From the editor’s desk

The financial reforms required

29 October 2011

Economic growth has transformed the world over the last two centuries, accelerating in the last 50 years. The world population has followed a similar pattern. The latest United Nations forecast is for it to rise from seven billion today to 10 or even 15 billion by the end of the century. But is this a triumph, or a disaster? The world is at a point where it could become either, depending not just on circumstances beyond humanity’s control but on decisions that have to be faced.

In the long term, economic development appears to limit population growth, and a key factor is the rising status of women which in turn depends on their education. The Malthusian prediction – that while populations expand exponentially, food production expands only arithmetically, leading to inevitable starvation – is now palpably disproved.

Thanks to agricultural technology, the world’s capacity to feed itself has confounded the pessimists. In many places, what drives malnourishment is not overpopulation or insufficient food, but corruption. That also lies behind what is emerging as the biggest threat to economic progress across the globe, namely the ability of man-made institutions like international financial markets to destroy wealth rather than to create it, and the ability of rich and powerful interests to grab an ever larger share of the spoils of economic activity.

A spate of demonstrations across the world is a symptom that the public everywhere is waking up to this gross travesty of social justice. Political leaders have yet to rise to the occasion, however; maybe democratic processes are too narrowly focused on national interests to enable them to do so. Something outside politics is called for, and with providentially perfect timing, the Vatican’s Pontifical Council for Justice and Peace has issued an analysis of the financial crisis that has the ring of truth – a greater truth, indeed, than the laws of economics have so far uncovered, namely that economic processes should be for the benefit of humanity and not the other way round.
Pope Benedict’s encyclical Caritas in Veritate in 2009 was widely hailed for the accuracy of its diagnosis and the prescience of its prescription. The new statement, “Towards reforming the international financial and monetary systems in the context of global public authority”, is equally on target in its account of how the latest problems in the world economy, especially those of the eurozone, arose. It is not flawed in theory, either, when it points out that a global economy and financial system must logically be subject to global regulation, and hence to a global regulatory authority. But the practical difficulties seem almost insuperable, which is where the Vatican document can be criticised for being unrealistic.

What might be more promising in the short-term are measures to insulate vulnerable economies from the ravages that market forces might subject them to, such as withdrawing debt-ridden countries from exposure to the bond markets altogether. The EU is discussing such a possibility. Only if international finance starts to lose business might it begin to mend its ways. Indeed, the well-being of an enormous number of people – increasing all the time – depends on it.