Pope Francis on Inequality & Exclusion from Capitalism: Solution? Golden Rule of Direct Reciprocity

Pope Francis oversees a Catholic Church with over 1.2 billion followers worldwide. In his 224 page Evangelii Gaudium published 11/26/13, the Pope equates the inequality and exclusion endemic in a ‘survival of the fittest’ free market system in which ‘the powerful feed upon the powerless’ to an evil like breaking one of the Ten Commandments (section 53, 54).  In his words, ‘Just as the commandment “Thou shalt not kill’ sets a clear limit in order to safeguard the value of human life, today we also have to say ‘thou shalt not’ to an economy of exclusion and inequality. Such an economy kills’. (53)  He continues, ‘The worship of the ancient golden calf (eg money) (cf. Ex 32:1-35), has returned in a new and ruthless guise in the idolatry of money and the dictatorship of an impersonal economy lacking a truly human purpose’ (55).  ‘This imbalance [of income] is the result of ideologies which defend the absolute autonomy of the marketplace and financial speculation…In this system, which tends to devour everything which stands in the way of increased profits, whatever is fragile, like the environment, is defenseless before the interests of a deified market, which become the only rule’ (56).  ‘Behind this ‘globalization of indifference (54) lurks a rejection of ethics and a rejection of God.’  As he turns his focus to proposed solutions, he quotes from the Archbishop of Constantinople St. John Chrysostom in the first century AD: “Not to share one’s wealth with the poor is to steal from them and to take away their livelihood. It is not our own goods which we hold, but theirs” (57).

In Sections 202-206, the Pope is clearly looking for a governing socio-economic strategy akin to an Ownership Society.  The Pope writes: ‘Business is a vocation, and a noble vocation, provided that those engaged in it see themselves challenged by a greater meaning in life; this will enable them truly to serve the common good by striving to increase the goods of this world and to make them more accessible to all’ (203).  ‘Growth in justice requires decisions, programmes, mechanisms, and processes specifically geared to a better distribution of income, the creation of sources of employment and an integral promotion of the poor which goes beyond a simple welfare mentality’ (204).  ‘We need to be convinced that charity, as Pope Benedict XVI wrote in Caritas in Veritate June 2009, “is the principle not only of micro-relationships (with friends, with family members or within small groups), but also of macro-relationships (social, economic, and political ones)”. ‘I am firmly convinced that openness to the transcendent (eg God) can bring about a new political and economic mindset which would help to break down the wall of separation between the economy and the common good of society’ (205).  He concludes, ‘I am interested only in helping those who are in thrall to an individualistic, indifferent, and self-centered mentality to be freed from those unworthy chains and to attain a way of living and thinking which is more humane, noble, and fruitful, and which will bring dignity to their presence on this earth’ (208).

Pope Francis is really calling for an application of the Golden Rule in global development and policy-making: ‘do unto others as you would have them do unto you’. As Wikipedia notes, the Golden Rule is as old as Confucianism (551 BC) and is referenced in many religions in the meantime.  Harvard Evolutionary Dynamics Professor Martin Nowak and his computer modeling team at the Harvard Program for Evolutionary Dynamics has recently proven the Golden Rule, called Direct Reciprocity, as one of the 5 Rules of Cooperation.  The strategy to uphold rule is called: win-stay, lose-shift.  If you are experiencing a net win or benefit in an interaction with another person or group, you stay with the winning strategy.  If you are experiencing a net loss, you change your strategy until you find a way to win or benefit.  The modeling proves this decision-making strategy between two or more interacting groups possibly with different agenda or objectives is the most successful living strategy among many others.  5 rules of cooperation.  The formula is equally simple: w > c/b.  W is the probability of another encounter with the same individual or group.  C is the cost the player pays to receive a benefit, B.  Direct reciprocity (I scratch your back if you scratch my back) will only take hold in an environment if the probability of another encounter exceeds the cost of engagement divided by benefit of such engagement. As an example, the labor force in any company has a daily encounter with management who represents company shareholders, the source of capital to fund the operations.  Naturally, labor should be highly motivated to cooperate with capital because labor is dependent on, and less mobile than, capital.  Capital is in a stronger competitive position and is indifferent to cooperation with labor.  If labor cooperates, capital can cooperate in the win-stay, lose-shift strategy.  If labor competes to gain advantage such as higher salary or benefits (eg defects in game theory terms), capital will lose and shift their strategy like outsourcing jobs and investment to lower cost sources of production.  David Brooks talks to the ‘Imbalance of Power Relationship between Capital and Labor’ on NPR with Mark Shields (NPR, February 8th, 2014).  He briefly mentions employee-owned companies as being part of the solution to rebalance the relationship between capital and labor.  He talks about the United States becoming a ‘middle to late-aged economy that needs a rejuvenation of some sort’.

The proposed Ownership Society based on the exercise of free choice and the ownership in the fruits of one’s labor provides a socio-economic evolutionary stable strategy of Direct Reciprocity that, as the Pope wishes, ‘is geared to a better distribution of income, the creation of sources of employment, and the integral promotion of the poor which goes beyond a simple welfare mentality’.  The Ownership Society allows all stakeholders ‘to attain a way of living and thinking which is more humane, noble, and fruitful, and which will bring dignity to their presence on this earth’.

Below are the key ways the Ownership Society solves the Pope’s calling.  Detailed solutions are in each link below.

1. Work: Eliminate capital gains taxes on stock sales to employee stock ownership programs (ESOP) or 20%+ employee owned businesses (excluding founders, officers, and directors); ESOP debt and interest tax deduction; ESOP tax credits if taxable income growth covers the tax credit value; and tax treatment of stock options, restricted stock, and restricted value units as qualifying versus non-qualifying so people pay tax on eventual sale, not exercise of the unit.  I would also significantly expand 401(k) limits and provide employers tax credits up to $3.00/hour for employee 401(k) matching up to some level above the poverty line for low-income workers.

2.Home: Empower public housing residents who have full-time job and crime-free record with an equity voucher to buy a home or apartment and create a Federal Private Property Protection Act to significantly restrict federal eminent domain for strict public use as our Founders’ wished.

3. Education:  End education discrimination by the public school monopoly giving means-tested school vouchers to all Americans; allowing tax-deductibility of all education expenses; eliminating tenure from employment and compensation decisions; supporting public-private education trusts to fund high performing schools and teachers that raise the bottom and reward best practices; and waiving the first $100,000 of federal income tax for a household with a teacher in an accredited K-12 school specifically in most challenged districts to start.  I would allow students to repay student loans from 401(k) or health savings account monies.

4. Retirement: Allow people under 55 to invest Social Security tax into a personally owned and directed, government administered retirement account. Eliminate all estate and gift taxes.  Raise 401(k) contribution limits.

5.  Health Care:   Empower consumers with transparent price/quality information and direct financial accountability.  Provide individuals a fixed pre-tax compensation carve out to purchase high deductible health savings accounts.  Tax the incremental compensation and place the funds into the person’s own retirement account to fund future retirement income and health care obligations.  Mandate 100% of Medicare and Medicaid recipients join private HMOs just like the pharmacy Part D benefit that guarantees the federal government 5% annual cost savings versus traditional fee for service programs, better benefits than traditional Medicare, and the same choice of physician. Eliminate price confidentiality in health care and require providers post all prices on a federal website.  Allow insurers to compete across state lines.  Ensure no denial for pre-existing conditions and have a small insurance tax to fund a catastrophic claims fund at the state level for individual or aggregate claims beyond a high threshold.  Allow insurers to sell insurance policies in which individuals have lower cost premiums in exchange for limiting their their pain & suffering damages in the event they file medical malpractice suit one day.

6. Immigration: Allow illegal aliens with full-time jobs and no record of crime to apply for a Dream Card, a 3-5 year path to citizenship. They register with the INS; provide proof of residence and employment; pay one year of back taxes and ongoing income and Medicare/FICA taxes; and enjoy all public services though citizens have first priority on public services.  These workers can apply for citizenship and have their dependents become citizens at the same time.

7. Rejuvenation & Relationships: Support civil unions of same-sex couples so they can enjoy employer and government benefits and legal rights. Provide state pay for performance funding to job-training programs which can rehabilitate and train certain felons, help them find full-time jobs, and monitor job continuation after the first two years.  Support a person’s right to choose how to manage their personal property as well as state’s rights to define and protect the private sacrament of marriage and the rights of the unborn.  I understand the support of a women’s right to choose and civil unions while also supporting states’ rights to pass laws on these subjects might seem in conflict.  Ultimately, people are free to live in states which protect the rights they hold dear on either side.

Overall, an Ownership Society requires the government to serve the well-being of the people by empowering them with exercise of free choice and ownership in their labor with the express goals to reduce income inequality, strengthen freedom, and solve our fiscal crisis all at once.  The Ownership Society requires elected representatives to fashion public policies that reward cooperation wherever possible between capital and labor, providers and consumers, teachers and students/families, illegal workers and citizens, and same sex and two sex couples, etc.  Through cooperation, we will broaden wealth creation to more people while maximizing productive output, harmonize relations in society, and reduce the size and role of government in our lives.  The Pope just needs to discover the Good News of the Ownership Society one day.