Today’s economic downturn—caused, in large part, by imprudent executive risk-taking—has many governments considering new, stricter financial sector regulations to limit the sort of risk-taking that threatens the health of the entire financial system. And while regulatory reform could allow for legitimate innovation without stifling the creativity that drives our economic system, regulations often create harmful unintended consequences and almost never change the underlying mindset that makes regulation necessary.
Is there no way to change the business mindset so that profit is not seen as an end in itself, but as a means to address social needs? Pope Benedict XVI thinks that there is.
In his recent encyclical, Caritas in Veritate, Pope Benedict addresses what could become an exciting opportunity for Christians who have an entrepreneurial gift and a social conscience: new forms of business enterprise whose mission is broader than just the maximization of profit for the owners. The Pope calls for “a market that permits the free operation, in conditions of equal opportunity, of enterprises in pursuit of different institutional ends,” including “forms of economic activity marked by quotas of gratuitousness and communion.”
The Pope’s aim is to promote a “culture of giving” and a spirit of solidarity within the market economy. He notes the recent emergence of “groups of companies oriented towards social welfare,” and the diversified world of the so-called “civil economy” and the “economy of communion.” These companies “view profit as a means of achieving the goal of a more humane market and society.”
The model Benedict envisions stands alone in three ways.
First, the “economy of communion” differs markedly from the typical business enterprise that is primarily concerned about profit, though it may also seek to be “socially responsible” through pursuing green practices and making charitable contributions. While such actions are welcome, they are often motivated by a desire to promote a positive image of the firm that will ultimately lead to higher profits. Some good deeds are done, but the culture of profit maximization remains the same.
Second, Benedict’s model also differs from that of the non-profit sector, in which enterprises seek to maximize the provision of services subject to their ability to raise funds. Profit is omitted entirely. While non-profits promote a culture of giving, they do so outside the traditional business sector, which is where most people earn their living.
Finally, the Pope’s vision also seeks to move beyond the usual way in which the poor are helped: profit-maximizing firms create wealth, whereupon states then run programs of redistribution. Once again, the business culture is unchanged and the care of the poor is divorced from the enterprises that generate the wealth in the first place.
The new forms of enterprise Benedict has in mind are oriented toward profit, but their mission is not. Many Christians are unaware that such firms already exist. For example, the Pope’s phrase “economy of communion” is a reference to a growing initiative within the Catholic Church to create a new form of business enterprise. There are now approximately 750 firms worldwide that have committed to the principles and practices that govern the movement. Unlike traditional for-profit firms, which might or might not engage in charitable activities, economy of communion firms voluntarily divide their profits among three equally important uses—expanding the “culture of giving” through educational programs; giving to those in need; and expanding the business, or keeping the business competitive by investing in new technology. Profits are important for these businesses to thrive, but they are not considered the central focus of the firm’s mission. Rather, profits are considered a means to further the ends of solidarity (“a sense of responsibility on the part of everyone with regard to everyone”) and gratuitousness.
An example is Mundell & Associates, Inc., an Indiana-based environmental consulting firm. According to its statement of Social Mission, the firm seeks “to address issues affecting the environmentally and economically disadvantaged… includ[ing] working to promote environmental justice for low-income, minority communities… volunteering technical assistance to develop better environmental laws and technical guidance for natural resource protection, and participating in the Economy of Communion… and fraternity by sharing profits with those in need.”
Another form of business enterprise that has broader goals than profit maximization is the worker cooperative. One of the most successful cooperatives is Mondragon, located in the Basque Country of Spain. Mondragon is a worker-owned firm operated on democratic lines, with each worker having an equal vote. It was founded in 1956 by a Catholic priest, Father JosÃ© MarÃa Arizmendiarrieta, on the key principle that labour is the primary factor of production. Since workers own the business, it is labour that hires capital, and thus capital is used to serve workers rather than the other way around. Mondragon offers training and education for workers and donates ten percent of its profits to assist the needy.
Another successful cooperative is Scott Bader, an employee-owned chemical business in England. Ernest Bader, a Quaker who was concerned about peace and the way in which businesses could be organized to promote peace and justice, founded the company in 1921. In 1951 he gave the company to his employees, which has remained a worker-owned business. The firm invests sixty percent of profits in the business. Up to twenty percent can be paid as bonuses to workers, and at least that amount is given to help the needy. Thus, when profits are high, the workers benefit—and so do the poor.
While these alternative business models are laudable, there are clear obstacles standing in the way of their implementations. Capital must be raised to start a business, and firms that operate outside the traditional model may find this difficult. But perhaps the greatest obstacle is the unwillingness of Christians to risk their own time and capital in the pursuit of profit for the sake of others rather than themselves. May God call many budding entrepreneurs to this endeavour.