Vatican sermon on markets

Last week the markets were treated to a sermonette on ethics from the Vatican. While the letter from the Pope touched on a variety of topics—from equality to shadow banking, hypocrisy to off-shore tax evasion—his underlying message was simple; economics, like every other sphere of human action, needs ethics in order to function correctly.

In today’s article, I share my reflections on some of the ethical concerns from the Bishop of Rome.

Concern one: gambling in markets. On this, the Pope cited the uses of credit default swaps to explain his critical view, “….the spread of such a kind of contract without proper limits has encouraged the growth of a finance of chance and of gambling on the failure of others, which is unacceptable from the ethical point of view.” I disagree. Why?

Let’s take a far-fetched example. Markets see all kinds of managers; great, good and idiotic. The latter may still keep a company afloat but some just have a special gift of running down businesses. For this kind, the markets will need some form of protection. In this regard, derivatives (which have a solid market function) should never be dismissed on the basis of market abuse.

Investing is about preserving capital first. But the problem of gambling is a problem of the player not the play. Banning derivatives is like stopping medics from recommending cough syrup on the basis that it’s now being abused by teens.

Concern two: profit-only motive. The Pope explained, “….such logic has often pushed managements to establish economic policies aimed not at increasing the economic health of the companies that they serve, but at the mere profits of the shareholders, damaging therefore the legitimate interest of those who are bearing all of the work…”

Here the Pope targets the fundamental drive through which all business is transacted. Personally, I believe that commerce needs a re-think of its primary motive. Think about it this way. The old way presupposes the point of business is to make profit. But this is akin to believing that breathing is the purpose of life.

Yes, you have to breathe to live, just as businesses must make profits. But the purpose of business is usually determined by an entrepreneur chasing a dream to change the world. Putting the needs of others first before his own.

Serving all without prejudice. This is the new model. It is not charity. It is good business.
Concern three: market self-sufficiency. Here Pope Francis states that, “experience and evidence over the last decades have demonstrated, on the one hand, how naïve is the belief in a presumed self-sufficiency of the markets…” Totally agree.

Markets don’t self-correct. They self-destruct. To avoid this, they occasionally will need intervention to survive. Forget about what the free market purist told you. Don’t believe me, ask the Americans.

To end this article, here’s another one from the Pope to think about; selfishness in the end does not pay while it makes everyone pay a high price. Hence, if we want the real well-being of humanity, “Money must serve, not rule”.  

Mwanyasi is managing director, Canaan Capital Limited [email protected]