As the 20th century neared, Pope Leo XIII, grieving for humanity's choice between atheistic socialism and venal liberalism, commissioned Catholic intellectuals to devise a better solution. Set forth in the 1891 encyclical Rerum Novarum, corporatism became the most influential ethically motivated intervention into economics in modern history. It 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 legitimised by Catholic teachings.
- Competition is spiritually demeaning. Associations - committees of Catholic business owners, labour leaders and officials - must set quotas, prices and wages within vertically connected swathes of the economy called corporations.
- Private property is legitimised by owners' obedience to church and association.
- The principle of subsidiarity devolves authority unneeded at higher levels to the lowest feasible level.
Mussolini established the first corporatist economy, albeit substituting "Fascist" for "Catholic" throughout. Corporatism spread to country after country. In 1932, it was embraced by Austria, then Spain and Portugal. Interwar Poland, Greece, Albania, Bulgaria, Estonia, Latvia and Lithuania adopted forms of corporatism. So did Hitler's Germany, though in greatly modified form. By the 1960s, most Latin American countries were avowedly corporatist dictatorships. Corporatism spread beyond Christendom - to Turkey under Ataturk and, using aliases to hide its Catholic provenance, to other Arab countries.
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.
Leo's interwar successor, 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. As these failings grew manifest, the Church back-pedalled in the 1960s, and John Paul II finally repudiated corporatism.
But interwar corporatism has been resurrected. Forsaking socialism, China did not adopt capitalism, but kept the Communist Party atop a self-legitimised hierarchy. True, central planners no longer set wages, prices, interest rates and quotas; but party cadres, not market forces, control the economy. How odd of Mao's heirs, however accidentally, to resurrect this forsaken Catholic ideology.
The saga of corporatism cautions economists against dismissing ethical concerns about markets. But it also warns theologians that economics contains real truths, however unattractive. Finally, it counsels Chinese technocrats against dogma-driven economic policies.
Randall Morck is university 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