Liberation Theology and Economics: Like Oil and Water?

Michael S. Johnson
Professor of Economics
Spring Hill College
February 1997

Much of the research for this paper was done while the author was on a sabbatical leave from Spring Hill College. I gratefully acknowledge the financial assistance of Spring Hill and the cooperation of Agnes Scott College, which provided office space, computer assistance, and library access.

The lack of development in Third World countries is one of the disappointments of the post -World War II period. The optimism of the 1950s and 1960s turned a pessimism, especially during the decades of the 1970s and 1980s, when the oil crunch, recession, and the debt crisis hit many nations extremely hard. In the midst of this volatile situation, a new voice has arisen that speaks of the need for economic development. The voice speaks of economic issues and policies. This voice, however, is one grounded in Christian theology, not in economics The basic issues of economic development have become an issue of the Christian faith, as many ask, what can be done to bring justice and plenty to all people?

An excellent summary of the problem -- one that could have been written by a concerned economist instead of the Church -- was presented in 1971 by the second assembly of the synod of Roman Catholic bishops following Vatican II:

In the last twenty-five years a hope has spread through the human race that economic growth would bring about such a quantity of goods that it would be possible to feed the hungry at least with the crumbs falling from the table, but this has proved to be a vain hope in underdeveloped areas and in pockets of poverty in wealthier areas, because of the rapid growth of population and of the labor force, because of rural stagnation and the lack of agrarian reform, and because of the massive migratory flow to the cities, where the industries, even though endowed with huge sums of money, nevertheless provide so few jobs that not infrequently one worker in four is left unemployed. These stifling oppressions constantly give rise to great numbers of "marginal" persons, ill-fed, inhumanly housed, illiterate, and deprived of political power as well as of the suitable means of acquiring responsibility and moral dignity [Synod of Bishops 1971. Justice in the World. In Hennelly 1990, 139]

As this quotation suggests, there should be a natural kinship among economists and theologians, since the well-being of the poor is a key concern of both. Both disciplines have long standing concerns for social justice and for the problems of poverty, yet the two disciplines do not seem to mix well. Many theologians think economists are uncaring, hard-hearted, and largely unaware of the moral implications of their ideas. Many economists view theologians as irrelevant to the real world, and naïïve as to the workings of the economy. Unfortunately, there is plenty of evidence that both groups are partially right.

We have two advocates for social change, with common goals. Yet each group tends to ignore [or be ignorant of] contributions of the other, and as a result, neither group views the other as usefully addressing the problem. It is like oil and water: the fields do not mix well. But the time to mix solid economics with theological concern for the poor is past due. Good economic analysis with no concern for justice is sterile. But solid theological concern with pie-in-the-sky economics is no more fertile. The oil of economics and the water of liberation theology need mixing, and soon.

In this paper, we will explore this situation, and in the process, hopefully offer insights useful to each discipline. We begin with a review of the importance of the state of the poor in the thinking of classical economists. Next, we explore the development of "development economics." We then turn our attention to dependency theory, and examine how that particular perspective has influenced liberation theology. Finally, we look at recent developments which should cause liberation theologians to broaden their perspectives, yet also cause orthodox economists to better understand the role of morality in the marketplace.

The poor in classical economics

Although most economists today claim some degree of scientific objectivism as the basis for their analyses, this was not always the case. Early economists aggressively took sides on issues of fairness and poverty. Most of us are aware of Karl Marx's concerns for social justice, but he was by no means a voice crying in the wilderness. During the formative years of modern economic thought, issues of income distribution and social justice played a major role, and many writers argued from a position of morality. This can be seen in the writings of Adam Smith, who argued that higher wages were a positive sign for an economy, and who worried about the social consequences of manufacturing on workers. Smith stated:

No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable. It is but equity, besides, that they who feed, cloath and lodge the whole body of the people , should have such a share of the produce of their own labour as to themselves be tolerably well fed, cloathed and lodged [1976, book 1, 88].

The same theme is powerfully present in the work of John Stuart Mill; Mill the economist was the same person as Mill the author of On the Subjection of Women.

In America, Henry George became a best selling author for a work entitled Progress and Poverty, in which he argued with a messianic zeal that the economic system was a cause of unnecessary poverty. George claimed, "The great cause of inequality in the distribution of wealth is the inequality in the ownership of land. The ownership of land is the great fundamental fact which ultimately determines the social, the political, and consequently the intellectual and moral condition of a people" [1979, 295].

Even Alfred Marshall, the famous English economist most closely associated with "modern" neoclassical economic thought, explained his motivation to study economics as coming from a concern for the poor. In his correspondence, he wrote, "Then, in my vacations I visited the poorest quarters of several cities and walked though one street after another, looking into the faces of the poorest people. Next, I resolved to make as thorough a study as I could of Political Economy" [Buchholz 1989, 145].

The classical economists were great thinkers, and their contributions influenced a tremendous breadth of later work. After World War II, however, economics became increasingly specialized, with distinct subdisciplines. The experience of the Great Depression spawned a major area of research that grew into macroeconomics - the economics of the economy as a whole. Prevention of poverty and suffering were still underlying motives for economic analysis, but as the mathematics of economics became more sophisticated there was a tendency for the poor to become lost in the abstract reasoning. Improving the lot of the poor was assumed to be a natural consequence of "economic growth," and no explicit analysis of the poor was necessary. Further, the modern tools of economics were quite effective at dealing with issues of efficiency; attention naturally flowed into this area where large gains in practical knowledge could be made.

Development economics and the dependency theory response

The one subdiscipline where issues of poverty and fairness remained a natural concern was the area of emphasis that took the label of "Development Economics." As the economies of war torn Europe and Japan rebounded after World War II, and as many nations gained independence, several leading economists turned their attention to the problems of the poorer nations of the world. Many of the earliest Nobel awards for economics went to development economists.

Two different areas of analysis caught the attention of many writers: project analysis; and sweeping studies that looked for underlying patterns of development. The World Bank took the lead in the development of tools for project analysis, and applied them to the projects they funded. The World Bank had a bigger-is-better bias, and required the active participation of governments as a condition of loan eligibility. The belief was that a combination of infrastructure lending and technical assistance would provide the conditions that would pull underdeveloped areas into modern economic growth. Industry was to be favored over agriculture, and domestic production (import substitution) over free trade. Government planning became the rage in development circles, with almost every country devising planning documents to guide the development process by central government intervention.

The sweeping overview emphasis led to development of the concept of "patterns" or "stages" of development, and every country was thought to have to pass through these stages to achieve development. The work of Hollis Chenery was influential. Chenery took an empirical approach by correlating many variables with the development process [Chenery, Robinson, and Syrquin 1986]. But the most visible advocate of this view was W.W. Rostow, whose book, The Stages of Economic Growth [1960], became both the prototype and the stereotype of this line of thought. Rostow's work added a distinctly ideological cast to the development debate, as evidenced by his book's subtitle: "A Non-Communist Manifesto." Many economists disagreed with Rostow's approach, finding it too formulaic and too ideological. The objections by economists did not stop Rostow's work from being viewed by noneconomists as the ultimate statement of the economic view of the development process. Political scientists and those working in the interdisciplinary area of political economy twisted Rostow's work into a stereotype of orthodox economics, which they labeled "modernization theory." The same stereotype appears in the work of Latin American liberation theologians under the derisive title of "developmentalism." This was largely dismissed as a not-very veiled attempt to promote capitalist ideology and to fight the spread of communism in the Third World.

Regardless of the theory or ideology involved, the record of development economists at aiding the poor in developing countries was not very successful. Technical experts lacked an institutional understanding of the countries where they operated, but more importantly, the economics was too aggregated to address the true issues. Somehow, the very principles on which orthodox economics rested - free trade and private, entrepreneurial activity - were abandoned in the subdiscipline of development economics. Western development economics became known for its advice that in practice often hindered the development process and exacerbated income inequalities. Latin America was the unfortunate recipient of a great deal of this bad advice, especially with regard to pursuing import substitution strategies.

While the broad-brush, big-project development experts received all the attention, there was something of a counter-revolution occurring in the development economics literature. More microeconomic thinkers offered key insights into agriculture, urbanization, and trade policies. These writers emphasized the social incentives that often created barriers to development. Other authors wrote passionately of the potential dangers of reliance on central planning to develop, arguing the costs would be high both in terms of human liberty and in crushing entrepreneurial incentives. [Bauer 1984; Hayek 1944] These writers argued that private activity, as opposed to government investment projects, was the crucial ingredient of a successful development process. There was also a backlash against the overly aggregated approach to development advice, as best captured in another subtitle: "Economics as if People Mattered" [Schumacher 1973].

In spite of these promising areas of thought, the strawman of the modernization approach still demanded an ideological response from the left. This counter current took the moniker of "Dependency Theory." The roots of dependency theory can be traced to Marx and to Lenin, but the key impetus came from economists working for the United Nations Economic Commission for Latin America (ECLA), well before Rostow's work. Using a class conflict basis to analysis, dependency theory managed to be somewhat more behavioralistic than the modernization stereotype, but it still was a largely macroeconomic approach. In its own stereotype, dependency theory was even more aggregated, as it hinged on a model of the entire world economy. Capitalism was the culprit, and the multinational corporations were the evil representatives of capitalism. John Isbister summarizes the approach nicely: "For those in the dependency school, underdevelopment is a process. Underdevelopment is not just the failure to develop; it is an active process of impoverishment. Aiden Foster-Carter put it nicely when he described Andréé Gunder Frank's use of underdevelop as a transitive verb, as in 'I underdevelop you'" [1995, 45].

Liberation theology and development economics

It is in the context of this opposing view to mainstream development economics that we turn again to liberation theology. The liberation theologians, understandably concerned with the lack of advancement among the poor of Latin American societies, were attracted to the dependency view for many reasons. First, the dependency theorists offered a more socially conscious vision than did the perceived economic orthodoxy. Second, there was a strong predisposition toward an approach which was identified with Latin America itself. Third, the appeal to science lent dependency theory an aura of correctness, regardless of the facts. Finally, there was a general anti-market and pro-socialist orientation among the liberation theologians.

Consider, for example, the words of Gustavo Gutiéérrez, perhaps the most influential of the liberation theologians:

Development must attack the root causes of the problems and among them the deepest is economic, social, political, and cultural dependence of some countries upon others - an expression of the domination of some social classes over othersŠŠ. This analysis of the situation is at the level of scientific rationality. Only a radical break from the status quo, that is, a profound transformation of the private property system, access to power of the exploited class, and a social revolution that would break this dependence would allow for the change to a new society, a socialist society - or at least allow that such a society might be possible [1988, 17].

Gutiéérrez accepts Marxist "scientism" as a fact, rather than as one of several competing theories of social processes. Socialism is presumed to be a superior system; this is asserted, not subjected to any analysis. The source of development problems in Latin America are viewed as external to the region, results of the sins of the North. The dependency relationship is so widely held that is simply asserted as fact. This is not just the view of Gutiéérrez. Consider Alfred Hennelly's assertion in the introduction to his collection of liberation theology writings: "By far the most important background experience of liberation theology is the widespread experience of poverty, the impoverishment of many millions of persons because of domestic and foreign socio economic systems" [1990, xix].

With a zeal for the issue not seen in economics since Mill, Marx, or George, the liberation theologians forcefully argue that change is needed, and needed now. Unfortunately, the economic underpinnings of most liberation theology are very narrow. Mainstream economics is not just dismissed, it is ridiculed. Rostow's book, The Stages of Economic Growth, is the only example of "developmentalism" cited by Gutiéérrez, who in turn cites dozens of dependency theorists. As stated previously, Rostow deserves much of the criticism he receives. But with Rostow rejected and other mainstream economics ignored, dependency theory wins only by default.

The theoretical choice is more complex than Rostow versus dependency. At least some liberation theologians now recognize this. In the new introduction to the revised edition of A Theology of Liberation, Gutiéérrez himself writes: "Science is by its nature critical of its own presuppositions and achievements; it moves on to new interpretive hypotheses. It is clear, for example, that the theory of dependence, which was so extensively used in the early years of our encounter with the Latin American world, is now an inadequate tool, because it does not take sufficient account of the internal dynamics of each country or of the vast dimensions of the world of the poor" [1988, xxiv]. Unfortunately Gutiéérrez does not say what paradigm has replaced dependency theory.

Andelson and Dawsey offer a recent work in liberation theology which explicitly rejects dependency theory [1992]. They instead concentrate on the role of uneven land distribution as a cause of inequality in the Third World. Their solution is to adopt the economic principles of Henry George [1979]: to institute large-scale taxes on the rental value of land, a God-given, not a manmade, resource. The idea has great merit in the development setting, although Andelson and Dawsey offer little guidance on overcoming the political obstacles to their proposal. Nonetheless, their book is an excellent starting place to bridge the gap between theologians and economists.

Seeking a middle ground

If an economist actually supports the status quo in Latin America, he is either very ignorant of the conditions that exist, or he is truly hard-hearted. Latin America cries out for social justice. There is a need for change, perhaps radical change. But to blame the current situation as an example of the failure of capitalism, as dependency theory does, is to both misname the economic situation and to shift attention away from the solutions. Latin American economies have not been capitalistic in structure. To be sure, businesses operate, and multinational firms are present. But until very recently, the typical Latin American economy has been something between feudalism and mercantilism. The feudalist concept of traditional social roles and class permeates society, especially regarding relations between the indigenous population and those of European heritage. Social mobility is greatly constrained by this structure. The society is mercantilist because the government plays a central role in the business sector. Not only are many enterprises actually state-owned, most others - especially enterprises of any size [to include all multinational firms] - are not free to pursue their own goals, but are restrained and coerced by a cumbersome, highly bureaucratic government. This system may not work, but it is not because it is capitalism.

This is not to deny that American foreign policy in Latin America gives the liberation theologians and dependency theorists powerful ammunition to condemn "the system." But the intrusive policies of American politics into Latin America should not be viewed as benefiting US interests in general. More US multinationals would benefit by growing Latin American markets than could ever benefit by cheap Latin American labor or cozy relationships with Latin American governments. The US and the former Soviet Union both harmed other nations as a result of their heavy-handed tactics. But to confuse superpower meddling with capitalism will not improve the lot of the poor in Latin America.

Some liberation theologians have become so obsessed with the perceived sin of international capitalism that the they seem to forget that the moral standing of its alternatives have not fared well in practice. We can see this tension in the religious sparring that occurred in Chile in 1971, as a group of Chilean priests known as "The 80" stated:

As Christians we do not see any incompatibility between Christianity and socialism. Quite the contrary is true. As the Cardinal of Santiago said last November: "There are more evangelical values in socialism than there are in capitalism." The fact is that socialism offers new hope that humanity be more complete, and hence more evangelical -- that is, more conformed to Jesus Christ, who came to liberate us from any and every form of bondage [Hennelly 1990, 143].

In response, the Chilean Bishops wrote:

An option for socialism of a Marxist cast poses legitimate questions. It is a system that already has concrete embodiments in history. In these concrete embodiments we find that fundamental rights of the human person have been trodden under foot just as they have been in concrete embodiments of the capitalist system [Hennelly 1990, 144].

In the title to a recent article, economic historian David Landes asks, "Why Are We So Rich and They So Poor?" He argues there are two competing theses: 1) we are bad and they are good; or 2) we are good and they are bad [1990]. The former argues that we have exploited the nations of the Third World, and forced them into an unjust situation. This is largely the argument of the liberation theologians and dependency theorists. The latter thesis argues that the conditions - and leadership -- for growth appeared in Europe, the US, and Japan, but have been sorely lacking in Latin America and other Third World areas. Their own errors are largely to blame.

The truth, of course, is in the middle. Economists must not discount the ability of "the system" to adversely affect the poor. However, leaders of the poor nations, and the values and institutions within these nations, must not be absolved of the blame for the failure of markets to develop and private initiative to bear its own fruit. Isbister states this forcefully:

People in the Third World are as capable of inhumanity as are people in the core: It is the Third World that is to be held accountable for genocide in Rwanda and Cambodia, for human rights abuses in Argentina and Uganda, for repressive religious fundamentalism in Iran, for military adventurism in Iraq. Those evils have taken place in the context of world affairs, but it is perverse and ultimately demeaning to argue that the Third World has not generated its own villains [1995, 67].

In his brief overview of liberation theology, Robert McAfee Brown speaks of three emphases which he states must all be present in liberation theology: liberation from unjust social structures; liberation from the power of fate (i.e., it must be a message and agent of hope to the poor); and liberation from personal sin and guilt [1993, 61-63]. He continues that this third aspect has always been present in the liberation theology movement. Brown may be correct, but the role of personal sin in liberation theology is very hard to find at times. There may be sinful institutions at work in and against the Third World, but we should never underestimate the ability of sinful individuals to make any economic system become one that denies justice and rights to the poor. The prophet Jeremiah speaks forcefully to this point:

Woe to him who builds his house by unrighteousness,
and his upper rooms by injustice;
who makes his neighbors work for nothing,
and does not give them their wages;

But your eyes and heart are only on your dishonest gain,
for shedding innocent blood, and for practicing oppression and violence.

Jer 22.13,17 NRSV

This passage, which is quoted frequently by liberation theologians, certainly has a message for the capitalist (although it was written as a message to a monarch, the king Johoiakim). But it is less clear that this message speaks against capitalism. Socialist leaders have been known to act in similar unrighteousness!

Recently, Michael Novak has emerged as one of the more vocal proponents of morality in economic relations. He states: "For capitalism is not a set of neutral economic techniques amorally oriented toward efficiency. Its practice imposes certain moral and cultural attitudes, requirements, and demands. Cultures that fail to develop the required habits cannot expect to eat broadly of capitalism's fruits" [1993, 8]. Novak points out that the classical economists "took for granted the moral heritage of Western civilization," and this caused them to not stress the moral underpinnings of the system [1993, 107]. We have seen the dangers of socialism without morality in the aftermath of the collapse of the Soviet Union. Capitalism without morality may be no worse than the Soviet regime, but it can lay little claim to being better. Perhaps by reminding us of the ethical and moral dimension of economic life, the liberation theologians have done the capitalist system a great favor.

Nowhere is the importance of a moral underpinning to the economic system more clear than in the area of attitudes toward voluntary acceptance of the rule of law. Many academics react negatively to the phrase "rule of law," because it is a catch-phrase of the ultra-capitalistic neoliberal movement in Latin America. Yet theological attention to the social acceptance of corruption may go farther at freeing the poor than the socialism espoused by most liberation theologians. Socialism within small communities (e.g., religiously-centered "base communities") may work well, but these communities must be able to market to a broader nation to enhance the living standards of the community; this can be done only if social institutions allow the producers to keep the rewards of their efforts. Having the fruits of one's labor leaked away by petty bribes, extortion, and outright robbery saps the ability of any community to advance.

Some indication of the potential damage from corruption can be seen in Figure 1, which shows a scatter plot of 1993 GNP per capita and the value of an "integrity index." The latter index is the product of a joint initiative by Transparency International and Goettingen University. An index score of ten means the country is perceived as "clean" while a score of zero applies to a country where virtually all business transactions involve kickbacks, fraud, extortion, and the like. Causation in this data is not clear - corruption may cause a nation to be poorer, or poor nations may tend to become corrupt. Nonetheless, the relationship in the data is very strong, with a simple correlation coefficient of 0.86. And in either event, corruption is making development increasingly difficult [O'Grady 1996; Zachary 1997].

Future needs

The recent collapse of socialist states around the world mandates that the benefits of the capitalist alternative be given renewed scrutiny. But what form of capitalism will best serve the interests of the poor? Pope John Paul II explores this issue in his recent encyclical, Centesimus Annus:

Is this [capitalism] the model which ought to be proposed to the countries of the Third World which are searching for the path to true economic and civil progress?

The answer is obviously complex. If by "capitalism" is meant an economic system which recognizes the fundamental and positive role of business, the market, private property and the resulting responsibility for the means of production, as well as free human creativity in the economic sector, then the answer is certainly in the affirmative, even though it would perhaps be more appropriate to speak of a "business economy," "market economy" or simply "free economy." But if by "capitalism" is meant a system in which freedom in the economic sector is not circumscribed within a strong juridical framework which places it at the service of human freedom in its totality and sees it as a particular aspect of that freedom, the core of which is ethical and religious, the reply is certainly negative [1991, 42].

Note especially the restrictions Pope John Paul II places on the market system: "a strong juridicial framework," and a core that is "ethical and religious." What is needed is the rule of law, and a capitalism that is compassionate.

We have already addressed issues of the rule of law. It is important that we recognize that laws protect the weak and marginalized as much as they protect the wealthy and powerful. On this particular topic, concerned people of faith should join hands with the neoliberals. Clear definition of property and aggressive efforts to stop corruption can aid all segments of society, and are necessary conditions for economic advancement.

The harder task is to establish a system of capitalism that is compassionate, and to instill in the people a belief that morality is part of the market process itself. All we hear of capitalism is selfishness, greed, materialism, and excessive individualism. What we need to do is to understand that free enterprise can be characterized by self-discipline, sacrifice for the future, cooperation, trust, initiative, and honest dealing [Lynch 1994; Pope John Paul II 1991; Wilson 1995].

What are the hallmarks of a capitalism of compassion? I leave that task to the future. To best determine how to mix economic structures with personal morality is a task that should mix together social science and theology [Forrester 1994, 252]. But we need to find ways for those in business, economics, and theology to constructively work together, not as antagonists. The first step is for us to learn from each other. Theologians need to recognize the importance of incentives and entrepreneurial spirit, and to recognize that profit has a social function. Economists need to recognize legitimate moral concerns about many current practices in capitalism. Examples include the unequal restraints placed on global labor movements relative to capital flows, and the inability of many of the extremely poor to gain relief through market processes. Perhaps with the right chemistry, we can mix oil and water into a viable solution.

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