Subsidiary And Free Enterprise

Subsidiarity is the Catholic social doctrine which recommends that whenever we face a problem, other things equal, the most decentralized institution we have at our disposal should be the one mobilized to solve it.

For example, if it is a choice between the national and the state government as to which should be brought to bear to address a challenge, and there are no other considerations, then we should rely on the latter, not the former. Similarly, we should favor in this regard the city over the state government, the borough rather than the city, the town instead of the borough, and the neighborhood association vis-à-vis the town.

Let us allow a major advocate of this doctrine to put it into his own words.

According to Pope Pius XI, in his 1931 encyclical Quadragesimo Anno: “Just as it is gravely wrong to take from individuals what they can accomplish by their own initiative and industry and give it to the community, so also it is an injustice and at the same time a grave evil and disturbance of right order to assign to a greater and higher association what lesser and subordinate organizations can do. For every social activity ought of its very nature to furnish help to the members of the body social, and never destroy and absorb them.” (emphasis added)

There are strong parallels between subsidiarity and the free enterprise system. We cannot of course equate the two, but the analogy is strong. Decision-makers such as entrepreneurs, business owners, workers, are subsidiary to government. If there is any clash between them, it is the state that prevails. The government taxes firms, not the other way around. Capitalists are regulated by public servants, not vice versa.

What is the case for preferring free enterprise to government other than subsidiarity? The market consists of nothing but voluntary trade, buying, selling, renting, lending, borrowing. In each and every case, assuming no anti market fraud, both participants necessarily gain at least ex antel and in the overwhelming number of cases, ex post, too. Consumers, under free enterprise, can exercise their dollar vote several times per day; but in the political system, even under full democracy, they can enter the ballot box only once ever several years.

Moreover, the people are constrained with a package deal in the latter case, but not the former; they cannot pick and choose policies except for referendums, as they can in the market. Thus, consumers have far more control over businesses than do voters over politicians.

The empirical evidence attesting to the benefits of the free market system vis-à-vis political regulation is overwhelming; there are several almost controlled experiments that demonstrate that: East and West Germany, North and South Korea, for example. The poorest countries tend to rely on socialism; the wealthiest, on capitalism.

Given the strong parallels between capitalism and subsidiarity, one would expect that advocates of the latter would look positively on the former. They are not quite as alike as the two proverbial “peas in a pod” but the resemblance is strong. But this expectation is erroneous. Supporters of subsidiarity are bitter opponents of the free enterprise system.

Consider the following:

“…all products and profits, save only enough to repair and renew capital, belong by very right to the workers….The easy gains that a market unrestricted by any law opens to everybody attracts large numbers to buying and selling goods, and they, their one aim being to make quick profits with the least expenditure of work, raise or lower prices by their uncontrolled business dealings so rapidly according to their own caprice and greed that they nullify the wisest forecasts of producers ” (Pope Pius XI, also in his 1931 encyclical, Quadragesimo Anno)

Continues this author: “… the right ordering of economic life cannot be left to a free competition of forces. For from this source, as from a poisoned spring, have originated and spread all the errors of individualist economic teaching. Destroying through forgetfulness or ignorance the social and moral character of economic life, it held that economic life must be considered and treated as altogether free from and independent of public authority, because in the market, i.e., in the free struggle of competitors, it would have a principle of self direction which governs it much more perfectly than would the intervention of any created intellect. But free competition, while justified and certainly useful provided it is kept within certain limits, clearly cannot direct economic life – a truth which the outcome of the application in practice of the tenets of this evil individualistic spirit has more than sufficiently demonstrated. Therefore, it is most necessary that economic life be again subjected to and governed by a true and effective directing principle.”

How are we to account for this bifurcation? It might well be that this devotee of Catholic social thought suffers from a hate capitalism syndrome, so deeply embedded that no amount of evidence, nor considerations of logic, can overcome it. He wants to support subsidiarity, which means allowing markets to run the economy. But he finds economic freedom objectionable. He wants to have his cake, subsidiarity and hence laissez faire capitalism, and eat it too, support government control of the economy. He does not see the tension in this position, not to say logical contradiction.

The middle name of “free enterprise” is practically “subsidiarity.” No, “free subsidiarity enterprise” does not roll off the tongue all that easily, but that is only, perhaps, because we are not used to it. From a substantive point of view, it is just about a tautology.

If they want to be coherent, the proponents of Catholic social thought are logically obligated to favor capitalism, not condemn it. I’m not going to hold my breath until that happy day comes around. On the other hand, miracles sometimes occur!

Walter E. Block is Harold E. Wirth Endowed Chair and Professor of Economics, College of Business, Loyola University New Orleans, and senior fellow at the Mises Institute. He earned his PhD in economics at Columbia University in 1972. He has taught at Rutgers, SUNY Stony Brook, Baruch CUNY, Holy Cross and the University of Central Arkansas. He is the author of more than 600 refereed articles in professional journals, two dozen books, and thousands of op eds (including the New York Times, the Wall Street Journal and numerous others). He lectures widely on college campuses, delivers seminars around the world and appears regularly on television and radio shows. He is the Schlarbaum Laureate, Mises Institute, 2011; and has won the Loyola University Research Award (2005, 2008) and the Mises Institute’s Rothbard Medal of Freedom, 2005; and the Dux Academicus award, Loyola University, 2007. Prof. Block counts among his friends Ron Paul and Murray Rothbard. He was converted to libertarianism by Ayn Rand. Block is old enough to have played chess with Friedrich Hayek and once met Ludwig von Mises, and shook his hand. Block has never washed that hand since. So, if you shake his hand (it’s pretty dirty, but what the heck) you channel Mises.

The image shows, “Vegetable Market in Venice,” By Camillo Bortoluzzi, painted in 1894.

Economics And Human Rights

International economic law and human rights tend to be very poor bedfellows. Indeed, world indebtedness means less for the have-nots and more for the haves.

First, the policies of the World Bank and the IMF often violate the rights of poor countries in that these policies inhibit and even stall the growth of developing nations. Banks views Third World debt as an almost mythical moneymaking machine.

Pressure on the debtor countries and their people is increasing all the time, and the debts remain, growing ever larger. To enforce payment, the World Bank uses the IMF to impose adjustments.

As a condition for receiving new loan extensions to cover for defaults on interest payments, the IMF imposes strict economic conditions on countries, and forces debtor countries to cut their public expenditure, push up the price of food, and focus all their resources on the development of cash crops for export to earn the money needed to repay the debt.

The result of this pressure, imposed by the world’s richest nations on the world’s poorest, is ever-increasing unemployment, poverty, hunger, malnutrition, and for many, death. Debt repayment is a major problem for 44 severely indebted countries.

A similar role of imposition of policies by powerful bodies can be seen in the workings of the WTO. The establishment of the WTO represents a watershed in the process of establishing a truly global economic order and it is likely to exert a more profound influence over the course of human affairs than has any other institution in history.

There are three reasons that justify such an assessment. The first has to do with the ever-increasing importance of international trade to a global economy. Transnational corporations now control more than one third of worlds’ productive assets, and the organization of their production and distribution systems has little to do with national or even regional boundaries.

Decisions about locating factories, sourcing materials, processing information or raising capital are made on a global basis, and a particular product may include components from several countries.

This explains why nearly 40% of all international trade takes within the same corporate family. Another measure of the growing dimensions of globally economic integration is the growth in international trade itself which according the most recent figures published by the WTO increased by a staggering 9 1/2 per cent in 1994.

The question of private party participation in WTO dispute settlement proceedings has been around since even before the organization’s inception. Of course, private parties have been interested in international trade dispute resolution since GATT entered into force in 1948.

For many years, as GATT labored in obscurity, these disputes took place relatively anonymously. However, especially with disputes over trade embargoes imposed for environmental purposes and over phytosanitary standards that affect human consumption of agricultural products believed by some to be unsafe, international trade dispute settlement became increasingly interesting to NGOs and members of the public.

The public like never before is now scrutinizing it. The environmental NGOs, in particular, have called for greater access to, and increased transparency of, the litigation process. As presented in a number of recent papers, there are valid arguments on both sides of the debate.

Those calling for increased access argue that for the decisions that emerge from this body to be viewed as representative, authoritative and fair, the WTO must provide mechanisms for expanded public participation.

This concern is raised most often where disputes involve non-trade policies embedded in trade regulations, such as import restrictions to enforce environmental standards.

NGOs question the WTO’s ability to make the right decision in such disputes without relying on their input.  From an NGO perspective, if the system is to be perceived as fair, those with an interest in the outcome of a dispute should have an opportunity to be part of the process, and the system must operate in a way that does not seem to systematically give an advantage to a particular normative point of view (i.e., that import prohibitions are to be condemned unless they fall within a narrow set of exceptions).

It is hard to know how much power lies with the world’s transnational corporations (TNCs). Because of their size, they have become major world players: sales can exceed the gross domestic product (GDP) of countries. General Motors income exceeds the GDP of all sub-Saharan Africa combined. TNCs now control two thirds of all world trade and 80 per cent of foreign investment.

Some argue that TNCs are important to people in developing countries. The reality is very different. TNCs employ only three per cent of the world’s labor force – and less than half of those employed are in the poorest regions of the world.

The need for governments to attract TNC investment has resulted in a sacrifice in the rights of working people in order to create the most attractive investment conditions. The immense buying power of TNCs results in domination of local markets and the shutting down of local firms.

The freedom to act without social responsibility has made TNCs the champions of global trade, without regulations. This lack of accountability and lack of respect for human rights has resulted in dangerous practices. Oil giant Shell has admitted supplying weapons for use by Nigeria’s security forces against protestors in Ogoniland, just as BP has openly funded military terror squads in Colombia for years. In West Papua, Freeport presses ahead with mining while the Indonesian military deals with local protestors incensed at the destruction of their land.

The environmental record of TNCs is not much better. The destruction of whole ecosystems by mining and oil companies, the thousands killed in disasters such as Bhopal, and the ongoing, everyday pollution by companies for which “going green” is public relations. The Kyoto summit failed because powerful members of the Global Climate Coalition – responsible for half the world’s pollution mounted a multi-million dollar campaign to back big business.

 

The photo shows, “The Charitable Gift,” by Ferdinand Georg Waldmüller, painted in 1850.

The Wealth Of The One-Percent?

We’ve all heard the claims…

The evil “one-percent” holds most of the world’s wealth. Therefore tax the rich harder. Inequality is on the rise.

But is any of this true?

Who are the “one-percent?” How much money do “they” really have? And should their money be taken from them?

And are agencies justified in putting out media headlines like, “The richest 1% now has as much wealth as the rest of the world combined, according to Oxfam.”

Or, “Half of world’s wealth now in hands of 1% of population.”

Such claims are intentionally deceptive, since they are designed to get you to think a certain way, so that you will support a particular agenda.

This is all designed to tame and make compliant the will of the people, a process in which the media plays a high-hand by no longer reporting facts but constructing narratives which will tell you how to think.

This brings up another problem entirely – whether the job of the media is to report events, or use them to mold your will.

The deception is in the details, in the way the figures are presented, with the assumption that most people will just read the headline, pick it up as a sound-bite, and keep repeating it, as if it’s true. This is known as “the power of the media.”

This “power” is only possible as long as the people allow it to influence them. But that’s another topic entirely.

So, let’s take an honest look at the actual numbers, without an agenda.

We shall use two major sources considered the most accurate, namely, BCG (The Boston Consulting Group) and the Hurun Report.

This what the latest numbers tell us…

There are 2,257 billionaires in the world. Their ranks have increased 3 percent over the past year – and 55 percent over the last 5 years. This is the total number of the “one-percent.”

All of these billionaires are newly minted, meaning that none of them inherited wealth; they created it by their efforts. In fact, two-thirds of all the billionaires come from humble backgrounds who carved out their own financial destinies.

The total worth of these billionaires is $8 Trillion. This is an increase of 16 percent from 2016, and is greater than the entire GDP of Germany and France combined.

This combined wealth is also greater than the GDP of any other country in the world, with the exception of the USA and China.

In the USA, there are 552 billionaires, which is fewer than China, which has 609 (it added 41 new ones to its ranks, in 2016, while the USA only added 17). Both countries have half the total number of billionaires on this planet.

The source of their wealth is not only stocks but also entrepreneurship. In other words, they create more wealth each year by putting their money to work in the various regions of the world, by way of industry and trade.

Now, let’s compare this $8 Trillion of the “one-percent,” with the wealth of nations – how much each region has. This is what find (these figures are for 2016):

North America’s wealth (mostly the USA, but also Canada) totalled, $55.7 Trillion.

Western Europe’s wealth totalled, $40.5 Trillion.

Eastern Europe’s wealth came in at $3.6 Trillion.

Japan’s wealth came in at $14.9 Trillion.

Latin America’s wealth was little better than Eastern Europe, totalling, $5.4 Trillion.

The wealth of the Middle East and Africa combined totalled, $8.1 Trillion.

Asia-Pacific (mostly China) came in at $38.4 Trillion.

Thus all told, the wealth of nations totalled, $166.5 Trillion. By 2021, this figure will increase to an estimated $223.1 Trillion.

How does this compare with the combined wealth of the “one-percent?”

Taking just the annual budget of the US, for 2017, the amount that will be spent to run the nation will be $3.65 Trillion, which exceeds the total revenue ($3.21 Trillion) by 2.5 percent.

So, theoretically, if the one-percent was stripped of its entire $8 Trillion, that amount would only be enough to run the US for little more than 2 years (2.19 years to be exact).

This quick comparison points to two things.

First, the railing against the “one-percent” is pure ideology rather than practical economics.

Second, the “one-percent” acquires (and acquired) its wealth by way of the wealth of nations – that is, by the entire economic engine fueled by the labor of people. The wealth of the one-percent and the wealth of nations is inseparably linked.

In other words, the one-percent do not earn their wealth separately from the way the remainder of the people earn their incomes. Their wealth feeds into that engine, which then produces more wealth (hence growth).

These billionaires are privileged only in the fact that they have gained wealth through industry. Two-thirds of them did not inherit it.

This is not to say that there isn’t disparity and exploitation, but these are separate issues from how we are to perceive the wealthy. For a bit of perspective, here is how the wealth of nations itself divides up.

In North America, 39 percent of the population has less than a million dollars. 37 percent has $1 to $20 million. 14 percent has $20 to $100 million. And 9 percent has more than $100 million.

In Asia-Pacific, 57 percent of the people have less than a million dollars. 28 percent have $1 to $20 million. 10 percent have $20 to $100 million. And 6 percent have more than a $100 million.

In Western Europe, 70 percent of the population has less than a million dollars. 19 percent has $1 to $20 million. 3 percent has $20 to $100 million. And 8 percent has more than $100 million.

In Japan, 77 percent of the population has less than a million dollars. 20 percent has $1 to $20 million. 2 percent has $20 to $100 million. And 1 percent has more than $100 million.

In the Middle East and Africa, 44 percent of the population has less than a million dollars. 30 percent has $1 to $20 million. 18 percent has $20 to $100 million. And 8 percent has more than $100 million.

In Latin America, 54 percent of the population has less than a million dollars. 26 percent has $1 to $20 million. 10 percent has $20 to $100 million. And 9 percent has more than $100 million.

In Eastern Europe, 48 percent of the population has less than a million dollars. 19 percent has $1 to $20 million. 14 percent has $20 to $100 million. And 19 percent has more than $100 million.

When these figures are calculated on a worldwide basis, this picture emerges:

55 percent of the world’s population has less than a million dollars. 28 percent has $1 to $20 million. 9 percent has $20 to $100 million. And 8 percent has more than $100 million.

In effect, 45 percent of the world’s population is very wealthy, while a little more than half (55 percent) ranges from impoverished to very comfortable.

This means that the one-percent is really the eight-percent – and their ranks are continually growing, as new wealth is created, which propels individuals into the higher echelons of financial well-being.

In other words, prosperity is increasing rather than decreasing throughout the world.

How is this possible? Very simply by the fact that the wealth of nations is always working to earn more, and this earning increases the overall prosperity of nations and the people in them.

So, for example, in North America, the bulk of the wealth ($55.7 Trillion) resides in equities and bonds (70 percent and 16 percent respectively). Only 14 percent is in cash and deposits.

This raises a very interesting point – that the monetary policies in place today actually do create wealth – and this wealth is spreading (though not as widely as we might want it to). But the fact that monetary policies actually create and sustain wealth is important to note.

And this raises the entire topic of “fiat money” which is often the straw-man of those who think that a return to a gold-standard is preferable to the way the economies of the world work right now. (Such “critics” fail to address the fact that the wealth of nations is actually creating a lot more wealth, which is being distributed to more and more people).

Indeed, the middle class is growing and increasing rather than dying (those that propagate gloom-and-doom scenarios, including most politicians, are ideologues rather than economic realists).

The fact that the vast amount of wealth created in the US depends upon “fiat money” means that the dollar unhinged from metal (gold) is robust and provides consistently good results.

Money is only a medium of exchange. It has no value outside of that. To bandy about terms like “fiat money” becomes meaningless when we regard money in this way. It is a method of exchange, and therefore anything can take on that role. In contemporary economies, the gold-less approach has provided the greatest means to greater wealth creation.

In fact, the claims of stripping the “one-percent” of their wealth is nothing than pointless (and reckless) Marxist rhetoric, which seeks to further social agendas by spreading false assumption that some robber-elite has taken all our money.

Wealth does not come from nothing. It is the result of wealth working with wealth to create more.

And since the middle class is growing rather than shrinking, people have far better lives than they did just thirty years ago.

The widely influential book by Thomas Piketty, Capital in the Twenty-First Century successfully launched the entire narrative of the “one-percent.” But its assumptions and its conclusions are false and serve only to foment dissent (perhaps the book’s true goal).

Actual data tells us that people in North America are living longer, have better lives and larger homes than people forty years ago. That is a great economic accomplishment.

The figures also plainly show – that the wealth possessed by the billionaires is hardly enough to run any country in the world.

To strip the billionaires of their wealth also means effectively shutting down the entire engine of prosperity, which provides an income for the vast majority of people of this world.

To shut down it all down and symbolically take away the wealth from billionaires is wilful ignorance.

This also suggests that arguments about economic inequality are baseless, because taxation is partly redistributed as welfare. Of course, there is poverty, but that is not the same as income inequality.

Further, the billionaires, like everyone else, actually earn their money, by providing products and services that people need, and which are good for society.

Taking such economic realism further, we have to bear in mind that money (whether it belongs to billionaires or not) is either spent or saved. There is nothing else you can do with money.

If it is saved, it becomes the engine of investment, which in turn gets put into industry or services that then provide jobs. If money is spent, it increases the consuming of products (made by industry) and services. Again, this money creates jobs.

Thus, whether money is spent or saved it continues to fuel the engine of the wealth of nations, in which everyone participates, billionaire or not.

To simply repeat Marxist talking points about taking away money from the “rich,” while providing no viable alternative once this money is taken away, is nothing more than irresponsible bluster.

In fact, the economic failures of Marxism are monumental and succeed only in creating masters and slaves.

Just consider this – Marxism, or socialism, is the ultimate Ponzi scheme – it can only sustain itself by continually taking money from others. It is not built to actually create wealth, let alone distribute any wealth to anyone.

Thus, socialism does indeed succeed in making everyone equal – but everyone is equal only in their poverty. We have only to look to Venezuela, North Korea, Bolivia for yet more examples of the socialist utopia. And poverty must always end in social collapse.

Perhaps it might be far more worthwhile to critically examine the purveyors of political rhetoric who are only interested in destroying things, rather than building things and participating in a world that creates wealth enough for all.

The engine of worldwide prosperity is the free market. Governments and Marxist rhetoric need to get out of the people’s way.

 

The photo shows, “St. Eligius in His the Goldsmith,” by Petrus Christus, painted in 1449.

One For All

When the rich man gazes down at the poor, does he realize he is one of the vulnerable ones? Every social hierarchy rests its security on the people that it rules. The stronger the foundation, the greater the security of that hierarchy. So, if you’re going to rule over the poor, at least do it well.

I have no optimistic dreams of a socialist utopia. I’m sure that cynicism is what such dreams are made of. I only ask that we have smarter and more coordinated masters. Ones that realize that all masters are chained to those beneath them.

For example, take health care. Even the Nazis made sure that the Jews weren’t sick in the camps, and it’s not because they loved the Jews – rather, they understood a basic biological fact that sickness spreads. If only we could be better than the Nazis.

all masters are chained to those beneath them

Yet, we struggle to understand why we should provide our own people health care, let alone why we should stop Ebola in Africa. Even if you see the poor as a bunch of rats and parasites, it’s important to remember where the plague came from.

Does it take a genius to know that we should educate our own people? We can’t even think for ourselves anymore. We import the educated, because we aren’t smart enough to work for ourselves.

All the while, we bicker over whether it’s in our interests to pay poor people to educate themselves. We supposedly live in a democracy, and yet we are economically and politically bound to these idiots!

We know that the air is unfit to breathe and that the food is unfit to eat, but we can’t seem to realize this isn’t just a poor man’s problem. We fail to realize that the same companies that feed garbage to the poor are the same ones that lie to us about our “organic” foods.

We import the educated, because we aren’t smart enough to work for ourselves

The rich and the poor have one common struggle, but the difference is the elites are the only ones who can actually do anything about it.

But of course, nobody cares.

The left is too wrapped up with the tribalism of identity politics. Ironically, the one thing that is supposed to unite the left is socialism, but a socialist can’t even make it through the primaries without getting stiff-armed out of the race.

Sooner or later you realize there is no left wing, Clinton and Obama were with Wall Street, not Main Street.

What about the right? Another meaningless term. The right-wing of liberalism was born of the desire to save the people from themselves. Now, these Neo-cons run around preaching the gospel of supply-side Jesus and have completely forsaken the poor, as well as themselves.

The left is too wrapped up with the tribalism of identity politics

The rich think that they are immune from the ills of their employees. Like young adolescents, these masters of the world roam the earth believing in nothing but their own invincibility.

No one is horrified when the poor are violated, not even the poor. It’s practically expected. When they suffer from gang violence, cancer, malnutrition, stupidity, rape, death on the battlefield, etc. no one is really shocked. Anyone who takes a walk through the South Side of Chicago, and sees the barred fortification of every window, knows that the poor expect it.

No, it’s the rich that never see it coming. The troubles of this world swoop in like some terrible bird, a grisly visitor who flies away with a piece of their life. As they gaze down from the tower of their social hierarchy into the abysmal suffering below, they begin to create a false dichotomy between themselves and the less fortunate.

But then they wake up with some illness, cancer, or kid with autism, and their world begins to shatter. Suddenly, they realize that they breathe the same carcinogenic air as those below them.

They begin to realize that the same laws that freed up companies to put poison in food and children’s toys – have poisoned them as well.

Every social hierarchy rests its security on the people that it rules

As the elite attempt to build their governments and companies on the minds of imbeciles, they start to realize that their national security and wealth is under threat. Their world begins to shrink, and they begin to understand that they are the same as those below them.

But do they know this can’t go on forever? The poor will get the worst of it, and the weak will suffer what they must.

But how long will it be before the elites save each other from themselves? And if gold rust, what shall iron do?

Go to now, ye rich men, weep and howl for your miseries that shall come upon you.

Your riches are corrupted, and your garments are motheaten.

Your gold and silver is cankered; and the rust of them shall be a witness against you, and shall eat your flesh as it were fire. Ye have heaped treasure together for the last days.

Behold, the hire of the labourers who have reaped down your fields, which is of you kept back by fraud, crieth: and the cries of them which have reaped are entered into the ears of the Lord of sabaoth.

Ye have lived in pleasure on the earth, and been wanton; ye have nourished your hearts, as in a day of slaughter.

Ye have condemned and killed the just; and he doth not resist you.

Be patient therefore, brethren, unto the coming of the Lord. Behold, the husbandman waiteth for the precious fruit of the earth, and hath long patience for it, until he receive the early and latter rain.

Be ye also patient; stablish your hearts: for the coming of the Lord draweth nigh. (James 5:1-8).

 

(The photo shows a painting by Sergey Korovin, “In the World,” painted in 1893).