Preferential Option: Why Manila Is Poor and Hong Kong Is Rich

Few sights are charged with as much promise and mystery as an Asian sunrise. From my window on Pokfulam Road, but two miles or so from the commercial heart of the Orient’s financial capital, dawn reveals a harbor whose essentials present a view remarkably unaltered by more than a hundred years of spectacular economic expansion. Trading ships from all corners of the earth rest peacefully in its waters; tiny wooden fishing boats, or sampans, thread their way to and fro; off in the distance the mountaintops of China fade into the morning mist. The Chinese called it “Fragrant Harbor,” or Hong Kong.

The colony today is a far cry from the “barren rock with hardly a house upon it” described by Lord Palmerston back in 1840, when the British acquired Hong Kong as a spoil of their victory over China in the First Opium War. In contrast to the picturesque languor of much of the rest of the developing world, modern Hong Kong is an energetic jumble of high-rise apartment blocks, glass skyscrapers, innumerable mom-and-pop shops, super-size shopping malls, and ritzy hotels. Everywhere it sweats with commerce: street hawkers crowd every alleyway with all manner of wares; taxis, ferries, subways, limousines, buses, trains, and planes carry the colony’s 5.7 million people hither and yon; Italian, French, German, Thai, Vietnamese, American, Mexican, Cantonese, Szechuan, and Korean restaurants cater to every conceivable culinary taste; furniture shops along Queens Road East churn out custom-made rosewood and rattan; tailors measure, cut, and fit customers of every size, shape, and race; factories the size of a one-car garage busily fill orders for everything from plastics, pencils, and microchips to porcelain, house wares, and picture frames for clients in Asia, Europe, the Middle East, and the Americas, all against the backdrop of pounding jackhammers and bamboo scaffolding stretching across yet another new building whose outline is just rising up from the ground. To the economist all this is but a statistic: the world’s thirteenth-largest trading entity and the world’s busiest port.

Today Lord Palmerston’s contemptuous assessment is thrown up as an example of one of those historical whoppers occasionally served up by great men. In fairness to the celebrated Foreign Secretary, however, apart from its splendid harbor there was not a great deal to recommend Hong Kong, and were he to repeat his mistake today under the same circumstances he would have every development economist there by his side. For Hong Kong has no natural resources, an inhospitable climate, one of the world’s most densely packed populations, not even its own water supply. Yet Hong Kong has prospered, to the point where its residents enjoy the highest standard of living in Asia next to Japan, higher even than some European nations and rapidly closing the gap. Hong Kong is a development success story, perhaps the development success story.

For this reason Hong Kong is an especially good point from which to review Catholic social teaching on economics, which presumably is directed to helping the rest of the Third World along in much the same direction as this British entrepot. The task is all the more urgent given the direction Church teaching has taken as marked by John Paul II’s Sollicitudo Rei Socialis.

Like Paul VI in Populorum Progressio, the Pope expresses the Church’s concern for the underdeveloped, the chief difference being that since Paul VI there have been two decades where the traditional approach to development —the foreign aid equivalent of the Great Society —has failed miserably, leaving recipient countries with little more than staggering debts to show for it.

Although the press immediately seized upon the Pope’s criticisms of both “Marxist collectivism” and “liberal capitalism,” they lost the larger context, which is John Paul II’s suggestion that the shortcomings of both capitalism and communism are “the result of a too narrow idea of development, that is, a mainly economic one.” Unfortunately the Pope’s own writings suggest that he, too, is guilty of this narrow view.

Indeed, however disappointing the shortcomings of Sollicitudo Rei Socialis are, they are far from new. Writing in the summer 1987 issue of This World, Joseph P. Martino neatly summed up the general problem with papal encyclicals and pronouncements in this field:

Their major strength is that they give first priority to the moral order. They begin with perennial Catholic teachings on the moral goals people ought to pursue. Their major weakness is that they try to prescribe how society should be organized in order to achieve these goals, but without exhibiting sufficient understanding of why people behave the way they do in society.

Charity doubtless prevented him from going further. The real flaw in the Church’s approach to economics is that it rests on fundamentally materialist assumptions about economic life. This might sound harsh, and certainly the Holy Father would be astonished were it put to him that directly. ,Bilt today the truth is that it’s Catholic social teaching that has a “too narrow view of development,” an essentially managerial approach to wealth that ignores the infusion of human creativity and faith that brings it into being. Here in Asia, for example, it’s no coincidence that the Philippines —Asia’s only Christian country —is an economic basket case, while formerly impoverished nations such as Korea and Taiwan have surpassed it and gone on to establish themselves as formidable economic powerhouses in their own right. This is a double tragedy, because the risk is that the Church’s failure to appreciate the dynamics of economic life may lead outsiders to discredit the more fundamental truths about man to which the Church speaks. If Church leaders were ruthlessly honest, they would have to face the harsh truth that non-Catholics equate Catholic countries with being poor and backward.

In fairness to John Paul, it’s true that he does rise to a number of prescient observations: his sanctioning of “the right to economic initiative,” his call for stable exchange rates, his reference to an international trading system “mortgaged to protectionism.” But these bursts of clear thinking are snuffed out by the materialist panoply the Pope erects over them. Marxism may have proved itself a practical disaster in our century, but its basic assumptions about labor, capital, and people have triumphed and infected virtually all aspects of development economics. Coupled with Rome’s unhappy experience with the nineteenth century’s fiercely anti-clerical risorgimento, these assumptions continue to lead Church figures to reach conclusions that when implemented betray the Church’s own social principles of individual dignity, subsidiarity, and the common good. How else to explain the pathetic banner of a “preferential option for the poor,” which sounds more like a footnote to a Citibank homeowner’s program than a trumpet call of hope to the downtrodden?

Echoing the mistake of both Marxists and libertarians who speak of “economic man” as a purely selfish cog, Catholic teaching has a gaping hole at its core: a preoccupation with the bountiful goods of Western societies at the expense of any understanding of how these societies are ordered. By way of analogy, it’s been said that a purely chemical analysis of a man shows he’s composed of but a handful of elements with a combined worth of a few dollars at any drugstore. How much the same could be said of anything of value around us —television sets, automobiles, telephones, clothes, and so on. Broken down, they’re not worth much. They acquire value only when they are put together according to some plan.

Yet nowhere in official Catholic social teaching today is there much thought devoted to the production of goods and services, the process by which man infuses the inert materials on the earth with his intelligence and creativity and through cooperation with others in enterprise —each of whom reaps some share of his effort —gives these hitherto worthless things utility and hence value. Entrepreneurs are assumed, for example, to be driven only by profit, yet anyone who has ever talked to one would see a different story. Visit a businessman and the last thing that will excite him is his balance sheet: instead, he is likely to take you through his factory, talk proudly about the number of people he employs, and pause over all the individual aspects of his enterprise to show you what each does and where it fits in, how he has made it all work. Even the lowliest entrepreneur is as proud of what he makes as an artist is of his paintings, and with good reason.

By taking these finished goods and services as the starting point, Church teaching begins too late and is working from only half the story. Ironically this is a mistake that is only possible in societies where the spectacular success of the free market has brought their populations to the point where they now take their extraordinary and historically unprecedented standard of living for granted. It bedeviled even Marx: he believed that history had arrived, or would soon arrive, at the point where material progress had been maximized and the equitable redistribution of it all could commence. For this same reason he predicted that communism would begin in the most highly developed economies, Germany and England, rather than the least, Russian and China.

In contrast to his followers today, Marx did at least understand the inherent dynamism of capitalism as a progressive force in human history. In fact his writings are almost lyrical in their descriptions of how capitalism broke down Europe’s feudal barriers, sweeping aside a system based on privilege and replacing it with one based on merit. There was conflict, yes, between the old and the new, but a conflict whose social benefits favored the public because it was to give average people more control over their lives and destinies. This link between economic and political liberty implicit even in Marx has not made a dent in Catholic teaching apart from limited endorsements of private property and, more recently, John Paul’s acknowledgement of “the right to economic initiative.” Catholic countries have consequently lagged behind others, politically as well as economically. Small wonder that in the midst of an Asia bursting with productivity the Philippines lurches from government to government and its people wallow in poverty, all this despite an elite largely educated at America’s leading universities, a hard-working, friendly and devout population, and billions of dollars in foreign aid.

At an address to a progressive business group in Manila last year, George Gilder, author of Wealth and Poverty, said the answer is to reverse the question usually asked. Instead of asking what the causes of poverty are, he suggests, we should be looking for the causes of wealth —the same question that produced the field of political economy when a professor of moral philosophy at Glasgow University, Adam Smith, asked it in 1776 in his seminal treatise, The Wealth of Nations. The kind of capitalist society that he promoted in his writings, the kind of capitalist societies that exist today (whether it be Hong Kong or the U.S.) bear little resemblance to the caricatures of “liberal capitalism” that dot papal encyclicals, and indeed the chief complaint of capitalist critics is that the Church never seems to address capitalist societies as they actually exist. Most critics are too polite to add that whatever the Catholic talk about a “third way,” what the Church itself traditionally puts forward as an alternative is some variant of corporatism, something like Franco’s Spain or Garcia’s Peru, perhaps devout but severely limited, plagued by corruption, and certainly pre-modern. Had these teachings been the blueprint for Hong Kong, Chinese here would still be tending rice paddies and hauling rickshaws.

As it is in Hong Kong, wages are rising fast, quite the opposite of the assumption that wages fall in a capitalist society because of the competition between workers who have only their labor to sell. This competition, or conflict, is precisely where churchmen stumble in their critiques of capitalism, owing to a failure to distinguish between its private and public manifestations. Catholic teaching, for example, quite rightly takes the family as the essential unit of society, where brothers, sisters, and parents are expected to sacrifice for one another and where order emanates downward from a loving father and mother. During the Middle Ages, the family model was kept alive by the monasteries, and even today Catholic life echoes with its terms (“Holy Father,” “Reverend Mother,” “Bride of Christ,” etc.). The feudal system was similarly inspired, and although it is now dismissed as backward it was at the time a great step forward, basing rule on responsibility as well as right. Capitalism is different. It elevates conflict from an irritant to a principle, and accordingly re- orders society from the bottom up rather than the top down.

The honored place accorded conflict in this free market arrangement is the most frequent cause of misunderstanding, leading to critical dismissals of capitalism as a dog-eat-dog ethos where the poor necessarily come up short against the rich, clever, and politically connected. In John Paul’s latest encyclical this classically negative approach is implicit in his call for solidarity and his “solid conviction that what is hindering full development is that desire for profit.” The thinking seems to be that competition would be OK if we were all blessed with equal advantages, but since some people obviously have more advantages over others—not always due to their merit —the game is stacked. As George Orwell put it, the problem with competition is that somebody wins. In the family, parents compensate for the different talents and abilities of their children. Because socialism at least claims to do this at a public level, it has a natural at-traction for the religious.

Right Idea, Wrong Application

But the mistake here is to apply the right principles to the wrong area. Society is not a family, and is always oppressive when treated as such. It has its own rules and interests. In a free market this is regulated by conflict, whose social ramifications cannot be confined to dividing people into winners and losers. True, in the sense that a producer loses customers, competition does have its losers: if I purchase a Sony television, for example, then RCA, Panasonic, and indeed all the other people who make, market, and sell televisions are going to see their profits decrease. If enough people follow my lead, these other producers might even go out of business altogether. In this sense Orwell was right.

It’s important, however, to ask why they lose. For in a free market they lose because someone else is offering a better deal. Herein lies the difference between conflict in its narrow personal sense and conflict in the open public market. In the latter, conflict becomes a synonym for “alternatives” because individuals are not just competing against each other —they are competing for the chance to please somebody else. In capitalism, the entire chain of commercial activity depends on pleasing this other person, from the worker who must please his employer to the owner who must please his customers. It means consequently that people have to suppress their own desires, at least for a limited time, in favor of the public’s, and to be successful under these conditions means that one has offered the public something they value at a price they are willing to pay. In a February 1982 article in The American Spectator, Gilder put it as follows:

Capitalism begins with giving. Not from greed, avarice, or even self love can one expect the rewards of commerce, but from a spirit closely akin to altruism, regard for the needs of others, a benevolent, outgoing and courageous temper of mind. Such a universal trait as self-interest — altogether as prevalent in any socialist backwater or deadening bureaucracy as in the realms of great enterprise —will reveal virtually nothing of the rare sources of riches in human society. Not taking and consuming, but giving, risking, and creating are the characteristic roles of the capitalist, the key producer of the wealth of nations, from the least developed to the most advanced.

To remain on top, moreover, means a never-ending effort to gain as many customers as possible by lowering the price of one’s goods and services to put it within more people’s ability to pay.

Church teaching completely ignores this social aspect of free enterprise, confining its view of conflict only to a cutthroat personal competition where one person wins at the other’s expense. In so doing, the Church has lost sight of the animating spirit that makes sense out of the whole enterprise, the reason why capitalist countries are on the whole much more pleasant places to live than socialist ones. Producers compete, or conflict, in their efforts to satisfy the consumer’s needs, wants, and priorities, and because the consumer is free to take or leave what they offer the pressure always comes from someone who is angling to do it better, cheaper, quicker. Competition or conflict on a personal scale is not unique to capitalist societies, but only capitalism channels conflict into service, forcing the businessman to think of ever new ways to attract people to what he has to offer. In economies where people are not free, by contrast, competition takes on exactly that dog-eat-dog ethos where consumers end up vying for shoddy goods with uncertain guarantees. A remarkable 1985 paper issued by the free trade union Solidarity after the Polish government announced a new round of price hikes hit on just this point:

Propaganda attempts to depict a welfare state where administrative measures buffer the society from arbitrary pricing policies imposed by a ruthless industrial management. In practice, the government is able to restore balance in the consumer market only through price increases precisely because of the lack of supply-side economic reforms. The Polish people thus bear the brunt of the crisis.

As Solidarity pointed out, the social consequences of denying competition in the name of the common good in fact jeopardizes the public’s welfare. Politics is no different, and ironically for all its reluctance to sanction conflict in the marketplace the Church has little difficulty today embracing the same principle in politics, namely democracy. In a democracy politicians compete with each other for voters. Inevitably this is accompanied by conflict —often pure invective —between opposing candidates and parties, and clearly the whole process of elections means someone has to win and someone has to lose. Democracy holds, however, that no one has an intrinsic right to be president, governor, or mayor, or even to be in politics at all. The right they have is the right to offer themselves as candidates for these positions and leave the choice to the people. Admittedly this does not always produce the best politicians or the most brilliant, but history has shown that it’s the best arrangement man has come up with so far. For whatever mistakes people at the top make, they are ultimately answerable to those at the bottom.

From the Bottom Up

Capitalism in this regard is merely to economics what democracy is to politics, a choice arrangement that works from the bottom up, making the consumer arbiter of which businesses survive in the same way that citizens decide which candidates make it to office — a decision that can be revoked at any time. The linchpin to it all, of course, is the voluntary nature of the associations, that choices are not forced. Thus the progression of free society, as Sir Henry Maine observed more than a century ago, is from status to contract, or from something that is arbitrarily imposed to something that is freely chosen. Born free, capitalist man is everywhere in contract to his neighbor.

In short, in a free society economic conflict creates choice because it is a competition to serve. So much is this service a characteristic of free societies that we take it for granted until we travel a bit and have it quickly impressed on us that the idea that “the customer is always right” is by no means a universal code of commerce. In a place like Hong Kong, we expect staff at hotels, restaurants, and department stores to be attentive to our needs, wants, and whims, and when bellboys, waitresses, and salesclerks punch out at the end of the day they in turn expect —demand —this same service of others. In Manila, by contrast, it’s a completely different story. And this has nothing to do with personal virtues or vices; in a contest of friendliness or likability, for example, Filipinos would come out far ahead of Hong Kong Chinese. The difference is that the social system in the Philippines has no incentives for service while the one in Hong Kong, based on capitalist competition, does.

Market conflict also raises the value of labor. Although Malthus thought that technological progress would ultimately make labor redundant, experience has proved just the opposite: labor becomes more and more expensive in a free-market economy. No one needs to be told, for example, that American laborers are paid more and live better than those anywhere else in the world. Germans are similarly well compensated. Here in Hong Kong, often said to be “overpopulated” (its 5.7 million inhabitants live in one of the world’s most densely populated areas, with no natural resources), there is in fact a massive labor shortage right now. Only in undeveloped countries is labor cheap, the reason being that there is a paucity of producers competing with one another for the laborers’ services. “The liberal reward of labor,” wrote Adam Smith, “as it is the effect of increasing wealth, so it is the cause of in-creasing population. To complain of it is to lament over the necessary effect and cause of the greatest public prosperity.” More people mean more minds, more talent, more choice, which is why capitalism welcomes the arrival of more people as assets to be celebrated rather than burdens to be borne. Again this is something that has completely escaped the notice of modern Catholic social teaching, this appreciation of the human spirit and its relation to wealth.

If the Church is to be taken seriously, if Catholicism is not to have its central truths about man and the universe he inhabits confined to the Sunday sermon, if its social teaching is to be treated with more than the patronizing smile given to the well meaning, two changes are essential in its pitch to the world’s downtrodden. First, Catholic intellectuals need a better grasp of basic business; for a sophisticated crowd their impressions of businessmen and business practices seem to be taken more from re-runs of “Dallas” than from the flesh-and-blood businessmen sitting next to them in the pews at Sunday Mass. They also must pay more attention to experience. Wading through Church documents on development one would never know that places like Hong Kong, Taiwan, and South Korea exist. If Aquinas could find truths about man in Aristotle, the Church could certainly pick up a few pointers about development from Hong Kong.

Equally important, Church social teaching must focus more on the social. Social debate in America today has been poisoned by the personal judgments introduced —recall Geraldine Ferraro’s crack that Reagan wasn’t a Christian—whereas the proper focus of social teaching is public effects, not private intentions. This, too, is acknowledged in everyday life. We don’t, for example, choose a restaurant because of the chef’s piety; we choose it because he offers the best food, the best prices, the best convenience. When we get good service from a shop we don’t think that those giving it are necessarily better people; we think them smart businessmen. Nor do we think less of them for it. It’s just that the virtues in the social realm have more in common with manners than morals. In social theory, this is enough.

In his classic  work Catholicism, Protestantism, land Capitalism, one of the founders of the Italian Christian Democrats, Amintore Fanfani, got to the heart of the matter: “For every conception of wealth,” he wrote, “there are corresponding rules of conduct, which when put into practice, determine the character of the economic actions by individuals.” Unfortunately, Fanfani’s own conception of wealth led him to endorse a corporatist approach whose essence was put into practice around the same time as Mussolini. A half-century later, Catholic social teaching is still reaching much the same conclusion because it’s still starting from much the same assumptions, and “Catholic” nations from Mexico to the Philippines languish under systems notorious for their inefficiency and corruption. The lesson the Church has yet to take from all this is to learn that the opposite of conflict is not cooperation but collusion.


  • William McGurn

    William McGurn is an American writer. He was the chief speechwriter for President George W. Bush from June 2006 until February 2008, replacing Michael Gerson. McGurn served as the chief editorial writer with The Wall Street Journal. From 1992 to 1998, McGurn served as the senior editor of the Far Eastern Economic Review. Prior to this he was the Washington bureau chief of National Review. He writes the Main Street column at The Wall Street Journal and is an executive at its parent company, News Corporation. On Dec. 11, 2012, he was named editorial page editor of the New York Post.

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