The Pope is Right to Link Capitalism and Sustainability

This morning’s routine was going well — make coffee, pour juice, cut fruit, listen to NPR. The reporter was interviewing a former ambassador to the Vatican who was saying that the Pope’s views on climate could establish a new moral grounding for US public opinion, if only he would back off on the criticism of voracious capitalism. The former ambassador patronized the Pontiff, conjecturing that his holiness was only familiar with corrupt South American businesses, being unfamiliar with the far more ethical businesses of the developed world.

The next story was about Volkswagen’s software that masked their autos’ actual emission performance.

It seems that every shade of conservative, from the supercilious Wall Street Journal OpEds to the truly frightening corners of cyberspace inhabited by the likes of Judge Napolitano, has decided to characterize the Latin American Pope as naïve and insular, unfamiliar with Ayn Rand and the infallibility of unfettered capitalism. Leaving aside the embedded ethnic biases and colonial echoes, the merits of the Pope’s views belie any naïveté.

The problem is that the Pope is correct to link capitalism and sustainability, though he might have framed his message better. Perhaps a long quote from a Fourth Century Bishop that included the phrase “dung of the devil” in a description of unfettered greed was unwise. Though it was used in a speech in Bolivia and the overall views of the sainted Bishop were fine in their context, today’s Internet is far too thorough for such language to escape the scourge of the right wing media. There are plenty of other over-the-top quotes, but the fact is that the Pope is dealing in the realm of morality, so we should cut him some slack.

The United Nations, another institution subjected to American right-wing patronizing vilification, has been studying just this subject for the last two years. A special inquiry has documented the policies and private sector practices of dozens of nations in relation to the funding of endeavors to assure a sustainable planet. I was asked to address measuring the alignment of financial systems with sustainability and worked to establish a framework for doing just that. The framework measures how well a given capitalist system, secures sustainability. It is not yet a model that can produce a single index, but it is a guidebook for building such a model, a process that will require focused effort and wide input. The reports of the inquiry, a massive set of studies and documents, will be one of the foundations of the pivotal UN Climate Conference in Paris this December that will address greenhouse gas emissions.

The capitalist system, and in particular the financial sector, decide where private resources are deployed. Investments are made according to profitability and returns. Today’s system is obsessed with immediate profits as trading markets are dominated by high-speed technology that executes algorithms designed to do one thing—maximize profits in time scales comparable to one beat of a fly’s wings. Capital is pushed around via instruments that are so complex that even the mathematical whizzes of Wall Street cannot agree on what they are worth. In this world, there is no room for moral nuance. Gordan Gekko’s greed was at least human, leaving some hope for an altruistic twitch. Not so, the machines and the quants of today.

The corporate managers and the investors, who occupy the two ends of the financial market pipeline, have adapted to this new world. Investors depend on advisors who have the ability to operate in the harsh and complex financial markets and they are judged by their ability to perform over the short time scales that define those markets. Corporate managers, following the desires of the investors, only pursue activities that pay off immediately. Growth and research and development suffer. The system simply cannot value such long term values as sustainability of society and the planet.

If one’s goals are totally short term, grabbing the next dollar to hit the table before anyone else can is highly rewarded. Cooperation and group consciousness are suppressed. Valuing business performance or an investment over the very short term means that the best outcome is if someone else expends the resources to secure sustainability. The first one to step up and make an investment to secure a benefit for all is by definition pursuing a sub-optimal strategy.

In this sense, the Pope is absolutely correct. I, for one, am as far from a good (or even mediocre) Catholic as can be imagined. But progressive politics and religion should share the ability to think in terms of collective goods, moderating the base instincts driving greed.

The ideal archetype of capitalism is often seen as certain, driven by profit. However, even this is elusive since profit over time is valued differently by people with different views of risk and different alternative uses of money. Yet even in its ideal form, capitalism is far from perfect.

The Pope is correct in pointing out that our ability to devote resources to sustainability is closely related to capitalism’s tendency to value short term profits more than value realized over time. If our society does not come to grips with that fact, we will most certainly wake up one day and realize that it is too late to avoid catastrophe. That is just as mathematically certain as the algorithms that the very best Wall Street quant cooks up.