Saturday morning I spoke at Villanova University School of Law’s symposium on Catholic Social Thought and Law. My panel was entitled “The Corporation through the Lens of Catholic Social Thought.” My remarks focused on the need to preserve the economic liberty of corporate actors as a means of preserving the freedom of the men and women who make up the corporation.
If a concern for human freedom is not at the center of Catholic social teaching, human freedom is at least very near it. As the current Pope has observed, “the good of the individual [cannot] be realized without reference to his free choice, to the unique and exclusive responsibility which he exercises in the face of good or evil.” (Centesimus Annus, 13) Hence, Catholic social thought purports to reject socialism or other forms of command economies.
At the same time, however, Catholic social teaching scarcely can be described as rabidly pro-capitalism. John Paul, for example, describes corporate profits as a mere “indicator that a business is functioning well.” (Centesimus Annus, 43) As the Catechism explains, moreover: “Those responsible for business enterprises are responsible to society for the economic and ecological effects of their operations. They have an obligation to consider the good of persons and not only the increase of profits.” (Catechism, 2432)
Contrast that conception of the corporation’s profit-making function with the Michigan supreme court’s famous command in Dodge v. Ford Motor Co., 170 N.W. 668 (Mich. 1919), that: “A business corporation is organized and carried on primarily for the profit of the stockholders. The powers of the directors are to be employed for that end.” (684) Or, as Milton Friedman (1970) even more famously put it, “the social responsibility of business is to increase its profits.”
How then do those us who are vocationally concerned with the governance of U.S. corporations reconcile the laws of Man and God? At the outset, it is critical to remember that the Church especially encourages lay initiative “when the matter involves discovering or inventing the means for permeating social, political, and economic realities with the demands of Christian doctrine and life.” (Catechism, 899) Indeed, at least insofar as prudential judgments are concerned, John Paul has emphasized that the “church has no models to present.” (Centesimus Annus, 43) In pondering the implications of Catholic social teaching for corporate governance, I therefore think it especially appropriate to draw not only on the primary documents but also on certain lay thinkers. Hence, my interest in this project.
I begin with Michael Novak, the preeminent Catholic neoconservative. Novak, of course, has sometimes been a harsh critic of the Church’s prudential pronouncements on the economy. In Toward a Theology of the Corporation (1990), for example, Novak asserted that Christian theologians tend to be poorly trained in economics and inexperienced with the business world: They “are likely to inherit either a pre-capitalist or a frankly socialist set of ideals about political economy.” (59) Consequently, theologians “are more likely to err in this territory than in most others.” (12)
A persistent error “in this territory” is the tendency towards what Milton Friedman (1987) called “the collectivist moral strain” in Catholic social thought. Indeed, it is fair to assert that some documents in the social teaching more closely resemble “the platforms of European social democratic parties” than Biblical exegesis. (Benne, 1987, at 79) Even some of John Paul’s encyclicals have a statist flavor. In Laborem Exercens, for example, his sharp criticism of Marxism is strikingly offset by the statement that “one cannot exclude the socialization, in suitable circumstances, of certain means of production.” (14)
Importantly, however, Novak’s critiques are widely acknowledged as having substantially influenced the current Pope’s encyclicals on the economy. Hence, for example, some Catholic intellectuals contend that Centesimus Annus calls into question “the controlling assumptions” of the U.S. Bishops’ controversial pastoral letter on economic justice and even that the encyclical allows us to reject the pastoral letter “as unrepresentative of the Church’s authoritative teaching.” (Neuhaus, 1992, at 124)
One of the core ideas in Novak’s work is the claim that corporations function as intermediating institutions that (a) develop citizens holding a shared set of values – virtue, trust, responsibility, and the like – and (b) stand between the individual and the state. Candidly, the former claim deserves some skepticism. When we think of how virtue and other communal values are inculcated, don’t we tend to think of entities like churches, schools, and fraternal organizations? Most of us probably find it highly unrealistic to think of a large multinational corporation as constituting such a community. Indeed, “Communitarian models of the corporation … strain credulity past the breaking point.” (Bainbridge, 2002)
To his credit, Novak does not press the point too far. Instead, he argues that such a corporation harbors within it sub-groups that evolve into communities of shared values, observing: “Some persons today are closer to their colleagues in the workplace than to their family.” (Novak, 1990, at 29)
If so, these communities – and the corporations that harbor them – must be protected from the Leviathan state. The core Catholic principle of subsidiarity derives from the Church’s understanding that Leviathan and community are incompatible. “Communities … cannot be created from without; they must be built from within.” But they easily “can be destroyed from without.” (Epstein, 1995 at 324) Subsidiarity thus teaches that to “empower higher authorities as anything but second-best solutions or even last resorts endangers the rights and liberties of those who are most affected.” (Sirico, 1997) Put another way, subsidiarity logically implies that subordination of economic institutions to the state poses a grave threat to both communal and personal liberty.
Assume, however, that neither the corporation nor any sub-groups it harbors have the power to inculcate virtue and community. Even so, it remains perfectly plausible to think of the corporation as an intermediary institution standing between the individual and Leviathan. In other words, even if virtuous citizens are developed solely by smaller institutions with roots in the local community, the corporation still can act as a vital counterweight against the state – an alternative island of power within society.
Novak argues the corporation has proven to be a powerful engine for focusing the efforts of individuals to maintain the requisite sphere of economic liberty. (Novak, 1990) Those whose livelihood depends on corporate enterprise cannot be neutral about political systems. Only democratic capitalist societies permit voluntary formation of private corporations and allot them a sphere of economic liberty within which to function, which gives those who value such enterprises a powerful incentive to resist both statism and socialism. Because tyranny is far more likely to come from the public sector than the private, those who for selfish reasons strive to maintain both a democratic capitalist society and, of particular relevance to the present argument, a substantial sphere of economic liberty therein serve the public interest. Or, as Novak put it, private property and freedom of contract were “indispensable if private business corporations were to come into existence.” In turn, the corporation gives “liberty economic substance over and against the state.” (45)
Yet, perhaps not all corporations are created equally. Here, I turn from Novak to another American Catholic intellectual – Russell Kirk. Kirk was no great fan of modern corporations. He once wrote: “All my life I have known the city of Detroit …. In the shocking decay of that great city nowadays, we behold the consequences of an inhumane economy-bent upon maximum productive efficiency, but heedless of personal order and public order.” Kirk laid the blame for that decay squarely at the feet of Henry Ford and his fellow corporate giants: “Indeed, they seem still to be ignorant of such unhappy consequences,” he wrote, “or else indifferent to the consequences, so long as profits continue to be made.”
How can we reconcile Kirk and Novak? The task is fraught with difficulties, not least because Kirk had some very nasty things to say about neoconservatives like Novak. Yet, Kirk himself demonstrated a remarkable ability “consistently to favor free markets, private property, competition, and at the same time to champion virtue” (Campbell, 1994, 69), a view arguably not too different from the direction taken by our present Pope.
Hence, the argument here is not one for the libertarian’s night watchman state. As Edmund Burke observed, albeit in a rather different context, there is “a limit at which forbearance ceases to be a virtue.” At that limit, the state properly steps in. The prudential question is when forbearance becomes a vice. While it may be true that the state must provide a coercive backstop, remember that a good backstop leaves the catcher lots of room within to work – and even allows for the odd wild pitch or two.
Unfortunately, we have seen a lot of wild pitches lately. Indeed, to speak of virtue and corporations in the same breath seems hopelessly naïve these days. Consider the high profile corporate scandals of recent years. Not since the Levine-Boesky-Milken insider trading scandal in the mid-1980s, have so many leading corporate figure taken the “perp walk” as have those implicated in the recent wave of corporate governance scandals. Anyone with more than a passing familiarity with the business news of the new millennium can rattle off the relevant names: Enron, WorldCom, ImClone, Adelphia, Tyco, and so on.
How did this happen? Here, I turn to the late Christopher Lasch. In The Revolt of the Elites, Lasch observed of the modern professional elites – from whom most corporate directors and managers are drawn – that their “attitude to religion ranges from indifference to active hostility.” Rather than faith, “[a] skeptical, iconoclastic state of mind is one of the distinguishing characteristics of the knowledge classes.” (215)
The problem is that true virtue is an adaptive response to the instinctive human recognition of (and need for) a transcendent moral order codified in a body of natural law. People are most likely to act virtuously when they believe in an external power, higher and more permanent than the state, who is aware of their shortcomings and will punish them in the next life even if they escape retribution in this life.
Hence, economic actors do not function in a vacuum. To the contrary, modern corporate capitalism necessarily rests on a moral foundation. Morality's primary purpose, said Kirk, is "to order the soul and to order the human community, not to produce wealth.” As faith eroded among our corporate elites, however, the capitalists of our day lost this essential moral foundation. And with it, the instinct for honor that virtue inculcates.
Here then is a role for the institutional church in setting right both the state and the modern corporation. In response to the scandals of the day, civil society has relied on a system of principle-based ethics. Principle ethics, of course, always relies on rules to solve ethical problems. In a principle-dominated ethical system, the moral life thus consists mainly of complying with society’s mandated code of conduct. Hence, for example, the adoption of Sarbanes-Oxley section 307 as a solution (so-called) to the scandals I have mentioned.
Principle ethics pose a double threat to ordered liberty: principle ethics displace not just private ordering of economic relationships, but also personal virtue. In principle-based ethical systems, individuals are not allowed to define for themselves what constitutes trustworthy or honorable behavior, but instead must comply with some judge’s or some bureaucrat’s definition of honor. Yet, I put it to you that none of the thinkers to whom I have referred – Novak, Kirk, or Lasch – would believe that the state can make people virtuous. Nor, do I believe, does the Church.
Instead, I understand Catholic social teaching to espouse a system of virtue ethics. The primacy of virtue ethics in the Church’s moral teachings is illustrated by its great tradition of natural law. Natural law, of course, is a way of thinking about how things ought to be, using rational arguments about how people ought to behave. As suggested by the standard of natural lawmaking that John Finnis calls “the test of practical reasonableness,” the Church properly is concerned less with rigid codes of conduct that with promoting sound context-based judgment. It trains us to a moral life emphasizing the habitual private exercise of truthfulness, courage, justice, mercy, and the other virtues.
The Church’s response to crises of corporate governance therefore should not be support for the statism of principle ethics. The nanny state is a poor substitute, at best, for the virtue inculcating power of faith and voluntary community. We may fear the faceless bureaucrat, but he does not inspire us to virtue. Conduct that rises above the lowest common moral denominator thus cannot be created by state action. But while the state cannot make its citizens virtuous, it can destroy the intermediary institutions that do inculcate virtue. Instead, the Church should concern itself with re-establishing virtue ethics in the public square. Like the social justice Prophets of the Old Testament, the Church must call our professional elites back to what Lincoln called the angels of their better nature.
And so we come back to the beginning. As I noted at the outset, human dignity and freedom are central principles of Catholic social thought. John Paul unabashedly affirms “the transcendent dignity of the human person who, as the visible image of the invisible God, is therefore by his very nature the subject of rights which no one may violate....” (Centesimus Annus, 44.1) I have argued herein that preserving the economic freedom of corporations to pursue wealth is an essential part of effective means for achieving human freedom. To the extent prudential judgments are required, the Church and the laity should strive the duplicate Russell Kirk’s nuanced balancing of freedom and virtue.
References
Stephen M. Bainbridge, The Bishops and the Corporate Stakeholder Debate, 4 Villanova J. L. & Inv. Mgmt 3 (2002).
Robert Benne, The Bishops’ Letter—A Protestant Reading, in The Catholic Challenge to the American Economy 76 (Thomas M. Gannon ed. 1987).
William F. Campbell, An Economist’s Tribute to Russell Kirk, Intercollegiate Rev., Fall 1994, at 68.
Richard A. Epstein, Simple Rules for a Complex World (1995).
Milton Friedman, Good Ends, Bad Means, in The Catholic Challenge to the American Economy 99 (Thomas M. Gannon ed. 1987).
Milton Friedman, The Social Responsibility of Business is to Increase its Profits, N.Y. Times Magazine, Sept. 13, 1970, at 32.
John Paul II, Centesimus Annus, reprinted in Proclaiming Justice & Peace: Papal Documents from Rerum Novarum through Centesimus Annus 432 (Michael Walsh & Brian Davies eds. 1991).
Christopher Lasch, The Revolt of the Elites and the Betrayal of Democracy (1995).
Richard John Neuhaus, An Argument About Human Nature, in A New Worldly Order: John Paul II and Human Freedom 123 (George Weigel ed. 1992).
Michael Novak, Toward a Theology of the Corporation (rev. ed.1990).
Robert A. Sirico, Subsidiarity, Society, and Entitlements: Understanding and Application, 11 Notre Dame J. L. Ethics & Pub Pol’y 549 (1997).
United States Catholic Conference, Catechism of the Catholic Church (2d ed. 1997).
George Weigel, Capitalism for Humans, Commentary, Oct. 1995, at 34.
