From principles to application

APS Bank recently published its ninth publication in the Occasional Papers Series. This publication presents a study with the title Catholic Social Teaching, Economic Thought and Four Hundred Thousand Maltese, and seeks to follow up on the public debate that erupted after the publication of Pope Benedict XVI encyclical Caritas in Veritate.

It is placed within a scenario that is familiar to us, namely Malta’s membership of the eurozone and the conditions that this membership imposes, Malta’s membership of the European Union, with its rules on free movement of goods, capital, services and people, and the demographic transition taking place with an aging population.

This study lays great emphasis on the need to understand fully the relationships between principles and applications and how one moves from to the other (hence the title of this week’s contribution), when discussing the dialectic between the social teaching of the Church, economic thought and the particular characteristics of the Maltese economy and our society at large. The objective of my contribution today is not to present a critique of this publication, but rather to revisit some of the issues that keep attracting our attention when seeking to create the right balance between good economic governance and the social well being of the people. I believe that the reason why these issues keep attracting our attention is that we still have not found the right balance between these two seemingly conflicting objectives.

We do not really need to place good economic governance in conflict social well-being. And once we stop seeing them as conflicting with each other certain fundamental principles become more readily acceptable. In principle how can one accept the existence of poverty in our islands with the level of gross domestic product per capita that we have? In principle, why should there continue to be a discussion on whether politics (in its real sense) is subject to economics or the other way round? In principle why should merit and need continue to be placed on opposing sides of the spectrum? In principle why should the pursuit of the common good be seen to be damaging to individual interests?

The mistake we may be making is that we assume there is agreement on these principles and as such the difficulty lies in the application of these principles. I very much fear that there are not few people who believe that poverty is a necessary evil, that economics should have the upper hand over politics, that what counts is merit and let need look after itself, and that there is no such thing as the common good. Is this line of reasoning correct? Definitely not and I will give just one example – Germany.

When the Berlin Wall fell in 1989, what was West Germany rushed headlong to achieve unification with East Germany. If, at the time, the issue had been analysed purely from the economic viewpoint, the unification of Germany would never have happened. West Germany had to subsidise and continues to subsidise the eastern part. However politics and the common good dictated that unification must happen, even though the economic costs were significant. Initially there were those who questioned this wisdom. Today no one does as Germany continues to be the economic locomotive of Europe and is the best performing economy in the European Union.

On the other hand, what should be the nature of support that the state (with the money collected from the taxpayer) gives to the disadvantaged segments of society? Some people would tell you the least possible amount, such that social trouble would be avoided, but resources would not be sucked away from productive activities. The fundamental error in this principle is that when we speak of support, we think of financial support. Can support also mean “empowerment”? Empowerment that enables the individual to lead an independent life as much as possible and to live through the results of his or her efforts. This is the old Chinese proverb that it is better to teach someone how to fish than to give him a fish every day.

Moving from principles to application is always difficult in any discipline. This is what gives rise to invention and innovation. So why should it be any easier in economics? However, we cannot move to the stage of application, unless we have really grasped the principles and agreed on them.