These two important themes were dealt with by the brothers at their General Chapter in Caleruega (1995). The generalization of a market economy running wild (after the fall of communism) and the reimbursement of the debt are two of the major causes for the social difficulties of our time.
1. THE MARKET
In theory the market system is founded on the "law of supply and demand" Individuals and businesses -- consumers and providers of goods and services -- meet together and freely fix a price for transactions. All of these people are in competition with one another and must find solutions that are in keeping with their particular interests: maximizing profit for the provider, paying the lowest price for the consumer. In such a system State intervention should be kept to a minimum; it is only there to see make sure that the rules guiding the exchange and the market are respected.
The fundamental hypothesis in this system is that the market offers maximum advantages: the price balances the supply and demand not only of goods and services but also of jobs and revenues, we call this the Walras Pareto Balance. The freedom of a market where everyone is out to defend their own interests is supposed to lead to a collective state where everybody is a winner. The selfishness of each one leads in fact to the well-being of all.
It must be pointed out that this so-called "ideal" system never really existed. The State has always intervened in economic matters; however since the crash of 1929 it has taken on a role of greater importance. The majority of the systems used in various countries are neo-liberal systems: they concede more or less economic responsibility to the State. Certain countries go further still, by giving the State the monopoly of responsibility (it becomes the sole producer and distributor of goods and services) in certain crucial sectors such as schools, health, transportation infrastructures, energy, rail transportation... Others are more liberal; they not only allow competition between the public and private sectors but they sometimes even suppress all public initiative in favor of the sole benefit of the market.
We must be wary and not oppose State and market. The economic success of the Southeast countries of Asia (Japan, Korea...) are proof that the State can place itself at the service of the market. Liberalism (the minimization of the role of the State) seems however to be in the process of becoming more and more generalized throughout the planet in the wake of the disappearance of planned economies (since the fall of the Berlin Wall and the questioning of the communist approach applied in the countries of Western Europe).
The free market is an important element for economic development due to the fact that it promotes individual initiatives and a sense of responsibility, but it does have limits.
- priority is given to the short term to the detriment of long term ventures that do not produce immediate results. This path leads to degradation and the lack of many things...
- dismissal of those goods that do not have a market value and of all that does not generate dollars (thus favoring materialism): the environment, quality of life, gratuitousness in human relations...
- exclusion or marginalization of those who cannot participate in the system or who are not strong enough, intelligent enough or crooked enough to win...
The poor, who have no financial capital and whose level of education and relational skills are often weak, find themselves even more marginalized and excluded in a free enterprise system because they enter the game with a disadvantage and always end up on the losing team. Therefore the need for a regulator -- the State -- who can take charge of the excluded and of those who come to the game severely handicapped.
If this social regulator is necessary, it should be careful not to favor assistentialism and passivity. The regulator should not substitute itself for individual and collective actions. Excessive social assistance can lead to a loss of human dignity. Finding the balance between too much social assistance and the complete absence of it in the name of free enterprise is a very tricky task.
2, THE DEBT
The debt is an economic measure that dates back to the sixties. Because they wanted to invest in factories and the purchase of equipment, several countries either borrowed money from the large international banks or guaranteed the loans of certain businesses. These loans were made with money that was of low value during a period of great optimism. It was thought that once the raw materials were transformed by new machines bought on credit, these goods would be easily sold and the money reimbursed. However, during the past fifteen years the price of the raw materials for which these loans were made has dropped. The countries can no longer afford to pay back the loans. The rise of certain currencies makes paying back even more difficult and adds to the already heavy burden.
The real problem is not the debt but rather the reimbursement of the debt. Remember, the United States is the most indebted country in the world but it has the capacity to reimburse its loans. If one goes into debt to produce more or sell more goods then the debt is not a problem.
The borrowing countries may find themselves in a situation where they are unable to reimburse the loan; every year the newly accrued interest is added on to the total amount owed (fines are sometimes imposed). When we speak of the service of the debt we are referring to the amount of interest and to the amortization (reimbursement of the capital that a country must pay during the year). The relation between debt-servicing and export capacities indicates the seriousness of the debtor country's economic problem.
In a situation where the country is heavily in debt and unable to reimburse the loan, the countries that lent them the money lose faith in them. They reduce the credits, provide no more advances and demand repayment. This places great pressure on the borrowing country, causing a reduction in available funds for development but also loss of credibility. If the pressure tactics do not produce the anticipated results, the creditors will in turn find themselves in the same situation with their own funders demanding to be reimbursed, and will have to proceed with the sale of their certificates guaranteeing the loans of the borrowers. The lender loses money which in turn affects the banking system of the developed country, placing it in a fragile situation.
The debtor countries cannot really refuse to reimburse their debt, even if they threaten to do so. They would be banned by the rest of the international community and would be deprived of any further international assistance or credit from international institutions. The debtor countries have no alternative but to find money in their budget to pay off at least a portion of the debt.
They often turn to the experts at the IMF (International Monetary Fund) and the World Bank, to get money from them to pay their creditors. These experts will propose (make mandatory) a certain number of savings; usually they consist in cutbacks to the social programs, reduction in public spending (laying-off of government officials, cutting certain costs even of social nature), the sale of public enterprises (privatization), development of export goods and the cutting of taxes and currencies in order to reimburse the debt. These experts often demand the opening of the national economy to international capital. The purpose of all of these actions is to integrate the country into the international market and consequently into the liberal system.
These solutions have serious consequences on the social life of the people and often lead to public unrest, but the country has no choice. The most vulnerable of the social groups (those who are dependent on these grants) are often the hardest hit by these restrictive measures. The debt is usually felt most by the poorest of the population who have to pay for decisions that were taken by others and did nothing to help them. The worst situation is one where the poor have to reimburse a debt that went into the pockets of the governing class, or to pay for luxury expenses or to cover military costs.
The rich countries have a certain responsibility in this process, when they favor loans to rid themselves of their stockpiles of arms, or that will be used for prestige spending; and worse still when they are aware that the money will be used for the personal enrichment of those making the request for the loan.
The citizens of the rich nations are not at a loss for actions to take against these mechanisms:
- they can question their banks and their government as to how they respect the code of ethics in situations pertaining to international loans.
- they can exert pressure on the political parties to obtain moratoriums or the pardoning of
the debt.
- they can participate in buying back a debt with the leadership of the NGO community.
- they can set in place new funding networks to help move forward specific economic
operations in the Third World...
- they can take a stance with the Board of Directors of banks or of other companies where they are shareholders.
The citizens of the poor nations can also react:
- by challenging public officials about prestige and military expenditures.
- by proposing alternatives to the proposals made by the IMF and World Bank.
- by mobilizing savings at the local level for economic development projects.
- by challenging the social groups and the wealthy members of their society so that they invest in
the country and not only in foreign countries.
- by fighting against inequality and for greater fiscal transparency.
The Church has reflected on the problem of the international debt and the Pontifical Commission For Justice And Peace has published a document called "At the Service of the Community; an Ethical Approach to the International Debt." (1986) and in Solicitudo Rei Socialis (19).
Additional reading:
A de Salins and F Villeroy de Galhau, "The Modern Development of Financial Activities and the Ethical Requirements of Christianity", Pontifical Council for Justice and Peace, 1994, Vatican edition.
source: IMF.
1985 1990 1994 DEBTS developing countries 940 1276 1477 - Africa 144 222 236 - Asia 249 364 482 % OF EXPORTATION developing countries 154,7 126,9 105,5
debt in billions of US$
| Back | Index | Next | |