Pope Francis delivered his most extensive remarks yet about private business at an old steel factory in Genoa, Italy, on May 27.
He did so in lengthy responses to questions pre-submitted from a plant manager, union representative, worker, and unemployed person.
The Pope spoke glowingly about the “businessman [who] is a key figure in any good economy: There is no good economy without a good entrepreneur. There is no good business without good entrepreneurs.”
He also spoke in heartfelt terms about the unique set of difficulties faced by each of his questioners.
It is impossible to seriously speak about the importance of work as it relates to human dignity and poverty alleviation without an understanding of basic economic and business principles, and during his remarks, Francis noted the critical link between entrepreneurship and work, and demonstrated an authentic sympathy to the challenges that entrepreneurs face.
However, the pope had harsh words for those he called “speculators.”
“We must fear the speculators, not the entrepreneurs; no, do not fear businessmen because there are so many good ones! No. Fear speculators,” he warned.
But is the pope being fair?
Engaging in speculation need not be evil, nor even a little bit wrong.
The wholesale demonization of speculators reflects a lingering misunderstanding of how markets work.
In economics, “speculation” means making a prediction about a future outcome.
Since the future is uncertain, making decisions about the future entails some degree of risk. In the world of finance, speculation implies taking on high financial risk in hopes of achieving a large financial gain, typically over a short-term period.
In fact, we are all speculators including, and especially, entrepreneurs. Waiting to buy a car in expectation that the same car can be bought in the future at a cheaper price is speculation.
In his Genoa remarks, the pope describes ugly business practices that are, indeed, too common. They just aren’t what business or finance professionals understand as speculation.
Speculation has become a catchall phrase for any kind of nefarious business activity, real and imagined.
“The speculator does not love his company, he does not love his workers, but sees business and workers only as a means to make a profit,” Francis said.
What the pope condemns here are owners and managers who operate their businesses as wealth creation engines for themselves at the expense of employees. This is greedy and utilitarian behavior, but not speculation, properly understood.
Francis blames speculators for the growth of bureaucracy and burdensome regulations that disadvantage “real entrepreneurs, honest managers” to the benefit of “those who can find the means to circumvent controls and reach their goals.”
But a better phrase is “crony capitalism,” where large, politically well-connected enterprises compete unfairly against small firms without the same friends in government.
Many less developed countries, including those in Latin America, are saddled with Kafkaesque regulations that severely thwart economic, job-producing growth, while oligopolistic crony capitalists thrive.
The pope is also concerned about speculation creating an impersonal economy, saying “behind the speculator’s decisions there are no people, and therefore we do not see the people who are to be dismissed and cut out. When the economy loses contact with the faces of concrete people, it itself becomes a faceless economy and therefore a ruthless economy.”
But again, “impersonal” is not necessarily “immoral.”
Anyone who owns a mutual fund, 401K, Exchange Traded Fund (ETF) or life insurance plan might under the pope’s definition be termed a ‘speculator,’ feeding a ‘faceless, ruthless’ economy.
As equity ownership has become ubiquitous, such that laborers are also shareholders, the owners of publicly traded corporations have become increasingly anonymous.
Economies around the world have benefitted greatly from increased levels of investment that public share ownership facilitates.
Financial speculation adds value: It creates greater liquidity, facilitates price discovery, provides greater access to capital and reduces the cost of capital. These are abstract, technical concepts, but not therefore less important for the flourishing of business.
The pope is right to point out it’s easier to disregard the well-being of those we don’t know than it is to ignore the plight of those with whom we have some sort of personal connection.
The reliance on anonymous investment capital far removed from company operations has important, under-appreciated implications that call out for deeper thought.
Thanks largely to globalization and technological revolution, our economic (and political) system is experiencing profound changes that are complex and multifaceted.
There are many parallels between today and the 16th century, which experienced the discovery of the New World and subsequent revolutionary change in the economic and financial markets.
A group of brilliant Jesuit and Dominican scholars responded by coming together in Salamanca, Spain, to thoughtfully develop a moral and theological canon to address the major changes. This is how the field of economics was born.
Jesuit priest Luis Molina is known in theological circles today for his controversial work on the grace-nature debate.
Fewer realize that he developed the cornerstone financial theory – the time value of money – which helped lead to the rethinking of usury laws, which had forbidden the charging of interest.
Molina was trained as a canon lawyer and moral theologian, but when Spanish businessmen sought him out for spiritual guidance concerning new financial practices, Molina realized he did not have the tools to effectively minister to them.
So he took to the docks and trading houses to learn firsthand how the new economy worked from the bottom-up. The fruits of his work are still being felt today, because without interest-bearing loans, the modern economy would be impossible.
The Church should continue to follow his example.
Rather than demonize speculators, the pope should encourage bright moral theologians to go to a different kind of ‘periphery’ where the Gospel needs to be preached – to the desks of London FX traders, to the campuses of Silicon Valley’s tech firms, to the factory floors of Asian textile plants – so they are able to more fully understand and, then, thoughtfully respond to the changing complexities of the 21st century global economy.
The Church cannot ignore the fact this economy has raised more than a billion out of destitute poverty yet, at the same time, those who champion this economy cannot forget it also confounds and causes great pain to others.
Luanne Zurlo is an assistant professor of finance at The Catholic University of America in Washington, D.C.
