Lessons Learned From Greece: Dominos and Subsidiarity

by Mark Henry

The recent economic chaos in Greece has generated shockwaves felt all the way to America with many financial commentators opining that last weeks dramatic stock market losses were due to Wall Street anxiety about the economic problems in Greece and what it portends for other countries which have adopted economic policies similar to those adopted in Greece.

The recently announced bailout of Greece by the E.U. Union and IMF are stop gap measures that fail to address structural weaknesses that are firmly entrenched in most European economies. These stress fractures of the welfare state are now spreading to the U.S. economy and the economic policies of America’s current political leaders threatens to exacerbate the economic hardship that may be in America’s future.

Political leaders in Europe and America would do well to adopt economic policies guided by pertinent Catholic social doctrine, including the principle of subsidiarity. If policymakers reject these Catholic teachings they will do so at their own peril and jeopardize the well being of the countries they have been entrusted to protect.

Essentially, Greece’s financial meltdown is due to the government’s socialistic leaning policies which, inter alia, promote government entitlements and discourage private enterprise. The Greek government policies favors government employees who receive higher wages, better benefits and more generous retirement than private sector employees. These policies require increasing levels of taxation and result in significant redistribution of wealth.

Greece’s policies favoring public employees are seen as a quid pro quo for the political support of these well provided for public employees. However, a recession weakened economy in Greece, combined with costly government entitlements has pushed the country to the brink of financial collapse. The European Union and the IMF have agreed to a monetary bailout of Greece in exchange for austerity measures which Greece’s ruling socialist leaders have been compelled to implement. These austerity measures include deep pay cuts to the salaries and pensions of government workers.

What the Greeks are learning – and what other developed countries in Europe are having to cope with – is that socialist economies doesn’t work very well and are not sustainable over the long-term. That’s why the E.U. and IMF have to bail out Greece.

The bigger problem is that other European countries like England, Spain, Portugal and Ireland also have “Greek” economic problems of their own with unsustainable overspending on government entitlement programs. Like Greece, these countries have also overpromised entitlements which they can no longer afford give to their citizens. The fear is that Greece is just the first domino to fall and if other countries follow the E.U. and IMF are going to be unwilling or unable to bail these other countries out. This could result in sovereign defaults with disastrous effects on the worldwide economy.

How can we understand the causes of this growing economic problem and discern the direction our political leaders should take to deal with it? As is usually the case, Catholic teachings provide helpful guidance on how the faithful should analyze this pressing problem.

Pope John Paul II harshly criticized the welfare state in his 1991 encyclical Centesimus Annus wherein he stated that the welfare state undermined this core principle of subsidiarity. This Catholic teaching states that when something can be done locally by a smaller simpler organization this is better than central planning type action by a larger and more complex organization. This tenet safeguards the ideals of limited government and personal freedom and stands squarely opposed to the welfare state’s goals of centralization and bureaucracy.

John Paul II warned us that the welfare state discourages human initiative and results in an excessive increase of public bureaucracies. This results in an enormous increase in spending by a government whose goal is to achieve its own statist agenda rather than to serve the public.

What we are seeing in Europe are the disastrous financial consequences that come to countries that reject subsidiarity and embrace the failed economic model of socialism. Recent images of Greek government workers rioting in the streets in response to limited austerity measures announced by Greece’s socialist ruling party is an omen of economic chaos that can spread throughout Europe and to America if unsustainable government entitlements are not brought under control.

However, the “fix” to these serious national economic problems is not a knee-jerk return to unfettered capitalism. The seeds of the serious recession we have been going through in the U.S. were planted during the Bush administration which was roundly criticized for excessive government spending and ineffectual regulation of the financial industry. And this occurred with an administration that professed support for free market policies instead of socialism.

While socialism’s economic failures are obvious and historically documented, improperly regulated capitalism has had its fair share of train wrecks as well. The 2008 stock market crash, recent banking and insurance industry failures and the collapse in real estate values were the handiwork of capitalism gone wild.
It is true that misguided government intervention into the free market arena was at least partially responsible for some of these economic collapses.

However, regardless of whether these economic failures were caused by free wheeling capitalists, wrong-headed statist minded politicians or all of the above, Catholic social teachings in the economic realm can be a light on the path to improving the economic well being of all of us.

In his recent Encyclical Letter Caritas in Veritate, Pope Benedict reveals his keen insight on some of the financial abuses which caused the recent meltdown on Wall Street. Pope Benedict writes “Economy and finance, as instruments, can be used badly when those at the helm are motivated by purely selfish ends. Instruments that are good in themselves can thereby be transformed into harmful one… The Church's social doctrine holds that authentically human social relationships of friendship, solidarity and reciprocity can also be conducted within economic activity.” (CV 36) Benedict goes on to say that “Financiers must rediscover the genuinely ethical foundation of their activity, so as not to abuse the sophisticated instruments which can serve to betray the interests of savers” (CV 65).

In light of these pressing economic problems how can Catholic’s chart a path which avoid the abject failures of socialism while avoiding the excesses of unbridled capitalism?

Steering clear of socialism’s bureaucratic welfare state is clearly called for. America needs to learn from and not embrace the failed social welfare system currently wreaking economic havoc in Europe. These failed ideologies have jumped the pond and are taking hold in America under the statist policies of the Obama administration and the majority party leaders.

The most recent example of European modeled statist policies being implemented here at home is the federal takeover of health care insurance, destined to be a huge public entitlement that will raise taxes but is not likely to measurably improve health care.

Another example of the recent drift towards the European style social welfare state is the accelerated growth of both the numbers of government employees and the benefits paid in the public sector. According to leading economic historian John Steele Gordon, federal workers currently earn almost twice what their private-sector counterparts earn. Further, Obama's new spending programs will result in a 14.5 percent increase in the number of federal employees in just two years.

A variety of other policies the America’s political leaders are pushing will, if unchecked, take us down the path of unsustainable government spending which is creating economic chaos in Europe.

On the other hand, an unconditional embrace of purely economic driven capitalism, bereft of any ethical parameters, is not the answer either. We have recently seen that this economic philosophy generally works but is accompanied by periodic upheaval that leaves far too many suffering in its wake. Pope Benedict’s Caritas In Veritate highlights the need for economic practices which are not just efficient and productive but are also based on ethical principles which promote positive human development.

Pope Benedict’s refreshing economic philosophy manifested itself recently in a recent study by the Pontifical Academy of Social Sciences. This study was issued by the Pontifical Academy during its recent April 30 - May 4 session, just as the economic chaos in Greece was coming to a head.

Pontifical Academy Chair Mary Ann Glendon called for financial reform to promote “the essentially ethical nature of economics as an activity of and for human beings.” The study also attributed part of the current economic instabilities to an overreliance on speculative financial activities that are separated from productive activity in the real economy.

While this recent study shied away from detailed economic policy directives, it is sensible to conclude that we are called by Catholic social doctrine to take a middle path somewhere in between the two extremes of socialism and laissez faire capitalism.
To the extent that these recent teachings call for increased government oversight of the economy, it would be mistaken to interpret this as support for the type of top down centralized government control of major economic sectors like the recent federal government takeover of the health insurance industry.

While Catholic social doctrine acknowledges a proper role for government to play that role is purposely limited. Government is called to regulate but not to dominate or unduly control commerce. A country’s government and economic system need to coexist and have a complimentary relationship in order to advance the overall well being of a country’s citizens.

Fundamental Catholic teachings on both subsidiarity and the proper but limited regulatory role of government are a critical light on the path to guide socio-economic policies to maintain the delicate balance between government and economics. Political leaders who disregard these important Catholic social teachings jeopardize their own political futures and imperil the well being of the citizens they are entrusted to lead.