Distributed Capitalism: A Catholic Economic Proposal

As a Faithful Catholic, I take the traditional Catholic teaching on economics seriously, starting with Rerum Novarum from Pope Leo XIII in 1891, and culminating (I believe) in Pope St. John Paul II’s centennial anniversary encyclical on Rerum Novarum with Centesimus Annus in 1991, followed with his epic teaching on life and family in Evangelium Vitae in 1995. I pretty much stop there, with this 104-year compendium of Catholic social teaching, because I don’t see the point of going any further. We haven’t even implemented Rerum Novarum in society in any kind of meaningful way yet, and Centesimus Annus and Evangelium Vitae are such distant goals, I just don’t see the point of piling on anymore at this juncture in history. Besides, the modern social encyclicals (those written after the turn of the century) seem to be a little distorted and go off into tangents that are not only unrealistic, but also distracting. As much as I love Pope Benedict XVI, and I do love him dearly, his social encyclical, Caritas in Veritate, falls into this grouping. I love you Papa Benedict, but we haven’t even gotten the first century of Catholic social teaching digested yet. We can’t handle any more. As for Pope Francis’ social justice documents Evangelii Gaudium and Laudato Si, all I can say is “stop!” We’re done. We can’t handle any more. Let us digest the first century of Catholic social teaching before we even begin to tackle the second. I assert that Catholics have not yet even begun to truly assimilate Rerum Novarum, written in 1891. How can we possibly handle Laudato Si?

I’m not alone in the growing chorus of Catholics who have decided to put Caritas in Varitate, Evangelii Gaudium and Laudato Si on the back-burner. Let’s work on the first century of encyclicals, like Rerum Novarum, before we begin to address modern encyclicals like Laudato Si.  Besides, just as subsequent popes had numerous things to add to Rerum Novarum, I’m sure some future popes will want to make some “clarifications” on the modern social encyclicals as well. So off to the back-burners they go. Let’s start from the beginning, Rerum Novarum, and try to get at least a minimal mastery of that in our society before we move on to the next.

The two lay apostles of Rerum Novarum, historically speaking, were two British Catholics, G.K. Chesterton and Hilaire Belloc, both of whom advocated a system of economics they called “distributism.” Belloc was a cradle Catholic, and Chesterton was a convert from the Church of England (Anglicanism). Their interpretation of Leo XIII’s social teaching should be considered an idealist model and should not to be taken literally. While Chesterton and Belloc probably would disagree with me on that, I have the advantage of looking back on the 20th century as history, a luxury they did not have. The Chester-Belloc Mandate crystallizes Leo XIII’s social teaching in what it might have been in 17th or 18th-century Britain, but even that ideal wouldn’t cut the mustard in 17th or 18th-century North America. “Three acres and a cow,” as the distributist saying goes, might have worked well in the UK before the industrial revolution, but that mantra wouldn’t have even worked well even in Chesterton and Belloc’s day, let alone in the 21st century. It’s important to remember that the Chester-Belloc Mandate is merely a lay interpretation of Leo XIII’s teaching. It is NOT magisterial — not by a long shot. Let’s give credit where credit is due. Chesterton and Belloc did a wonderful job interpreting how Leo XIII’s encyclical might have been well implement a century or two before they were born, but their understanding of distributism was inadequate even for their time, let alone ours. It’s one lay interpretation, one among many, and it should be seriously examined, even if not taken for literal implementation. Perhaps we can learn a thing or two from their model, and implement something far more practical in our time.

In a previous essay (In Defense of Distributism) I wrote about how my own family implements our own form of distributism, on a private level, and with no help from the government. We don’t need government help, nor do we want it. This is our own private lay interpretation of Rerum Novarum, which works well for our family, and could work well for many other Catholic families. The key to its implementation is that it’s 100% voluntary, and that’s what makes it work so well. If we have to step outside of it, here and there, we do so unapologetically, and I specifically mentioned how in some areas of our lives, we have no choice to go full-out capitalist, and that’s okay too. Unlike Chesterton and Belloc, we Schaetzels don’t take an adversarial approach to capitalism. We see it as a necessary partner in implementing distributist solutions, and we don’t see how distributism works well without capitalism. To us, it seems the two can, and should, have a symbiotic relationship. We are Americans, of course, and maybe that’s one reason why we think this way. But take it for what it’s worth, we Schaetzels just don’t understand, nor do we wish to take part in, the bitter contention now unfolding between the two traditional Catholic approaches: capitalism as championed by Dr. Thomas Woods and the Mises Institute, versus distributism as championed by Christopher Ferrara Esq. and The Remnant Newspaper. Both of them make very good points, and while we agree with neither 100%, we don’t see anything overtly heretical in either position. Like Chesterton and Belloc, both men are laymen, and their institutions are lay run. Neither is Magisterial. These are lay interpretations of social encyclicals we’re dealing with here.

While some may dismiss the teachings of one in favor of another, let me point out that I just did the same above, but for different reasons. I asserted that we can’t handle 21st-century social encyclicals, simply because we haven’t yet fully digested a 19th-century social encyclical (Rerum Novarum, the first one), let alone the 20th-century social encyclicals. I asserted that it’s time we put the brakes on any social encyclical written after the 20th century. I don’t think that’s unreasonable, but then, I’m a layman, and I admit that my decisions aren’t Magisterial either.

I suppose many of my readers, like most people, don’t understand economics. That’s okay. I’ll simplify this to make it super easy to understand. The difference between capitalism, distributism and socialism is all about ownership of business…

• Distributism = business is privately owned by people who are involved in the day-to-day operation of the business.
• Capitalism = business is privately owned by people who may not have anything to do with the day-to-day operation of the business, such as stock shareholders for example.
• Socialism = business is owned by the state.

Now, in the United States (US) we have a free market, which mean that both capitalist and distributist economic models are free to exist side-by-side. Whether or not they do so peacefully is another matter, but they are both allowed. (Here’s a list of 100 distributist-model companies in the US.) For example; anyone is free to start a business in the United States. Whether or not the business survives is a completely different issue, as are the reasons for its success or failure. Starting your own business is both a distributist and capitalist thing to do. In fact, at this mico-level of single-family ownership, there is virtually no difference at all between distributism and capitalism. One could correctly say they are the exact same thing — at this micro-level. Where they part ways is at the macro-level.

When a business reaches a very large size, say the size of a multi-million dollar corporation, the distributist and capitalist models start to part ways. Corporations of this size usually need investors to keep growing, innovating and maintaining the success that brought them to this level. The distributist would say that the investors should be the employees of the company, so they can reap the benefits of their labor all the more, take more control in the company’s direction and take more pride in their work. The capitalist would say that the investors should be anyone (employees and non-employees alike) or basically anyone who has the money to invest.

So who’s right? Both claim to have a better plan. Both condemn the other unnecessarily. I say they’re both right, and that it’s up to the company’s owners to decide which plan of investment works best for that company. The distributist company would ultimately get some of its payroll expenditures back through employee stock purchase. This will provide a significant financial boost to the company, but at the same time it’s not going to be the monster-boost that one sometimes sees when stocks go on sale in the stock-market.

The advantage to the distributist model is that the shareholders in the company actually work in the company, so they actually have a clue as to how the company works. What you end up with are smart shareholders, who have a basic working-knowledge of how things are run, as well as what the company should (and should not) do. The disadvantage is that limiting stocks strictly to the employees also has the effect of limiting the amount of investment the company can gain. It significantly reduces overhead, and helps the company achieve a lot more with the same amount of revenue, but it’s not a monster-boost that turns a big company into a massive corporation overnight. The payoffs of a distributist investment strategy are small, but the risks are small too. Companies that go this route do grow, but they tend to grow more slowly than companies using the capitalist model.

The advantage to the capitalist model is that the shareholders in the company might have access to a lot more wealth outside of the company. So while there is no significant reduction in payroll overhead, the company can still get a lot more money coming in from the outside to offset it anyway, plus extra cash for more growth than would be normally possible with a distributist model. The disadvantage is you now have a bunch of shareholders who don’t work for the company. So they have no clue as to how the company works, why it works, or what’s the best direction for it to go. All they care about is profit, and if the company doesn’t perform to their expectations, they have no personal stake in it. They’ll just sell the stocks, tanking the stocks’ value, and move their money elsewhere. The disadvantages are twofold. On the one hand, you have investors who really don’t care about the day-to-day operations of the company, and these people become the real owners and “boss” of the company. On the other hand, you have a company that’s value is completely tied to the fluctuations of the stock market. The payoffs of a capitalist investment strategy are big, but the risks are big too.

Which is better?

Well, let me put it in more selfish terms. Which is better for me?

I want to work for a company that uses the distributist investment model, but I also want to be able to invest in other companies I don’t work for. So that means that while I want to work for a distributist-model company, I need to have some companies out there using the capitalist model. In other words, both work better for me. My only regret is, I wish there were more distributist companies to work for. This is where distributists and capitalists get into a tiff, because it seems that both would like to use the government as a means of promoting their own form of preferred economic model.

Now, I am profoundly American. My ancestors on my mother’s side came to this continent in the 1500s, both as French and English colonists. My ancestors on my father’s side came to this country as German and Swedish immigrants in the 19th and 20th centuries. I’m about as American as they come, the son of both colonists and immigrants, so I’ve got a lot vested in North America, and this thing called “The American Way.”

The American Way is supposed to be the free market. In other words, we shouldn’t use government to force one economic model over another, but rather let the market regulate itself in most cases, provided of course that immoral business practices don’t start hurting people. I’m also a Catholic. So I believe what the popes have taught in their social encyclicals, and the first century of those encyclicals are pretty well-established teaching by now. I think Chesterton and Belloc serve us well in concocting a primitive ideology that implements those encyclicals in an ideal European way, but maybe not a very practical way, and certainly not in the American Way. I think a better way would be to use a system of government incentives rather than government coercion. What I’m proposing here is a system of neither distributism nor capitalism, but rather “distributed capitalism,” and this is my own Catholic economic proposal…

Taxes are the bane of every American. We love to hate them, but they are a necessary evil. Suppose, however, that tax breaks are given to companies that choose slow and steady growth over fast and risky growth. Suppose both federal and state governments offered tax breaks to companies that choose to go with the distributist investment strategy of employee-ownership. The more a company chooses employee-ownership, the more tax breaks it gets. So for example; if a company chooses to remain small and family owned. It gets no tax breaks outside of the normal deductions it would normally get for the cost of overhead. If a company chooses to go with the fast and risky model of capitalist investment options, selling shares on the stock market, the tax breaks remain the same. There is no change. However, if a company chooses to share ownership with its employees, either through stock-option purchase or some other valid method, that company would receive a bigger tax deduction that is commensurate with the amount of ownership the company shares with the employees. So the more the company shares ownership with employees, the bigger the tax break the company gets.

Nobody can complain that this is unfair, because those companies that remain strictly family owned (capitalism/distributism) will get to keep all of their profits, and pay no more taxes than they normally would. Those companies that choose the fast and risky method of sharing ownership with investors in the stock market (centralized-capitalism), will have potential access to bigger profits anyway, and will likewise pay no more taxes than they normally would. However, those companies that choose the slow and steady method of sharing ownership with employees (distributed-capitalism), or what is called “cooperative companies” or Employee Stock Ownership Plan (ESOP), are those companies who have sacrificed the most. The original family that founded the company is sharing ownership of the company, but doing so in a way that doesn’t promise a sudden inflow of a lot of cash. They’re doing it in a way that does improve growth, but it won’t be explosive growth, and the new owners (shareholders) are sure to be a little protective and cautious about how the company is run, because they work there. They should get a bigger tax break for two reasons. One, they’re taking the slow and steady approach, which is good for the American economy and creates a more stable economic environment for everyone. Two, the employee-shareholders are people who might never get a chance to own a piece of a business otherwise. It gives common employees a stake in America’s economic system, and that’s sure to act as a bulwark against the creeping tide of socialism and communism in today’s world.

I do have a few more ideas about how to make distributed-capitalism a reality that involves proposals, not mandates, which are built on the American way of thinking, where people are free to do what they want. I’ll save that for future installments. I think this one would be nothing short of monumental if ever implemented on a wide scale in the US. I sincerely hope it is someday. I understand that some tax breaks are already in place for ESOP companies, but I think a more assertive approach is needed in this area. The only problem with capitalism is that there’s not enough of it. We need a better distribution of capitalism. We need distributed-capitalism.