbour, legislating and choosing legislators, applying and enforcing the law, marrying and raising a family.

This is, of course, simply another way of saying that there is a lot more to both the life of the individual and a good society than economics.

Economic efficiency, charging for services and loving one’s neighbour

At the base of some Christian antipathy towards free enterprise there seems to be an assumption that it is incompatible with loving one’s neighbour to charge for the services one renders, and that loving one’s neighbour is incompatible with economic
efficiency.

Some who hold this view may do so because they implicitly consider the sale of an item to be a ‘zero sum game’ – for me to impose a charge for a good or service (or a charge of more than some certain level) makes me better off at the expense of making my neighbour worse off. This is not so. Leaving aside cases of fraud or ignorance, both parties to a voluntary exchange are better off than if the exchange did not take place. The level of the charge of course affects how the gains are shared, but each must gain to some extent.

In the most personal of economic dealings, provision of and payment for service can be a mutual exchange of love – the doctor, compassionate for the sick child, exerts himself or herself to heal the child; the parent, happy and grateful for the doctor’s efforts, wants to reciprocate freely and urges the doctor to accept an extra gift on top of the normal charge.
In most instances, however, economic exchange lacks that intensity. When one pays for one’s purchases at the supermarket checkout, or buys a can of soft-drink from a vending machine, love for the supermarket proprietor or staff, or for the vending machine owner or supplier, is not generally foremost in one’s mind. Nor are the proprietor, staff, owner or supplier likely to have love for each individual customer foremost in their mind all the time as they go about their business.

Perhaps we each should have such love for each other more prominent during our everyday tasks. If so, there is certainly nothing about such exchanges to stop us. But even if we do not, people can still run their businesses knowing they are helping their customers, and the customers can still pay knowing they are helping those who derive their livelihood from those businesses.

Reliance on greed

The case against free enterprise may also be put on the basis that free enterprise is fatally flawed because at its fundamental its relies on greed – a price signal is only effective in producing rational economic behaviour because it holds out the lure of greater personal wealth. Even if the outcomes of a system based on such conduct are beneficial, so the argument would go, the system is immoral because the basic motivation it relies on is immoral.

Consider such everyday statements as ‘I’m going to quit my current job and train to be a computer technician – you can make good money doing that’ or ‘Let’s hold out for another $10,000 a month rent on this property – I’m sure we can get it.’ Are such ambitions necessarily, or highly likely to be, immoral?

Its all depends on the motive – a worthy aim of supporting oneself or others, or a quest for wealth for wealth’s sake. But an improper motivation towards material possessions can manifest itself in any economic system, and free enterprise, provided it is placed in a proper cultural and moral context, provides no greater exposure than any other system. Under communism, the party official may seek to claw himself to higher appointments and higher perks, the factory manager may seek to game the rules to earn herself higher bonuses, the worker may look for the job that has the best opportunities to scrounge a few benefits on the side. The only real difference is that each of them is almost certainly worse off than under free enterprise because the whole society is poorer.

Some hard cases

The issue becomes most acute when economic conduct consists of extracting the greatest possible payment from the other party to the transaction, refusing to provide a good or service because the other party cannot pay the required price, or insisting that the other party pay the required price even though it is known that this will cause them hardship. Is this conduct incompatible with love for one’s neighbour?

Let us consider some hypothetical examples:
a) the proprietor of the only garage in an outback town is approached by a driver whose car’s fan belt has broken. The driver is desperate to get a replacement belt because he is broke and unemployed and has to complete his journey quickly to take up a job offer. The proprietor normally sells the belts for $20, but charges the driver $60.
b) a supermarket proprietor, who operates in a neighbourhood where most people can afford their groceries, is approached by a destitute family who have only $10 to feed their children for the week.
c) a drug company produces a drug whose principal use is to treat a disease that mainly occurs in impoverished parts of third world countries. The drug is sold directly to users and not subsidised by government or other agencies.

The proprietor in a) is clearly acting without love for his neighbour. The conduct involved in varying the price asked for a standardised good or service based on the expected preparedness to pay of the customer is a form of ‘price discrimination.’ When practised on a larger scale, it is often a manifestation of limited competition, which may attract the operation of competition laws or other forms of economic regulation.

In example b), the proprietor could sell groceries to the family below the usual price, or give a cash gift to the family equal to the difference between the usual price and what they could afford to pay. This would show love for his neighbour and would not be economically inefficient. To not do so would show the same lack of love for his neighbour as that which would be shown if any other equally well-off person in the neighbourhood were
approached for help by the family.

Example c) is similar to b), save that the vendor is not an individual, but a corporation, which probably has a large number of shareholders who receive its profit. If the management of the corporation make a decision on behalf of the shareholders to distribute the drugs in the Third World below cost, funded from the dividends that would otherwise be paid to the shareholders, many of those shareholders would be likely to object, and may remove the management, or sell their shares, depressing the share price and rendering the company liable to a takeover by others who would stop the practice. On the other hand, it would be charitable for the shareholders to allow the company’s profits to be used to fund the cheap distribution of drugs in the third world – just as it would be for other citizens to make donations for the provision of such drugs at a low cost.

It follows from this that there can indeed be circumstances where love for our neighbour should move us to give assistance to people with whom we have economic dealings. But this moral issue does not apply any more so to those who sell goods and services under free enterprise than it does to any other person who encounters others in need.

This discussion illustrates that, as contact and communications within and between societies become more extensive, calls for help are made and received far more widely than in times when people knew little of what happened outside their own communities. The needs for help are far greater than any individual can meet. It is reasonable even (or especially) for the most charitable members of the community to expect others to make some contribution to providing assistance. Society has traditionally so acted on behalf of individual citizens to assist those in need, with the scope of that action increasing as contact and communication have increased. In early societies, this assistance took the form of laws about who had the duty to look after widows and orphans. In later times, there were the poor laws of parishes. Now we have the social welfare system and international aid schemes.3

Minimum wages

A further argument sometimes put against free enterprise, or at least in favour of extensive regulation of free enterprise, is that it is immoral for an employer to pay a wage less than needed by the wage-earner to support himself and his family, and the State has an obligation to restrict free enterprise to compel the payment of such a wage. The 1891 Encyclical Rerum Novarum is often cited in support of this line of argument.

The difficulty with a universal policy of imposing minimum wages and conditions by legislation is as follows – suppose that in a Third World country with massive unemployment there is some work available of a very marginal kind. It will produce an income just sufficient to pay to workers a wage barely at subsistence level. A business proprietor who himself is earning just sufficient to support his family may employ workers to do this work, and pay them the bare subsistence wage. If a minimum wage higher than a bare subsistence level is imposed by legislation, these workers will be deprived of employment and starve. To advocate such action would be contrary to common sense.

A free enterprise economist may well argue that minimum wages and conditions should only be imposed, if at all, in order to prevent the exploitation of workers who are vulnerable due to ignorance or need by paying them lower wages, or giving them worse conditions, than the ‘going rate’ for work of the sort concerned, or to deal with lack of competition among employers in the market for labour. However, subject to that, should the prevailing rates of wages and conditions for certain sorts of work be lower or worse than society considers appropriate, the difference should be made up by support from society as a whole to the worker.

However, a conclusion that minimum wages are not, or not always, the answer does not mean that those of us in more fortunate circumstances should be content to see our fellow humans eking out a bare subsistence survival. Emphatically, we should not. It also does not mean that governments should never enact minimum wage laws for other reasons. That is a matter for separate debate. But it does mean that we should not blindly impose in the name of Christian teaching ‘solutions’ that reason shows will in particular circumstances harm the very people the ‘solutions’ are intended to help. Rather, in such cases we should be vigorously looking for solutions which will help.

Centesimus Annus is consistent with these conclusions. It holds that legislation is necessary to prevent exploitation, particularly of minority groups. The State should protect the weakest ‘by placing certain limits on the autonomy of the parties who determine working conditions, and by ensuring in every case the necessary minimum support for the unemployed worker.’ The role of trade unions in negotiating minimum salaries and working conditions is important.  The way to ensure adequate wage levels for the worker and the worker’s family is for society and the State to make ‘continuous effort to improve workers’ training and capability so that their work will be more skilled and productive.’ The State must create ‘favourable conditions for the free exercise of economic activity, which will lead to abundant opportunities for employment and sources of wealth’ (15).

Third World countries

Some Christians might argue that free enterprise, and free enterprise ‘exploitation’ by developed countries, is the cause of many of the difficulties faced by Third World countries today. However, Pope John Paul II in Centesimus Annus strongly disagrees with this. As His Holiness puts it:

 Even in recent years it was thought that the poorest countries would develop by isolating themselves from the world market and by depending only on their own resources. Recent experience has shown that countries which did this have suffered stagnation and recession, while the countries which experienced development were those which succeeded in taking part in the general interrelated economic activities at the international level (33).

His Holiness reinforced this point in 1993, when he directly addressed one particular obstacle to such participation that needs to be overcome, namely protectionism and other trade barriers:

 The struggle against hunger and malnutrition requires that all countries should come together and adopt new and binding regulations responding to the changed demands of trade and international exchange and not to the interests of a small number of countries. In this way it will be possible to avoid clear symptoms of protectionism in its various forms, which constitute the principal obstacle to trade and create actual barriers to markets for the developing countries (Pope John Paul II 1993).

Thus, I would argue, the way forward for Third World countries is not to curtail free enterprise, but to enable those countries to fully enter into the international market economy, to provide to residents of those countries lacking them the necessary skills to participate, and to assist those countries to establish the necessary legal and institutional framework for the market economy, so that workers can earn sufficient to support their families and so that legislation to prevent exploitation can provide protection to vulnerable workers.

Conclusion

Free enterprise, in a proper context, is the system of organisation of economic production most compatible with human nature. Not surprisingly, it is therefore also the system best able to harness human ability and natural resources to meet humanity’s material needs.

The most pressing economic needs in the world today are to remove remaining inappropriate restrictions on free enterprise and to create an appropriate legal and cultural climate for free enterprise in those countries where such a climate is lacking. The cultural and legal changes needed to enable free enterprise to better meet human needs are those to eliminate chronic crime, corruption and abuse of public office in many Third World and former communist countries.

Of the restrictions on free enterprise which must be removed, the most vital are those which prevent the poorest countries of the world from fully entering into the market economy, including those restrictions imposed by developed countries which deny access to those countries’ markets for the products and skills of the world’s poorest countries.

It is reforms such as these, rather than misconceived antagonism to free enterprise, which will best allow us to give food, clothing and care to our neighbours and to express our love as Christians.

References

Pope John Paul II 1993, Address to the XXVII Session of the Conference of FAO, 11 November.

Novak, Michael 1982, The Spirit of Democratic Capitalism, Madison Books, Lanham.

Novak, Michael 1993, The Catholic Ethic and the Spirit of Capitalism, The Free Press, New York.

Novak, Michael 1994, Templeton Prize Address, http://www.firstthings.com/ftissues/ft9408/novak.html.
 
Endnotes
1 The full English text of the encyclical can be found at the Vatican's website http://www.vatican.va

2 The necessary elements of a good society can be decribed and classified in numerous ways.  However, one helpful classification has been put forward by Michael Novak, who argues that a well-functioning society requires a well-functioning political system, a well-functioning economic system and a well-functioning cultural/moral system.  This point is discussed in The Spirit of Democratic Capitalism and the particular importance of the cultural/moral system is well made in Novak (1994)

3 Whether the social welfare system is now too extensive, or on the other hand is still not meeting all the needs it should, is ssubject for a different

Robert Clark is the Member for Box Hill and Parliamentary Secretary, Treasury and Multimedia, in the Victorian Parliament. The views expressed in this paper are his own.

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