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Social democracy might well be the most successful economic project in history. During its heyday—the three decades following the Second World War on both sides of the Atlantic—it led to high productivity, economic growth, full employment, low inequality, and very few financial crises. Political and economic institutions made sure that rising prosperity benefitted all classes in society. The time has come to rehabilitate this economic model for our era. And just as in the middle of the twentieth century, Catholic social teaching can help provide a moral framework for this model.
What do I mean by social democracy? I mean an economic system predicated on the belief that an economy must be underpinned not only by property rights but also by economic rights. More concretely, in a social democracy, the government supplies public goods, uses the welfare state to protect people from adverse economic circumstances, and promotes unions to make sure that workers can bargain for their fair share of economic progress.
One could say that social democracy seeks, however imperfectly, to make operational Article 25 of the Universal Declaration of Human Rights. That Article spells out the economic rights that should be afforded to all people: “Everyone has the right to a standard of living adequate for the health and well-being of himself and of his family, including food, clothing, housing and medical care and necessary social services, and the right to security in the event of unemployment, sickness, disability, widowhood, old age or other lack of livelihood in circumstances beyond his control.” In this, social democracy guarantees a standard of living sufficient for all to be able to participate in the economic and social life of the nation. Recognizing that market income is often inadequate for that purpose, social democracy insists on an active role for government.
This expansive rights-based approach can be contrasted with the approach of free-market economics or economic libertarianism. Under those two systems, the only rights recognized are property rights. A free-market system might allow for a minimal social safety net to prevent outright destitution, but nothing more than that. There is certainly no sense of a common obligation to support the well-being of all. And there is no “right” to an adequate standard of living. Free market theorists such as Friedrich Hayek were quite clear about that.
In one sense, free-market ideology harks back to Adam Smith’s key insight that the “invisible hand” of the market would harness the power of self-interest, market competition, and the division of labor to produce ever-increasing prosperity—“the wealth of nations.” This ideology can also be traced back to the political philosophy of John Locke, who held that property rights were the only rights that mattered, and that the proper role of government was just to protect those rights.
It’s true that markets are quite good at creating wealth. The problem is that they are quite poor at distributing it. Smith wasn’t much interested in questions about poverty or the distribution of income; he merely assumed that the market economy would lift all boats. But this simply isn’t the case. As Pope Francis has reminded us, a market economy is compatible with vast amounts of inequality and exclusion.
The Catholic social tradition starts with this key recognition. Beginning with Pope Leo XIII’s Rerum novarum in 1891, it condemned the excesses of economic liberalism during the Industrial Revolution. It called for the state to protect the poor and workers. It called for just wages, and insisted that workers should be able to form labor unions that could bargain on their behalf.
From its earliest days, Catholic social teaching forged a middle path between free-market libertarianism and socialist collectivism. Pope Pius XI condemned these two extremes as the “twin rocks of shipwreck” in his encyclical Quadragesimo anno. It’s important to note that when Catholic social teaching condemns socialism, it is referring to the collective ownership of the means of production and the total abolition of private property. But Pius also condemned an economic system based on a “free competition of forces.” Such a system, he claimed, reflected the “errors of individualist economic thinking.” Accordingly, economic life must be “subjected to and governed by a true and effective directing principle.” By this, he clearly meant the state.
We should not infer from this condemnation that early Catholic social teaching favored social democracy. What Leo XIII and Pius XI leaned toward were systems known as distributism and corporatism. Distributism is based on the dispersed ownership of private property. For Leo, if every person held a small amount of property, this would ensure harmony between the classes and promote material sufficiency. Corporatism, which was favored by Pius, is based on the division of society into functional groups comprising both employers and workers. The assumption was that these groups would together pursue the common good under the general direction of the state.
The problem with both distributism and corporatism is that, despite their nostalgic appeal, they are no longer practical. Distributism looks back to a world of smallholder farmers, increasingly anachronistic in the industrial age. Corporatism appeals to the medieval guild system, which also seems hopelessly out of date. There were some experiments with corporatism in a number of Catholic countries in the interwar years, including Austria, Italy, and Portugal. The general consensus is that they were not successful. And corporatism was forever tainted by its association with authoritarian regimes.
As James Chappel shows in his book Catholic Modern, the intellectual ground began to shift decisively in the 1930s. During that period, Catholics became more comfortable with both democracy and state involvement in the economy. The shift began with a movement Chappel calls “paternal Catholicism,” which sought to protect families and assumed they would have a single breadwinner. “Paternal Catholicism” supported such policies as the provision of family benefits and the promotion of industrial unions. It was fiercely opposed to Communism, while recognizing that Communism was offering something to workers, and that the offer needed to be countered. Along with “paternal Catholicism,” Chappel documents a parallel movement that he refers to as “fraternal Catholicism.” This was more left-wing, more supportive of larger welfare states, and more open to tactical alliances with socialists and secular social democrats. In the early postwar years, “paternal Catholicism” was ascendent, but “fraternal Catholicism” also exerted an influence. By the 1950s, both movements had come together with the goal of supporting what Chappel calls the “consuming family” in a new age of affluence.
That was the golden era of postwar Christian democracy. And in the domain of economics, it aligned with secular social democracy. But the sources of these economic models were different. Christian democracy derived from Catholic social teaching. It was especially influenced by thinkers such as Jacques Maritain and the “personalists,” with their emphasis on human dignity. Secular social democracy, on the other hand, had its roots in revisionary socialism. Theorists like Eduard Bernstein sought to replace the Marxist insistence on the inevitability of revolution with an emphasis on social reforms within the democratic system. Apart from their origins, there were other notable differences between Christian and social democracy. Christian democracy was concerned with protecting and promoting the traditional family as the basic unit of society, whereas secular social democracy—especially in Scandinavia—focused on the provision of universal social benefits. But there was also a significant overlap: both Christian democracy and social democracy built large welfare states and empowered unions as bulwarks against excessive corporate power. It is for this reason that I use “social democracy” as an encompassing term that includes Christian democracy.
It is commonly believed that the twin pillars of social democracy—the welfare state and strong unions—were more solid under secular social democracy than under the more conservative Christian democracy. But this assumption is wrong. Over this period, social spending—in such areas as education, health care, old-age pensions, incapacity-related benefits, family support, unemployment benefits, active labor-market policies, and housing support—was just as high in the Christian-democratic heartland of France, Germany, Italy, and Austria as in classic secular social democracies such as Sweden and Denmark. This social spending was paid for with high taxes, which sharply increased during the postwar years.
The same holds true for labor: unions became as dominant in countries like France and Germany as in Scandinavia. This can be measured in collective-bargaining coverage—the percentage of workers under a collective-bargaining agreement (whether or not they’re union members). Coverage reached 98 percent in France and Austria, and 90 percent in Sweden. This highlights the role played by sectoral bargaining, whereby collective bargaining agreements are extended to all workers in a particular sector or industry. Countries like Germany and Austria went even further in promoting workers’ rights by putting in place systems of codetermination, whereby workers are given a share in the governance and management of the companies they work for.
The United States never had this kind of Christian- or social-democratic tradition, but the New Deal order mirrored some of its elements. The New Deal order encompasses the original New Deal instituted by Franklin Roosevelt as well as its extension by Lyndon Johnson in the 1960s. This order limited the excesses of the market, sought just and harmonious industrial relations, and protected people from a variety of market risks. The broad contours of the New Deal order were accepted by both political parties during the postwar years, and they even informed the settlement imposed on Germany and Japan after their defeat in the Second World War.
Nonetheless, social democracy in the United States always had a more limited range than in Europe. Here, the welfare state was less generous. When it came to organized labor, the United States never really embraced sectoral bargaining; labor negotiations took place primarily at the level of the individual employer. Even so, in 1950, the famous Treaty of Detroit secured autoworkers a share in the country’s rising prosperity. Since then, however, American corporations have become notably more hostile to worker interests, and today, only six percent of private-sector workers belong to a union, down from a postwar high of almost a third.
The alignment between Catholic social teaching and social democracy would never have happened without significant developments within Catholicism itself—especially the Second Vatican Council and its pastoral constitution on the Church in the modern world, Gaudium et spes. It was in the Council that the Church finally made peace with the liberal democratic state.
I would argue that, in keeping with this relatively new acceptance of democracy, the key principles of Catholic social teaching now point toward social democracy in the economic order. These principles include the common good, integral human development, solidarity, subsidiarity, reciprocity and gratuitousness, the universal destination of goods, the preferential option for the poor, economic rights, and norms of justice.
The “common good” is the most important concept in Catholic social teaching. In his encyclical Laudato si’, Pope Francis calls it a “central and unifying principle of social ethics.” The common good is the good of “all of us,” a reflection of our nature as social animals. Gaudium et spes defines it as “the sum of those conditions of social life which allow social groups and their individual members relatively thorough and ready access to their own fulfillment.” This has clear relevance for the role of the state in economic life. In his encyclical Mater et magistra, Pope John XXIII stressed that the state’s purpose was the realization of the common good, which meant that it sometimes had to intervene in economic affairs. Contrary to free-market ideology, the Church teaches that nobody can be excluded from the common good.
The common good is closely related to another key principle of Catholic social teaching: integral human development. This concept is associated with Pope Paul VI and his encyclical Populorum progressio. Integral human development means the development of the whole person and of all people. It entails a broader notion of human development than the merely material, seeking the fullest development of each person’s capabilities. Thus, the idea of integral human development is more expansive than social democracy, but social democracy is certainly nested within it. This is because the fullest development of human capabilities depends on certain material conditions—physical and economic security; access to food, housing, health care, and education; opportunities for decent and rewarding work; and a sustainable natural environment.
Solidarity, another key principle of Catholic social teaching, is defined by Pope John Paul II in Sollicitudo rei socialis as “a firm and persevering determination to commit oneself to the common good; that is to say to the good of all and of each individual, because we are all really responsible for all.” A welfare state embodies this collective responsibility for furthering the well-being of all, especially the weak and vulnerable. Unions are another expression of solidarity.
The principle of subsidiarity is often paired with solidarity. Some Catholics have argued that subsidiarity requires that the state take a hands-off approach to economic life. This isn’t quite right. Subsidiarity means that higher-level associations like the state must actively help and support lower-level associations like families, unions, and civil-society organizations. As Pope Francis puts it, subsidiarity means that “when single individuals, families, small associations and local communities are not capable of achieving primary objectives, it is right that the highest levels of society, such as the State, should intervene to provide the resources necessary to progress.” This is why unions, for example, are—as Pope John Paul II put it in his encyclical Laborem exercens—indispensable elements of social life. But there are still things that only a state can do to help individuals and families.
Obviously, the state should not provide this help in a demeaning or overly bureaucratic manner, or in a way that hinders the agency of the people being helped. Pope John Paul II warned about “malfunctions and defects” of the welfare state when subsidiarity is not respected. There are a number of ways to avoid this pitfall. One is to resist onerous and intrusive conditions for welfare that stigmatize the beneficiary. Another is to avoid “poverty traps,” where workers are actually discouraged from taking a job or working more hours because of the loss of benefits. Hence, the advantage of universal benefits as a right of citizenship, supplemented but not replaced by cash transfers for those who need them. Another way the welfare state can respect subsidiarity is the so-called “Ghent system,” whereby unions are in charge of dispersing social insurance (even if the funding ultimately comes from the government).
That brings us to reciprocity and gratuitousness, principles most associated with Pope Benedict XVI and his encyclical Caritas in veritate. Benedict thought that fraternity, not self-interest, should be at the heart of economic activity, and that real fraternity required a willingness to give to others without expecting anything in return—gratuitousness. As for reciprocity, it turns out that selfishness is not the only important motivator in human psychology. In contrast to transactional relationships—what you give me, now or soon, in return for what I give you—reciprocity involves and fosters social trust by extending our relationship into the future: what I give you now is what I may need from you later. Or: what you give me now is what I may one day need to give someone else. This is the bedrock of any successful welfare state: everyone contributes (through taxes or social-security contributions) and everyone gets benefits (health care, education, or pensions). But what one gets back from the state may not always be the same as what one contributed. Instead, one gets what one needs.
Another central principle of Catholic social teaching is the universal destination of goods. Harking back to Scripture, the Church fathers, and St. Thomas Aquinas, this principle implies that the goods of the earth are destined for all people, not just the rich. Here is how Gaudium et spes explains it: “Man should regard the external things that he legitimately possesses not only as his own but also as common in the sense that they should be able to benefit not only him but also others.” This has direct relevance for economic life. Under a free-market system, what matters most is the right to private property. But as Pope Francis reminds us in Fratelli tutti, this is a secondary natural right, and it comes with what Pope John Paul II calls a “social mortgage.” Some have argued that the universal destination of goods is to be achieved only by means of private charity. People are called upon to voluntarily use their surplus to relieve the suffering of the less fortunate. This is not wrong, but it ignores the importance of institutions. Gaudium et spes states explicitly that it is the role of social institutions, not only individuals, to bring about the universal destination of goods in developed countries. And Pope Paul VI taught that when private-property rights clash with the needs of the community, it is up to public authorities to resolve the conflict. Thus, the universal destination of goods is compatible with the broad approach of social democracy, which treats the material resources of society as, in some sense, common. Ownership rights are provisional, not absolute or sacred, and taxation is not theft.
A related principle is the preferential option for the poor, which is utterly essential to the Christian worldview. It implies that public policies should be judged first and foremost by how they affect the poor and the excluded. Again, this is a marked departure from free-market economics, which favors those with the most resources. In this, the preferential option for the poor is closely related to John Rawls’s difference principle, which calls for the position of the least well-off to be maximized. Thus, the preferential option for the poor supports the efforts of a social democracy to relieve the plight of those in greatest need.
Catholic social teaching also makes room for economic rights (and does not reduce these to property rights). As we have seen, these economic rights are spelled out explicitly in the Universal Declaration of Human Rights. But the Church goes further, treating economic rights as the central rights, even before civil and political rights. Here is how Pope John XXIII describes these central rights in his 1963 encyclical, Pacem in terris:
Man has the right to live. He has the right to bodily integrity and to the means necessary for the proper development of life, particularly food, clothing, shelter, medical care, rest, and, finally, the necessary social services. In consequence, he has the right to be looked after in the event of ill health; disability stemming from his work; widowhood; old age; enforced unemployment; or whenever through no fault of his own he is deprived of the means of livelihood.
Pope John enumerates further economic rights, including the right to be given the opportunity to work, the right to just wages and a standard of living consistent with human dignity, and, yes, the right to private property—subject to the universal destination of goods. These rights mirror those listed in the Universal Declaration of Human Rights, and they can be regarded as the core rights of social democracy.
Finally, justice—which means giving people their due—is central to both Catholic social teaching and social democracy. John Rawls, for example, argued that justice was achieved through fairness, which means prioritizing the position of the least well-off. In Catholic social teaching, justice is regarded as a cardinal virtue and oriented toward the common good. There are various forms of justice. Commutative justice is the justice between two individuals. In economic life, it is the justice of contracts, agreements, and promises—and, as such, is accepted by all, including libertarians. Distributive justice is different. It refers to what the community owes the individual. This is the justice embedded in social democracy—and not accepted by libertarians. Finally, contributive justice refers to what the individual owes to the community. In Catholic social teaching, every right is attached to a corresponding duty. It is worth noting that the concept of duty, as opposed to mere contractual obligation, has no role to play in free-market economics.
Given this close alignment between the principles of Catholic social teaching and social democracy, it should come as no surprise when Pope Francis claims that the Church supports what he calls the “social market economy”:
I do not condemn capitalism in the way some attribute to me. Nor am I against the market [economy]. Rather, I am in favor of what John Paul II defined as a social economy of the market. This implies the presence of a regulatory authority, that is the state, which should mediate between the parties. It is a table with three legs: the state, capital, and work.
Pope Benedict XVI made an even stronger claim, arguing that “in many respects, democratic socialism was and is close to Catholic social doctrine and has in any case made a remarkable contribution to the formation of a social consciousness.”
But social democracy didn’t last. It was replaced by something called neoliberalism, which sought to minimize the role of the state and organized labor in economic life and to let the private sector flourish and drive innovation. It was touted as a remedy for the economic malaise of the 1970s, a period of low growth and stubbornly high inflation. The social-democratic model seemed to have reached its expiration date, and something new was required.
But neoliberalism did not work as promised. Productivity and economic growth have both been lower in the neoliberal era than in the era of social democracy. The goal of full employment was cast aside. Inequality soared as a greater portion of the more modest economic growth went to those at the top of the income distribution. And deregulation caused global financial crises—most notably the Great Recession of 2008–2009.
We are now living with the social and political fallout from the failures of neoliberalism. In the United States, whole communities have been hollowed out, and life expectancy is actually falling among those without college degrees. On both sides of the Atlantic, economic precarity and anxiety are fueling the rise of far-right demagogues eager to burn down the last institutional vestiges of the postwar order. Hovering over everything is an environmental crisis for which there seem to be no adequate political solutions. The common good is the great casualty of the neoliberal era.
All of this calls for a return to social democracy. But the social democracy of the future can’t just be a carbon copy of the past. It must be attuned to the particular challenges and circumstances of our time, and I believe the principles of Catholic social teaching can help with that new attunement.
The two original pillars of social democracy were the welfare state and labor power. We need to restore both of those. We need a robust welfare state—funded by taxes on income, wealth, and inheritance—to protect people from economic dislocation and guarantee their basic economic rights. And we need to boost the power of organized labor, especially in the United States. These two pillars of social democracy will need to be supplemented by two newer ones: workplace democracy and decarbonization.
The combination of the shift to a predominantly service-based economy with the deployment of advanced technologies throughout the workplace has led to less worker autonomy and more monitoring and surveillance by employers. Workers need to take back some element of control and responsibility. To that end, there has been growing interest in workplace democracy in recent years. The economist Thomas Piketty has attributed the collapse of social democracy partly to the fact that workplace democracy has failed to expand much beyond Germany and a few other countries. And in a recent book on the contemporary relevance of John Rawls titled Free and Equal: What Would a Fair Society Look Like?, the economist Daniel Chandler argues that Rawls’s famous “difference principle” implies that workers have the right to participate in decision-making. According to Chandler, respecting this right would lead to more meaningful work, which is a vital source of self-respect.
The idea of workplace democracy—where workers have a share in both the ownership and the management of the companies that employ them—is deeply embedded in Catholic social teaching. This is spelled out in Gaudium et spes, which stresses that “the active sharing of all in the administration and profits of these enterprises in ways to be properly determined is to be promoted.” In his encyclical Laborem exercens, Pope John Paul II promotes what he calls the socialization (as opposed to the collectivization) of the means of production: “On the basis of his work each person is fully entitled to consider himself a part-owner of the great workbench at which he is working with everyone else.”
What would workplace democracy look like in practice? One obvious model is the worker cooperative. Successful examples include Mondragon in Spain and La Lega in Italy. Yet worker cooperatives have gained surprisingly little traction beyond these famous examples. Another model is codetermination, in which workers are represented on boards of directors. Several European countries grant workers this kind of representation, but none go as far as Germany, where half of the board members at large firms are chosen by workers. In general, codetermination induces firms to place less weight on the interests of shareholders. It leads to higher productivity, lower wage inequality, and more family-friendly policies. Codetermination could also be expanded to include work councils that allow workers and management to make joint decisions on day-to-day issues. The right to bargain over wages would remain with unions, however. There could also be more profit-sharing arrangements, based on clear and transparent formulae. In France, half of all private-sector workers have access to such profit-sharing systems. Alternatively, the employees of a company could own more of its shares. Such a system could ultimately lead to majority worker ownership.
The second new pillar of social democracy must be decarbonization. This is the great challenge of our time. The massive amount of energy produced by burning fossil fuels has powered the Industrial Revolution and the tremendous economic progress of the past few centuries. But we now know that burning fossil fuels is undermining the conditions for human flourishing by causing global temperatures to rise to dangerous levels. Unless we find a way to stop it, climate change will have devastating consequences for the economy, especially among the world’s poor. Indeed, low-income countries, especially in Africa, are already facing some of the worst effects of climate change: droughts, floods, and lower crop yields. This was not a central concern for social democracy in the twentieth century, but it must be in the twenty-first.
Keeping the rise in global temperatures below the danger zone—no more than two degrees Celsius above preindustrial levels—will require a complete decarbonization of the global economy by 2050. This is consistent with the 2015 Paris Agreement on Climate Change. Instead of burning oil, coal, and gas, the global economy will need to be powered entirely by renewable energy. This will amount to the largest economic transformation in human history over the shortest period of time. It is a daunting task. The reason I include decarbonization as one of the new pillars of social democracy is that it will not be accomplished by the free market. Rather, it will require the guiding hand of government—through large-scale public investment and public–private partnerships. It will require extensive industrial policy, whereby the government subsidizes entire sectors of the economy.
The original social-democratic era did indeed engage in this kind of planning and industrial policy. The experience of the postwar United States is instructive here. Government investment stimulated many technological advances, including the development of the internet and the human genome project. Consider the space industry. In 1961, John F. Kennedy announced the goal of landing a man on the moon and returning him safely to Earth. At the time he said that, only one American astronaut had gone to space and only for a few minutes. But eight years later, that goal was accomplished. It is precisely this kind of goal-based development, backed by the immense resources of both government and private industry, that is needed to decarbonize the global economy by the middle of this century. Technological and financial resources will need to be guided in directions different from those determined only by the free market.
Catholic social teaching can help us develop the moral capital to make this difficult transition. It is no accident that Pope Francis has made climate change one of the priorities of his papacy. His encyclical Laudato si’ helped guide the global community toward the Paris Agreement. Last fall, he issued an unprecedented follow-up to this encyclical, an apostolic exhortation titled Laudate Deum. In Laudato si’, Pope Francis formulated the newest principle of Catholic social teaching—integral ecology. This principle reminds us that the relationships between human beings and the natural world are interconnected and part of a larger whole. Accordingly, if we upset the balance of nature, we upset the conditions for human flourishing, especially for the poor. Climate change is not just an environmental problem, but also a social one. And it is a mistake to assume that all social problems will be solved for us by the free market.
Building a new kind of social democracy will require an agreement on the basics between the Right and Left. That, after all, was the secret of the original social-democratic moment in the postwar era. It is worth noting that the politics of early postwar years in countries such as France, Germany, and Italy were dominated by center-right parties. The political Left had little influence there. Yet, these center-right parties built up the economic edifice of Christian democracy—welfare states, strong unions, and codetermination. (The Left did hold power in Scandinavia, which developed its own, more ambitious kind of social democracy.) In any case, there was a strong alignment between Christian democrats and social democrats on economics in those early postwar years. In the United States, too, the basic contours of the New Deal order were accepted and endorsed by Republican presidents such as Eisenhower and Nixon.
Can this model be restored and adapted in our own time—a time marked by deep partisanship and rancor? I believe it is possible. The political Left would need to return to its working-class roots, moving away from the politics of culture and identity—the politics favored by educated elites. The political Right, meanwhile, would need to rediscover the successes of Christian democracy, and turn away from neoliberalism and climate-change denialism. Despite growing polarization on culture-war issues, there are a few hopeful signs of this kind of right-left alliance in the domain of economic policy, a few green shoots amid the ashes of our burnt-out political culture. Given the challenges we and the planet face, it is no exaggeration to say that the future may depend on these shoots growing into something more.
