BOMFOG & Towards Reforming the International Financial & Monetary Systems in the Context of Global Public Authority
Well, I have had an opportunity to review the latest musings of the pontifical counsel for justice and peace. My overall reaction is the same as the famous comment that a Professor once put on a term paper. “This paper is good and original. Unfortunately where it is good it is not original, and where it is original it isn’t good.” On to the fisk!
“The world situation requires the concerted effort of everyone, a thorough examination of every facet of the problem – social, economic, cultural and spiritual. The Church, which has long experience in human affairs and has no desire to be involved in the political activities of any nation, ‘seeks but one goal: to carry forward the work of Christ under the lead of the befriending Spirit. And Christ entered this world to give witness to the truth; to save, not to judge; to serve, not to be served.’”
So far so good.
With these words, in the prophetic and always relevant Encyclical Populorum Progressio of 1967, Paul VI outlined in a clear way “the trajectories” of the Church’s close relation with the world. These trajectories intersect in the profound value of human dignity and the quest for the common good, which make people responsible and free to act according to their highest aspirations.
The last sentence reminds me of a phrase that Nelson Rockefeller used to work into many of his speeches: “The Brotherhood of Man under the Fatherhood of God!” His aides used to refer to it as BOMFOG. The more high-falutin the language, the closer you need to read any concrete proposals embedded within.
The economic and financial crisis which the world is going through calls everyone, individuals and peoples, to examine in depth the principles and the cultural and moral values at the basis of social coexistence. What is more, the crisis engages private actors and competent public authorities on the national, regional and international level in serious reflection on both causes and solutions of a political, economic and technical nature.
More BOMFOG, which is, in part, the art of stating the obvious elegantly.
In this perspective, as Benedict XVI teaches, the crisis “obliges us to re-plan our journey, to set ourselves new rules and to discover new forms of commitment, to build on positive experiences and to reject negative ones. The crisis thus becomes an opportunity for discernment, in which to shape a new vision for the future. In this spirit, with confidence rather than resignation, it is appropriate to address the difficulties of the present time.”
“To build on positive experiences and to reject negative ones.” I am pretty sure that will be on a bumper sticker soon.
The G20 leaders themselves said in the Statement they adopted in Pittsburgh in 2009: “The economic crisis demonstrates the importance of ushering in a new era of sustainable global economic activity grounded in responsibility.”
The G20 bureaucrats and their political masters all tend to be masters of BOMFOG.
The Pontifical Council for Justice and Peace now responds to the Holy Father’s appeal, while making the concerns of everyone our own, especially the concerns of those who pay most dearly for the current situation. With due respect for the competent civil and political authorities, the Council hereby offers and shares its reflection: Towards reforming the international financial and monetary systems in the context of global public authority.
This reflection hopes to benefit world leaders and all people of good will. It is an exercise of responsibility not only towards the current but above all towards future generations, so that hope for a better future and confidence in human dignity and capacity for good may never be extinguished.
It might have been a good idea here to explain why an organ of the Church has any competence to give advice on “reforming the international financial and monetary systems in the context of global public authority”. When I wish to read a good examination of the dogma of the Assumption I normally do not turn to bankers, economists or politicians.
Cardinal Peter K.A. Turkson,
Every individual and every community shares in and is responsible for promoting the common good. Faithful to their ethical and religious vocation, communities of believers should take the lead in asking whether human family has adequate means at its disposal to achieve the global common good. The Church for her part is called to encourage in everyone without distinction, the desire to join in the “monumental amount of individual and collective effort” which men have made “throughout the course of the centuries … to better the circumstances of their lives…. [T]his human activity accords with God’s will.”
One would have thought it would have been a good idea to first define “global common good”.
1. Economic Development and Inequalities
The grave economic and financial crisis which the world is going through today springs from multiple causes. Opinions on the number and significance of these causes vary widely. Some commentators emphasize first and foremost certain errors inherent in the economic and financial policies; others stress the structural weaknesses of political, economic and financial institutions; still others say that the causes are ethical breakdowns occurring at all levels of a world economy that is increasingly dominated by utilitarianism and materialism. At every stage of the crisis, one might discover particular technical errors intertwined with certain ethical orientations.
Translation: the world economy is in a big mess, and people are arguing about why.
In material goods markets, natural factors and productive capacity as well as labour in all of its many forms set quantitative limits by determining relationships of costs and prices which, under certain conditions, permit an efficient allocation of available resources.
A nod to Adam Smith and economic reality.
In monetary and financial markets, however, the dynamics are quite different. In recent decades, it was the banks that extended credit, which generated money, which in turn sought a further expansion of credit. In this way, the economic system was driven towards an inflationary spiral that inevitably encountered a limit in the risk that credit institutions could accept. They faced the ultimate danger of bankruptcy, with negative consequences for the entire economic and financial system
This is sort of the Sesame School version of credit. It ignores the role of government regulation in shaping the extension of credit, and loosening the standards historically used, at least in the US, to make loans.
After World War II, national economies made progress, albeit with enormous sacrifices for millions, indeed billions of people who, as producers and entrepreneurs on the one hand and as savers and consumers on the other, had put their confidence in a regular and progressive expansion of money supply and investment in line with opportunities for real growth of the economy.
The period since World War II in the West probably has no parallel in history for the economic prosperity of such a massive percentage of the population.
Since the 1990s, we have seen that money and credit instruments worldwide have grown more rapidly than revenue, even adjusting for current prices. From this came the formation of pockets of excessive liquidity and speculative bubbles which later turned into a series of solvency and confidence crises that have spread and followed one another over the years.
Actually this is not unprecedented. Historically, up until World War II, most economies cycled rather rapidly through periods of boom and bust.
A first crisis took place in the 1970s until the early 1980s and was related to the sudden sharp rises in oil prices. Subsequently, there was a series of crises in the developing world, for example, the first crisis in Mexico in the 1980s and those in Brazil, Russia and Korea, and then again in Mexico in the 1990s as well as in Thailand and Argentina.
All related to government action. The Arab oil embargo and the kleptocratic governments in Mexico, Russia and Argentina for example.
The speculative bubble in real estate and the recent financial crisis have the very same origin in the excessive amount of money and the plethora of financial instruments globally.
Too simplistic. The financial crisis worldwide has many causes, among which the bubble in real estate prices was more a symptom than a cause.
Whereas the crises in the developing countries that risked involving the global monetary and financial system were contained through interventions by the more developed countries, the outbreak of the crisis in 2008 was characterized by a different factor compared with the previous ones, something decisive and explosive. Generated in the context of the United States, it took place in one of the most important zones for the global economy and finances. It directly affected what is still the currency of reference for the great majority of international trade transactions.
A crisis directly exacerbated by wrongheaded government policies around the world, most notably in the US.
A liberalist approach, unsympathetic towards public intervention in the markets, chose to allow an important international financial institution to fall into bankruptcy, on the assumption that this would contain the crisis and its effects. Unfortunately, this spawned a widespread lack of confidence and a sudden change in attitudes. Various public interventions of enormous scope (more than 20% of gross national product) were urgently requested in order to stem the negative effects that could have overwhelmed the entire international financial system.
Very debatable. I think the government interventions have merely stretched out the period of bust rather than to simply allow the failure of even massive corportations, the seizure of their assets by creditors, and the moving on to the next business cycle. Bailing out corporations that do dumb things takes away one of the prime advantages of a free market: players that make dumb mistakes will suffer for it. Freedom to succeed is also freedom to fail.
The consequences for the real economy, what with grave difficulties in some sectors – first of all, construction – and wide distribution of unfavourable forecasts, have generated a negative trend in production and international trade with very serious repercussions for employment as well as other effects that have probably not yet had their full impact. The costs are extremely onerous for millions in the developed countries, but also and above all for billions in the developing ones.
Yep, rewarding stupid decisions does tend to have negative consequences.
In countries and areas where the most elementary goods like health, food and shelter are still lacking, more than a billion people are forced to survive on an average income of less than a dollar a day.
Almost always in countries that have governments which are authoritarian and where nothing like a free market exists.
Global economic well-being, traditionally measured by national income and also by levels of capacities, grew during the second half of the twentieth century, to an extent and with a speed never experienced in the history of humankind.
True. The question of why this was the case could have been profitably discussed here.
But the inequalities within and between various countries have also grown significantly. While some of the more industrialized and developed countries and economic zones – the ones that are most industrialized and developed – have seen their income grow considerably, other countries have in fact been excluded from the overall improvement of the economy and their situation has even worsened.
Usually due to governments that embrace some form of socialism and have produced little but endless poverty in Third World nations.
After the Second Vatican Council in his Encyclical Letter Populorum Progressio of 1967, Paul VI already clearly and prophetically denounced the dangers of an economic development conceived in liberalist terms because of its harmful consequences for world equilibrium and peace. The Pontiff asserted that the defence of life and the promotion of people’s cultural and moral development are the essential conditions for the promotion of authentic development. On these grounds, Paul VI said that full and global development is “the new name of peace”.
Actually it was the old name of boondoggle. Most international aid to developing countries has been wasted and ended up in the pockets of kleptocrats.
Forty years later, in its annual Report of in 2007, the International Monetary Fund recognized the close connection between an inadequately managed process of globalization on the one hand, and the world’s great inequalities on the other. Today the modern means of communication make these great economic, social and cultural inequalities obvious to everyone, rich and poor alike, giving rise to tensions and to massive migratory movements.
The idea that any group can manage globalization is simple hubris. The world is incredibly complex and attempts to manage it, especially on a global scale, tend to be so much sowing of the wind.
Nonetheless, it should be reiterated that the process of globalisation with its positive aspects is at the root of the world economy’s great development in the twentieth century. It is worth recalling that between 1900 and 2000 the world population increased almost fourfold and the wealth produced worldwide grew much more rapidly, resulting in a significant rise of average per capita income. At the same time, however, the distribution of wealth did not become fairer but in many cases worsened.
Technological progress and free markets accounted for most of the gains in income. Where either technological development or free markets are absent, regions lag behind.
What has driven the world in such a problematic direction for its economy and also for peace?
Humanity getting smart for a change as opposed to the past where massive poverty was the norm for almost all of mankind?
First and foremost, an economic liberalism that spurns rules and controls. Economic liberalism is a theoretical system of thought, a form of “economic apriorism” that purports to derive laws for how markets function from theory, these being laws of capitalistic development, while exaggerating certain aspects of markets. An economic system of thought that sets down a priori the laws of market functioning and economic development, without measuring them against reality, runs the risk of becoming an instrument subordinated to the interests of the countries that effectively enjoy a position of economic and financial advantage.
I hereby propose a subscription plan to buy and send copies of Wealth of Nations to each member of the pontifical counsel. They are correct that politicians will always seek to bend the economy to suit their own plans, as Adam Smith well knew. This is not an argument against free markets but against big government.
Regulations and controls, imperfect though they may be, already often exist at the national and regional levels; whereas on the international level, it is hard to apply and consolidate such controls and rules.
Thank God! At least governmental folly is usually restricted to a particular geographic area instead of being global in reach.
The inequalities and distortions of capitalist development are often an expression not only of economic liberalism but also of utilitarian thinking: that is, theoretical and practical approaches according to which what is useful for the individual leads to the good of the community. This saying has a core of truth, but it cannot be ignored that individual utility – even where it is legitimate – does not always favour the common good. In many cases a spirit of solidarity is called for that transcends personal utility for the good of the community.
Once again this cries out for a definition of the common good and an explanation as to why governmental action is necessary, or capable, to build a spirit of solidarity.
In the 1920s, some economists had already warned about giving too much weight, in the absence of regulations and controls, to theories which have since become prevailing ideologies and practices on the international level.
Naming the economists would have been helpful here, and defining what regulations and controls would be considered desirable.
One devastating effect of these ideologies, especially in the last decades of the past century and the first years of the current one, has been the outbreak of the crisis in which the world is still immersed.
Very, very debatable. Ill-considered government policies in many nations, quite a few of them socialist, helped create the current recession/depression.
In his social encyclical, Benedict XVI precisely identified the roots of a crisis that is not only economic and financial but above all moral in nature. In fact, as the Pontiff notes, to function correctly the economy needs ethics; and not just of any kind but one that is people-centred. He goes on to denounce the role played by utilitarianism and individualism and the responsibilities of those who have adopted and promoted them as the parameters for the optimal behaviour of all economic and political agents who operate and interact in the social context. But Benedict XVI also identifies and denounces a new ideology, that of “technocracy”.
The best “people centered economics” is the one that works by allowing the most people to attain economic well-being. I can think of no system that matches capitalism on that score.
2. The Role of Technology and the Ethical Challenge
The great economic and social development of the past century, with their bright spots and serious shadows, can also be attributed in large part to the continued development of technology and more recently to advances in information technologies and especially their applications in the economy and most significantly in finance.
However, to interpret the current new social question lucidly, we must avoid the error – itself a product of neo-liberal thinking – that would consider all the problems that need tackling to be exclusively of a technical nature. In such a guise, they evade the needed discernment and ethical evaluation. In this context Benedict XVI’s encyclical warns about the dangers of the technocracy ideology: that is, of making technology absolute, which “tends to prevent people from recognizing anything that cannot be explained in terms of matter alone” and minimizing the value of the choices made by the concrete human individual who works in the economic-financial system by reducing them to mere technical variables. Being closed to a “beyond” in the sense of something more than technology, not only makes it impossible to find adequate solutions to the problems, but it impoverishes the principal victims of the crisis more and more from the material standpoint.
Strawman alert! I can’t think of anyone, even the late Steve Jobs, who reduces everything to technology.
In the context of the complexity of the phenomena, the importance of the ethical and cultural factors cannot be overlooked or underestimated. In fact, the crisis has revealed behaviours like selfishness, collective greed and the hoarding of goods on a great scale. No one can be content with seeing man live like “a wolf to his fellow man”, according to the concept expounded by Hobbes. No one can in conscience accept the development of some countries to the detriment of others. If no solutions are found to the various forms of injustice, the negative effects that will follow on the social, political and economic level will be destined to create a climate of growing hostility and even violence, and ultimately undermine the very foundations of democratic institutions, even the ones considered most solid.
The hoarding of goods on a great scale? What on earth are they talking about? No modern economic system is based on the hoarding of goods on a great scale. As to selfishness and greed they have been part of the human condition since the Garden of Eden. I am completely skeptical that any form of government or economic system can rid us of these features of Man.
Recognizing the primacy of being over having and of ethics over the economy, the world’s peoples ought to adopt an ethic of solidarity as the animating core of their action. This implies abandoning all forms of petty selfishness and embracing the logic of the global common good which transcends merely contingent, particular interests. In a word, they ought to have a keen sense of belonging to the human family which means sharing the common dignity of all human beings: “Even prior to the logic of a fair exchange of goods and the forms of justice appropriate to it, there exists something which is due to man because he is man, by reason of his lofty dignity.”
BOMFOG! As likely as happening as the corpse of Nelson Rockefeller being elected president. If ecclesiastics are going to write about economics, a dubious undertaking to begin with, they should strive for something better than an admonition that people should simply stop acting as people have acted throughout history.
In 1991, after the failure of Marxist communism, Blessed John Paul II had already warned of the risk of an “idolatry of the market, an idolatry which ignores the existence of goods which by their nature are not and cannot be mere commodities.” Today his warning needs to be heeded without delay and a road must be taken that is in greater harmony with the dignity and transcendent vocation of the person and the human family.
Railings against Mammon are a legitimate part of Catholic teaching. When clerics attempt to give Mammon marching orders is when the trouble usually starts.
3. An Authority over Globalization
On the way to building a more fraternal and just human family and, even before that, a new humanism open to transcendence, Blessed John XXIII’s teaching seems especially timely. In the prophetic Encyclical Pacem in Terris of 1963, he observed that the world was heading towards ever greater unification. He then acknowledged the fact that a correspondence was lacking in the human community between the political organization “on a world level and the objective needs of the universal common good”. He also expressed the hope that one day “a true world political authority” would be created.
Popes were enthusiasts of re-creating the Roman Empire in the West, hence the crowning of Charlemagne in Rome on December 25, 800. Then they spent the next thousand years usually in conflict against the Holy Roman Empire they created. Such secular initiatives by popes have a poor track record overall.
In view of the unification of the world engendered by the complex phenomenon of globalization, and of the importance of guaranteeing, in addition to other collective goods, the good of a free, stable world economic and financial system at the service of the real economy, today the teaching of Pacem in Terris appears to be even more vital and worthy of urgent implementation.
Actually the past 48 years have revealed that the closest thing we have to a global authority, the United Nations, is corrupt and useless where it is not actively harmful.
In the same spirit of Pacem in Terris, Benedict XVI himself expressed the need to create a world political authority. This seems obvious if we consider the fact that the agenda of questions to be dealt with globally is becoming ever longer. Think, for example, of peace and security; disarmament and arms control; promotion and protection of fundamental human rights; management of the economy and development policies; management of the migratory flows and food security, and protection of the environment. In all these areas, the growing interdependence between States and regions of the world becomes more and more obvious as well as the need for answers that are not just sectorial and isolated, but systematic and integrated, rich in solidarity and subsidiarity and geared to the universal common good.
The Pope hedged his call for a world authority with such requirements that it is clear it could never be created in the world we inhabit.
As the Pope reminds us, if this road is not followed, “despite the great progress accomplished in various sectors, international law would risk being conditioned by the balance of power among the strongest nations.”
International law is a fiction that is given reality only when strong nations decide to make it so. In order to have international law that would be obeyed universally, it would have to be backed up by a military strong enough to enforce it over all the nations of the earth.
The purpose of the public authority, as John XXIII recalled in Pacem in Terris, is first and foremost to serve the common good. Therefore, it should be endowed with structures and adequate, effective mechanisms equal to its mission and the expectations placed in it. This is especially true in a globalized world which makes individuals and peoples increasingly interconnected and interdependent, but which also reveals the existence of monetary and financial markets of a predominantly speculative sort that are harmful for the real economy, especially of the weaker countries.
Once again no definition of the common good, and not a clue as to how such an authority would be created and funded.
This is a complex and delicate process. A supranational Authority of this kind should have a realistic structure and be set up gradually. It should be favourable to the existence of efficient and effective monetary and financial systems; that is, free and stable markets overseen by a suitable legal framework, well-functioning in support of sustainable development and social progress of all, and inspired by the values of charity and truth. It is a matter of an Authority with a global reach that cannot be imposed by force, coercion or violence, but should be the outcome of a free and shared agreement and a reflection of the permanent and historic needs of the world common good. It ought to arise from a process of progressive maturation of consciences and freedoms as well as the awareness of growing responsibilities. Consequently, reciprocal trust, autonomy and participation cannot be overlooked as if they were superfluous elements. The consent should involve an ever greater number of countries that adhere with conviction, through a sincere dialogue that values the minority opinions rather than marginalizing them. So the world Authority should consistently involve all peoples in a collaboration in which they are called to contribute, bringing to it the heritage of their virtues and their civilizations.
Once again, BOMFOG! The requirement that this authority be set up through agreement and not through coercion makes this proposal harmless. It simply will not happen based upon what we know about humanity through a study of the history of our race.
The establishment of a world political Authority should be preceded by a preliminary phase of consultation from which a legitimated institution will emerge that is in a position to be an effective guide and, at the same time, can allow each country to express and pursue its own particular good. The exercise of this Authority at the service of the good of each and every one will necessarily be super partes (impartial): that is, above any partial vision or particular good, in view of achieving the common good. Its decisions should not be the result of the more developed countries’ excessive power over the weaker countries. Instead, they should be made in the interest of all, not only to the advantage of some groups, whether they are formed by private lobbies or national governments.
Further indications of why this proposal will never get beyond com box analysis on Catholic blogs.
A supranational Institution, the expression of a “community of nations”, will not last long, however, if the countries’ diversities from the standpoint of cultures, material and immaterial resources and historic and geographic conditions, are not recognized and fully respected. The lack of a convinced consensus, nourished by an unceasing moral communion on the part of the world community, would also reduce the effectiveness of such an Authority.
BOMFOG on stilts! Compare and contrast this with real blueprints of lasting governments like the US Constitution. This sounds like some of the more delirious Star Trek episodes with paeans to the Federation.
What is valid on the national level is also valid on the global level. A person is not made to serve authority unconditionally. Rather, it is the task of authority to be at the service of the person, consistent with the pre-eminent value of human dignity. Likewise, governments should not serve the world Authority unconditionally. Instead, it is the world Authority that should put itself at the service of the various member countries, according to the principle of subsidiarity. Among the ways it should do this is by creating the socio-economic, political and legal conditions essential for the existence of markets that are efficient and efficacious because they are not over-protected by paternalistic national policies and not weakened by systematic deficits in public finances and of the gross national products – indeed, such policies and deficits actually hamper the markets themselves in operating in a world context as open and competitive institutions.
As best as I can interpret this passage, it seems to say that this global authority will create markets that are efficient and efficacious by some magical means that completely escapes me.
In the tradition of the Church’s Magisterium which Benedict XVI has vigorously embraced, the principle of subsidiarity should regulate relations between the State and local communities and between public and private institutions, not excluding the monetary and financial institutions. So, on a higher level, it ought to govern the relations between a possible future global public Authority and regional and national institutions. This principle guarantees both democratic legitimacy and the efficacy of the decisions of those called to make them. It allows respect for the freedom of people, individually and in communities, and at the same time, allows them to take responsibility for the objectives and duties that pertain to them.
We have this thing in America called elections under a Constitution. God only knows what role they would play when a global public Authority is tossed into the mix, but I doubt if the result would be acceptable at all to a majority of Americans, considering the lack of popularity for the neutered United Nations in this country.
According to the logic of subsidiarity, the higher Authority offers its subsidium, that is, its aid, only when individual, social or financial actors are intrinsically deficient in capacity, or cannot manage by themselves to do what is required of them. Thanks to the principle of solidarity, a lasting and fruitful relation is built up between global civil society and a world public Authority as States, intermediate bodies, various institutions – including economic and financial ones – and citizens make their decisions with a view to the global common good, which transcends national goods.
And then the unicorns do a pretty dance. I am sorry but it is truly difficult to take any of this waste of paper very seriously when it is loaded with “let’s pretend” paragraphs like the above.
As we read in Caritas in Veritate, “The governance of globalization must be marked by subsidiarity, articulated into several layers and involving different levels that can work together.” Only in this way can the danger of a central Authority’s bureaucratic isolation be avoided, which would otherwise risk being delegitimized by an excessive distance from the realities on which it is based and easily fall prey to paternalistic, technocratic or hegemonic temptations.
However, a long road still needs to be travelled before arriving at the creation of a public Authority with universal jurisdiction. It would seem logical for the reform process to proceed with the United Nations as its reference because of the worldwide scope of its responsibilities, its ability to bring together the nations of the world, and the diversity of its tasks and those of its specialized Agencies. The fruit of such reforms ought to be a greater ability to adopt policies and choices that are binding because they are aimed at achieving the common good on the local, regional and world levels. Among the policies, those regarding global social justice seem most urgent: financial and monetary policies that will not damage the weakest countries; and policies aimed at achieving free and stable markets and a fair distribution of world wealth, which may also derive from unprecedented forms of global fiscal solidarity, which will be dealt with later.
Using the United Nations as a starting point dooms this from the start.
On the way to creating a world political Authority, questions of governance (that is, a system of merely horizontal coordination without an authority super partes cannot be separated from those of a shared government (that is, a system which in addition to horizontal coordination establishes an authority super partes) which is functional and proportionate to the gradual development of a global political society. The establishment of a global political Authority cannot be achieved without an already functioning multilateralism, not only on a diplomatic level, but also and above all in relation to programs for sustainable development and peace. It is not possible to arrive at global Government without giving political expression to pre-existing forms of interdependence and cooperation.
Not a clue as to how this global political authority would work in practice.
4. Towards Reforming the International Financial and Monetary Systems in a way that Responds to the Needs of all Peoples
In economic and financial matters, the most significant difficulties come from the lack of an effective set of structures that can guarantee, in addition to a system of governance, a system of government for the economy and international finance.
What can be said about this prospect? What steps can be taken concretely?
We await the answers with bated breath!
With regard to the current global economic and financial systems, two decisive factors should be stressed. The first is the gradual decline in efficacy of the Bretton Woods institutions beginning in the early 1970s. In particular, the International Monetary Fund has lost an essential element for stabilizing world finance, that of regulating the overall money supply and vigilance over the amount of credit risk taken on by the system. To sum it up, stabilizing the world monetary system is no longer a “universal public good” within its reach.
The IMF was never intended to play such a role, and it has not played such a role.
The second factor is the need for a minimum, shared body of rules to manage the global financial market which has grown much more rapidly than the real economy. This situation of rapid, uneven growth has come about, on the one hand, because of the overall abrogation of controls on capital movements and the tendency to deregulate banking and financial activities; and on the other, because of advances in financial technology, due largely to information technology.
What rules? Satan is usually in the details.
On the structural level, in the latter part of the last century, monetary and financial activities worldwide grew much more rapidly than the production of goods and services. In this context, the quality of credit tended to decrease to the point that it exposed the credit institutions to more risk than was reasonably sustainable. It is sufficient to look at the fate of large and small credit institutions during the crises that broke out in the 1980s and 1990s, and finally in the 2008 crisis.
Production of goods and services lagging behind credit has little to do with the current crisis. Overproduction would be more apt, although still only a small part of the crisis.
Again in the last part of the twentieth century, there was a growing tendency to define the strategic directions of economic and financial policy in terms of ‘clubs’ and of larger or smaller groups of more developed countries. While not denying the positive aspects of this approach, it is impossible to overlook that it did not appear to respect the representative principle fully, in particular of the less developed or emerging countries.
Wealthier countries are not going to allow poorer nations to have an equal seat at any table with real power over the international economy, not to say that the wealthier countries themselves have not made many bone-headed decisions.
The need to heed the voices of a greater number of countries has led to expanding the relevant groups; for instance, there is now a G20 where there was once just a G7. This has been a positive development because it became possible to include developing and emerging countries with larger populations in shaping the economy and global finance.
In the area of the G20, concrete tendencies can thus mature which, when worked out properly in the appropriate technical centres, will be able to guide the competent bodies on the national and regional level towards consolidating existing institutions and creating new ones with appropriate and effective instruments on the international level.
I have as little faith in the G20 as I do the United Nations.
Moreover, the G20 leaders themselves said in their final Statement in Pittsburgh 2009: “The economic crisis demonstrates the importance of ushering in a new era of sustainable global economic activity grounded in responsibility”. To tackle the crisis and open up a new era “of responsibility”, in addition to technical and short-term measures, the leaders put forth the proposal “to reform the global architecture to meet the needs of the 21st century,” and later the proposal “to launch a framework that lays out the policies and the way we act together to generate strong, sustainable and balanced global growth”.
Therefore, a process of reflection and reforms needs to be launched that will explore creative and realistic avenues for taking advantage of the positive aspects of already existing forums.
Yep the G20 leaders are politicians who have mastered BOMFOG and can engage in empty verbiage with the most skilled Vatican bureaucrat!
Specific attention should be paid to the reform of the international monetary system and, in particular, the commitment to create some form of global monetary management, something that is already implicit in the Statutes of the International Monetary Fund. It is obvious that to some extent this is equivalent to putting the existing exchange systems up for discussion in order to find effective means of coordination and supervision. This process must also involve the emerging and developing countries in defining the stages of a gradual adaptation of the existing instruments.
Considering that the Euro is in a state of near collapse, I think this is a bad idea whose time is past.
In fact, one can see an emerging requirement for a body that will carry out the functions of a kind of “central world bank” that regulates the flow and system of monetary exchanges similar to the national central banks. The underlying logic of peace, coordination and common vision which led to the Bretton Woods Agreements needs to be dusted off in order to provide adequate answers to the current questions. On the regional level, this process could begin by strengthening the existing institutions, such as the European Central Bank. However, this would require not only a reflection on the economic and financial level, but also and first of all on the political level, so as to create the set of public institutions that will guarantee the unity and consistency of the common decisions.
I can never imagine the setting up of an International Fed. God knows who would fund this: the Chinese? Gringotts?
These measures ought to be conceived of as some of the first steps in view of a public Authority with universal jurisdiction; as a first stage in a longer effort by the global community to steer its institutions towards achieving the common good. Other stages will have to follow in which the dynamics familiar to us may become more marked, but they may also be accompanied by changes which would be useless to try to predict today.
World government here we come! I very much doubt it.
In this process, the primacy of the spiritual and of ethics needs to be restored and, with them, the primacy of politics – which is responsible for the common good – over the economy and finance. These latter need to be brought back within the boundaries of their real vocation and function, including their social function, in consideration of their obvious responsibilities to society, in order to nourish markets and financial institutions which are really at the service of the person, which are capable of responding to the needs of the common good and universal brotherhood, and which transcend all forms of economist stagnation and performative mercantilism.
Business men and women can be ethically challenged, as I have learned in my legal practice. However, they are often paragons of virtue compared to politicians I have come into contact with. Placing expert thieves in charge of amateur thieves strikes me as usually being a bad idea.
On the basis of this sort of ethical approach, it seems advisable to reflect, for example, on:
a) taxation measures on financial transactions through fair but modulated rates with charges proportionate to the complexity of the operations, especially those made on the “secondary” market. Such taxation would be very useful in promoting global development and sustainability according to the principles of social justice and solidarity. It could also contribute to the creation of a world reserve fund to support the economies of the countries hit by crisis as well as the recovery of their monetary and financial system;
I think this needs to be put to a vote in Congress. It would do us all good to see Congress united on something! The complete unreality of this proposal can be taken as a WAD and not a bug of this entire paper.
b) forms of recapitalization of banks with public funds making the support conditional on “virtuous” behaviours aimed at developing the “real economy”;
The opportunity of graft this would give to politicians around the globe might make this proposal popular among the political class.
c) the definition of the domains of ordinary credit and of Investment Banking. This distinction would allow a more effective management of the “shadow markets” which have no controls and limits.
Your guess is as good as mine as to how that would be enforced, let alone how one distinguishes between ordinary credit and investment banking.
It is sensible and realistic to allow the necessary time to build up broad consensuses, but the goal of the universal common good with its inescapable demands is waiting on the horizon. Moreover, it is hoped that those in universities and other institutions who educate tomorrow’s leadership will work hard to prepare them for their responsibilities to discern the global public good and serve it in a constantly changing world. The gap between ethical training and technical preparation needs to be filled by highlighting in a particular way the inescapable synergy between the two levels of practical doing (praxis) and of boundless human striving (poièsis).
I doubt if even the universities today which specialize in political indoctrination can sell this dog’s breakfast.
The same effort is required from all those who are in a position to enlighten world public opinion in order to help it to brave this new world, no longer with anxiety but in hope and solidarity.
We at The American Catholic will do our small part to enlighten public opinion!
Under the current uncertainties, in a society capable of mobilizing immense means but whose cultural and moral reflection is still inadequate with regard to their use in achieving the appropriate ends, we are invited to not give in and to build above all a meaningful future for the generations to come. We should not be afraid to propose new ideas, even if they might destabilize pre-existing balances of power that prevail over the weakest. They are a seed thrown to the ground that will sprout and hurry towards bearing fruit.
There are no new ideas contained herein. It seems like a throwback to the World Federalism movement of the forties of the last century. In its essentials this is a deeply reactionary document.
As Benedict XVI exhorts us, agents on all levels – social, political, economic, professional – are urgently needed who have the courage to serve and to promote the common good through an upright life. Only they will succeed in living and seeing beyond the appearances of things and perceiving the gap between existing reality and untried possibilities.
Something I finally agree with.
Paul VI emphasized the revolutionary power of “forward-looking imagination” that can perceive the possibilities inscribed in the present and guide people towards a new future. By freeing his imagination, man frees his existence. Through an effort of community imagination, it is possible to transform not only institutions but also lifestyles and encourage a better future for all peoples.
Once again, there is nothing forward-looking in this homage to bad ideas of the past.
Modern States became structured wholes over time and reinforced sovereignty within their own territory. But social, cultural and political conditions have gradually changed. Their interdependence has grown – so it has become natural to think of an international community that is integrated and increasingly ruled by a shared system – but a worse form of nationalism has lingered on, according to which the State feels it can achieve the good of its own citizens in a self-sufficient way.
The only things above national governments in human history have been empires. Parts of this proposal remind me of Dante vainly longing for an idealized rebirth of the Roman Empire. Such dreams are as dead as Julius Caesar.
Today all of this seems anachronistic and surreal, and all the nations, great or small, together with their governments, are called to go beyond the “state of nature” which would keep States in a never-ending struggle with one another. Globalization, despite some of its negative aspects, is unifying peoples more and prompting them to move towards a new “rule of law” on the supranational level, supported by a more intense and fruitful collaboration. With dynamics similar to those that put an end in the past to the “anarchical” struggle between rival clans and kingdoms with regard to the creation of national states, today humanity needs to be committed to the transition from a situation of archaic struggles between national entities, to a new model of a more cohesive, polyarchic international society that respects every people’s identity within the multifaceted riches of a single humanity. Such a passage, which is already timidly under way, would ensure the citizens of all countries – regardless of their size or power – peace and security, development, and free, stable and transparent markets. As John Paul II warns us, “Just as the time has finally come when in individual States a system of private vendetta and reprisal has given way to the rule of law, so too a similar step forward is now urgently needed in the international community.”
Global Federalism. How people can embrace this belief is beyond me, and the idea that such a global government could be realized except after immense violence is also beyond me. The League of Nations was given birth by World War I, just as World War II created the United Nations. Only an international bloodletting worthy of the book of Revelation would ever establish a world government, and I doubt if it would bear any relationship to the hopes contained in this document.
Time has come to conceive of institutions with universal competence, now that vital goods shared by the entire human family are at stake, goods which the individual States cannot promote and protect by themselves.
Conceiving of such institutions is not the difficulty.
So conditions exist for definitively going beyond a ‘Westphalian’ international order in which the States feel the need for cooperation but do not seize the opportunity to integrate their respective sovereignties for the common good of peoples.
It is the task of today’s generation to recognize and consciously to accept these new world dynamics for the achievement of a universal common good. Of course, this transformation will be made at the cost of a gradual, balanced transfer of a part of each nation’s powers to a world Authority and to regional Authorities, but this is necessary at a time when the dynamism of human society and the economy and the progress of technology are transcending borders, which are in fact already very eroded in a globalized world.
Americans are not enamored of being governed from Washington. I am sure they would be ecstatic at being ruled from Zurich or Peking.
The birth of a new society and the building of new institutions with a universal vocation and competence are a prerogative and a duty for everyone, with no distinction. What is at stake is the common good of humanity and the future itself.
What an apocalyptic note to be ending on.
In this context, for every Christian there is a special call of the Spirit to become committed decisively and generously so that the many dynamics under way will be channelled towards prospects of fraternity and the common good. An immense amount of work is to be done towards the integral development of peoples and of every person. As the Fathers said at the Second Vatican Council, this is a mission that is both social and spiritual, which “ to the extent that the former can contribute to the better ordering of human society, it is of vital concern to the Kingdom of God.”
A confusion of religion and politics, which is almost always a very bad idea.
In a world on its way to rapid globalization, the reference to a world Authority becomes the only horizon compatible with the new realities of our time and the needs of humankind. However, it should not be forgotten that this development, given wounded human nature, will not come about without anguish and suffering.
You can bet on that!
Through the account of the Tower of Babel (Genesis 11:1-9), the Bible warns us how the “diversity” of peoples can turn into a vehicle for selfishness and an instrument of division. In humanity there is a real risk that peoples will end up not understanding each other and that cultural diversities will lead to irremediable oppositions. The image of the Tower of Babel also warns us that we must avoid a “unity” that is only apparent, where selfishness and divisions endure because the foundations of the society are not stable. In both cases, Babel is the image of what peoples and individuals can become when they do not recognize their intrinsic transcendent dignity and brotherhood.
The spirit of Babel is the antithesis of the Spirit of Pentecost (Acts 2:1-12), of God’s design for the whole of humanity: that is, unity in truth. Only a spirit of concord that rises above divisions and conflicts will allow humanity to be authentically one family and to conceive of a new world with the creation of a world public Authority at the service of the common good.
What a truly odd way to end. The Tower of Babel is actually a warning against human hubris with God confusing the tongues of those who thought to build a ziggurat reaching to Heaven. Jospehus supplies this gloss:
Now it was Nimrod who excited them to such an affront and contempt of God. He was the grandson of Ham, the son of Noah, a bold man, and of great strength of hand. He persuaded them not to ascribe it to God, as if it was through his means they were happy, but to believe that it was their own courage which procured that happiness. He also gradually changed the government into tyranny, seeing no other way of turning men from the fear of God, but to bring them into a constant dependence on his power.
Hmmm, after reading Josephus perhaps the Tower of Babel is a fitting ending for this document longing for a global political Authority to lead Man into a Golden Age.