Today's post is a guest post by Dr. Brian Engelland, Chairman of the Department of Marketing, Quantitative Analysis and Business Law at Mississippi State University's College of Business, and a Visiting Professor at the Catholic University of America's Department of Business and Economics for Fall 2009.
The current Administration strongly supports an increased role for federal regulation over many sectors of the economy - banking, automobile manufacturing, and healthcare insurance, to name a few - as a means to improve economic development and cure social ills. What might Pope Benedict say about this strategy? Let's look at Caritas in Veritate for clues.
First, the Holy Father suggests that "authentically human social relationships of friendship, solidarity and reciprocity" (CV 36) can indeed be conducted within economic activity, provided that it is structured and governed ethically. Further, he cautions that economic life needs just laws and regulations that ensure benefits to all stakeholders who contribute to the life of the business. Generally, then, he is in favor of government regulation when it is ethical and serves broad stakeholder interests.
But the Holy Father sets very high standards for ethicality in regulation. Specifically, ethical regulation must incorporate trust and love of truth, strive toward the common good, be animated by charity, be enlightened by reason and faith, safeguard the human person, respect the transcendent value of natural moral norms, respect subsidiarity and promote the reciprocal sharing of duties. Furthermore, regulation should respect all of Catholic Social Teaching and not allow disparities in wealth to increase excessively. Finally, regulation can only be effective when regulators are able to incorporate their faith understanding into the decision process. Taken together, this represents a very high standard.
Today in the United States, regulations are written with little presumption of trust, regulatory bodies adjudicate based upon secular notions of political correctness, and neither regulation nor regulator pays any attention to charity. Regulations disproportionately favor large corporations that lobby well, stress individual rights at the exclusion of duties, and are implemented in a rigid, autocratic mode that violates the principle of subsidiarity. Certainly, American-style regulation is not what Pope Benedict had in mind. Pursuing this approach to regulation is a cure that may be worse than the disease!
One result is that small businesses are hurt disproportionately. A recent study found that small firms incur 40% more regulatory costs per employee than do large corporations, and these costs are a significant contributor to business failure. Since we know that small businesses drive economic growth, it makes economic sense to lessen the burden on small firms rather than increase it.
So where do we begin to improve federal regulation? Perhaps a first step to move in the direction that Pope Benedict envisioned is to apply charity by implementing differential levels of control. When I was a child, my parents claimed to apply the family rules equally across all of us kids, but in reality supervised us older trouble-makers much more closely than the younger ones. They knew which kids could create the most damage and they devoted their "regulatory" attention accordingly. In the same way, government regulation should be applied differentially so that the larger firms that could potentially create the biggest problems would receive closer scrutiny and have greater reporting requirements than smaller firms.
A second step is to apply more subsidiarity to the regulatory process. Responsibilities for regulatory oversight could be delegated to individual firms, channel partners or industry groups, rather than be applied only at the federal level. Directives from on high tend to neuter individual firm responsibility for the quality of the products and services they offer to the public. Individual firms will act more responsibly and apply more innovation when their managers have greater involvement in the regulation-setting process.
Differential control and delegated responsibility are two approaches inspired by Caritas in Veritate that could lift some of the regulatory burden away from fledgling businesses and respond more effectively to the needs of the common good.
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