China resurrects forsaken Catholic ideology in economic policy

By Randall Morck and Bernard Yeung  / 

Tue, Feb 26, 2013 - Page 9

As the 20th century neared, former Pope Leo XIII, grieving for humanity’s choice between atheistic socialism and venal liberalism, commissioned Catholic intellectuals to devise a better solution. Named “corporatism” and set forth in the 1891 encyclical Rerum Novarum, Leo’s interwar successor, Pope Pius XI, recounted that it “laid down for all mankind the surest rules to solve aright that difficult problem of human relations called ‘the social question.’”

Corporatism (which should be distinguished from the tripartite bargaining structures that emerged in many countries in the 1970s under the name “neocorporatism”) became the most influential, ethically motivated intervention into economics in modern history. The Catholic social doctrine until the late 20th century, corporatism still shapes constitutions, laws and attitudes throughout the world. It can be distilled into four tenets:

‧ Equality is a cruel illusion: People are happiest if rightly placed in a hierarchy legitimized by Catholic teachings.

‧ Competition is spiritually demeaning. Associations — committees of Catholic business owners, labor leaders and officials — must set quotas, prices and wages within vertically connected swathes of the economy called corporations. A typical corporatist economy may contain 30 or so corporations — foods, heavy industry, textiles, chemicals — each encompassing raw materials, production, distribution and retailing firms. International trade and new firms are undesirable because they undermine associations’ power.

‧ Private property is legitimatized by owners’ obedience to the Catholic Church and association, but delegitimized by competition.

‧ The principle of subsidiarity devolves authority unneeded at higher levels to the lowest feasible level in the hierarchy.

Former Italian leader Benito Mussolini established the first corporatist economy, albeit substituting “fascist” for “Catholic” throughout. State holding companies controlled key listed firms directly and associations controlled the rest, reconciling totalitarianism with nominally private ownership.

Italy, its foreign trade peremptorily suppressed, escaped the trade wars of the Great Depression.

In 1931, Pius XI took credit, saying: “Anyone who gives even slight attention to the matter will easily see … the obvious advantages in the system … The various classes work together peacefully; socialist organizations and their activities are repressed.”

He added that Leo XIII’s “Catholic principles on the social question have … passed little by little into the patrimony of all human society … not only in non-Catholic books and journals, but also in legislative halls and courts of justice.”

Corporatism spread to country after country. In 1932, it was embraced by clerico-fascist Austria, under former Austrian chancellor Engelbert Dollfuss. Falangist Spain under former Spanish leader Francisco Franco and Portugal under former prime minister Antonio de Oliveira Salazar followed. Interwar Poland, Greece, Albania, Bulgaria, Estonia, Latvia and Lithuania also adopted forms of corporatism. So did Adolf Hitler’s Germany, though in a greatly modified form.

Vichy France embraced Catholic corporatism, as did German protectorates over Belgium and the Czech lands, as well as nominally independent Slovakia under former Slovakian president Jozef Tiso.

By the 1960s, most Latin American countries were avowedly corporatist dictatorships, while Lebanon’s Falangist Party gave voice to its Maronite Catholics.

Corporatism spread beyond Christendom to Turkey under former Turkish president Mustafa Kemal Ataturk and, using aliases to hide its Catholic provenance, to other Arab countries. Elite Catholic schools taught corporatism to independence leaders in French, Spanish and Portuguese colonies.

The prominence of corporatism in Catholic education is remarkable. In their book Young Trudeau, Max Nemni, Monique Nemni and William Johnson quote from former Canadian prime minister Pierre Trudeau’s 1930s notes on corporatism from a class at the elite Jesuit academy where he studied: “The democratic principle has contributed to the undermining of civilization by impeding the development of the elite.”

“Liberalism leads to excesses: to unemployment, anarchy. The ideal is corporatism, which does not separate people into parties, but unites their interests,” Trudeau wrote.

Today, Catholic and Islamic countries, as well as former French, Spanish and Portuguese colonies — all of which tend to have corporatist institutional residues — also correlate with depressed living standards. That is not surprising: corporatist institutions plausibly retard development. Sanctified hierarchies stifle initiative.

Pius XI thought that “the leadership and teaching guidance of the Church … in this field also precluded abuse of authority.”

It seems to have evaded him that unchecked power might be more spiritually demeaning than competition. Corporatist subsidiarity lets the top of the hierarchy determine its own powers, while banishing competition and lauding private property generates inequality and inefficiency simultaneously.

As these failings grew manifest, the Church backpedaled in the 1960s and former Pope John Paul II finally repudiated corporatism. Today, few Catholics even know about the doctrine.

However, interwar corporatism has been resurrected. Forsaking socialism, China did not adopt capitalism, but kept the Chinese Communist Party atop a self-legitimized hierarchy.

True, China’s central planners no longer set wages, prices, interest rates and quotas, but party cadres, not market forces, control the economy’s commanding heights. Industry ministries oversee vertical swathes of firms. State-controlled banks allocate capital. State-owned enterprises, or their subsidiaries, dominate key markets, as in interwar Italy. A subsidiarity principle even grants senior cadres discretion in delegating powers to underlings. How odd of former Chinese leader Mao Zedong’s (毛澤東) heirs, however accidentally, to resurrect this forsaken Catholic ideology.

China’s rapid growth has rescued multitudes from abject poverty and quasi-corporatist arrangements are clearly better than Mao’s Great Leap Forward and the Cultural Revolution. However, that is faint praise. Corporatism elsewhere begat vast inequalities, corruption and dictatorships that eventually proved unsustainable.

The saga of corporatism cautions economists against dismissing ethical concerns about markets. However, it also warns theologians that economics contains real truths, however unattractive. Finally, it counsels Chinese technocrats against dogma-driven economic policies.

Randall Morck is a professor and Jarislowsky chair at the Alberta School of Business. Bernard Yeung is dean and professor at the National University of Singapore Business School.

Copyright: Project Syndicate/Institute for Human Sciences