Economic inequality: Economics and theology in dialogue
Prof Piet Naudé and Prof Stan du Plessis
Looking at economic inequality from two different perspectives
What exactly does economic inequality mean? In this essay, a theologian and an economist use an ethics lens to look at the troublesome issue of economic inequality.
The authors have chosen the topic of inequality – specifically economic inequality – as a justice issue to address. To do this, they follow the see-judge-act model. Firstly, there is a need to undertake a limited descriptive exercise (“see”) to gain a clearer understanding of what economic inequality entails. Secondly, this leads to a moral assessment of economic inequalities (“judge”) by pointing out which aspects of inequality are ethically acceptable or unacceptable from economic and theological perspectives. Thirdly, interventions and actions (“act”) need to be identified in order to reduce morally unacceptable forms of economic inequalities, again putting forward both economic and theological perspectives.
A few notes on classical economics and Reformed theology
Before starting, the economist author would like to acknowledge that his own work has largely been in the invisible-hand tradition, also called classical economics, as explained by Adam Smith. In essence, this tradition says there are limited individual decision makers with remarkable scope for spontaneous (or decentralised, or market) cooperation. Adam Smith’s invisible hand is therefore a metaphor for the coordinating mechanism of a decentralised society, referring to the feedback mechanism – which is often prices, but quantities too – that signals to participants whether their decisions and expectations agree with those of others.
The emphasis on market cooperation does not imply that outcomes will always be socially acceptable or that there is no role for government policy. When this economic perspective is embedded in a larger theory of justice, additional reasons for policy action against inequality are likely to emerge.
The Christian faith is confessed differently in various traditions – Orthodox, Catholic, Protestant and Pentecostal. Also, there is a diversity of opinions on economic inequality within these traditions. In this article, the theological approach is primarily from the Reformed tradition with its normative reference points in Scripture, its confessional orientation, and its social justice strand via Calvin and Barth. This particular trajectory is then subjected to a southern African contextual interpretation. The confessional inheritance refers to the legacy of the Heidelberg Catechism (1563), Barmen Declaration (1934), Confession of 1967, Belhar Confession (1986) and Accra Confession (2004).
A careful reading of these confessions shows that the issue of economic inequality and related themes of justice and the common good have become more pronounced over time. Not all aspects of inequality are addressed in these confessions. However, the benefit of this confessional approach is that it ensures that the theological perspective in the debate is not lost.
A note on the assumptions underpinning this essay: This article focuses on the public meaning and significance of the Christian faith on the assumption that Christian convictions indeed make an impact on and have practical implications for different public spheres of society.
… in a situation of secularism in which the faith perspective is lost and religion is privatised, a social system like the economy tends to lose its transcendent purpose
“See”: How economics and theology understand inequality
The two authors used the see-judge-act model to gain insight into economic inequality. In terms of “seeing”, theologians must acknowledge the moral difference between inequalities arising from relational or exploitative processes rather than achievement processes as well as a tolerable level of inequality arising from differences in God-given talents and the differential use of opportunities. Even under conditions of perfect freedom, fairness and equal opportunities, the ideal of a fully egalitarian and equal society will not be realised because of these achievement differentiations.
So, the assumption that people will realise their full potential under conditions of equal opportunities do not always materialise. When inequalities are then entrenched in certain groups, they can become morally unacceptable, no matter what the sources are. From a theological perspective, then, what might be the sources of an economic system that produces morally unacceptable levels of inequality? What do the Reformed confessions “see”?
The commodification of the world: Firstly, in a situation of secularism in which the faith perspective is lost and religion is privatised, a social system like the economy tends to lose its transcendent purpose. It often permeates other social spheres with the logic and language of commodification which may acquire a totalising and exclusive perspective on all of reality. The primary confession that Jesus is Lord includes the realm of economics and economic systems. The markets have reached a situation where monetised thinking is no longer restricted to the exchange of goods and services. The commodification of every life sphere (such as sport, religion, knowledge and leisure) has extended the logic of the market (including enhanced self-interest, efficiency and return on investment) to become a framework from which all of reality is viewed.
By way of analogy, the church found itself in a position where it needed to confess the lordship of Christ when alternative narratives have assumed a normative significance. The Barmen Declaration was a response to the threat posed to that lordship over church and state by the totalitarian Nazi regime; the Belhar Confession was a response to the disunity, irreconcilability and injustice under apartheid; and the Accra Confession sought to uphold the sovereignty of God over all creation threatened as it was by a specific interpretation of the global economic system. It is the nature of confessing to speak the truth and reject a falsehood. It is from this perspective that one should read Article 10 of the Accra Confession: “This [neo-liberal economic globalization] is an ideology that claims no alternative, demanding an endless flow of sacrifices from the poor and creation. It makes the false promise that it can save the world through the creation of wealth and prosperity, claiming sovereignty over life and demanding total allegiance which amounts to idolatry.”
One should be careful to not deny that God can and does make use of institutions like the state and the economy to care for us. The problem occurs when, from our side, we shift our trust from God to the market in its ideological form, deriving our comfort from other sources than Christ; and when, from the side of the market, it claims our total loyalty to its logic as the only perspective on self, society and the environment. From a theological perspective, an economic system that tends to subject all forms of life to market logic, and in its ideological form claims to be the only valid interpretation of reality, also tends to lose a normative link to moral values like equality, social care and restorative justice. These values lie beyond the system itself, and it is from them that the system should also take guidance in the formulation of economic and social goals.
The commodification of every life sphere … has extended the logic of the market … to become a framework from which all of reality is viewed.
Self-interest versus the common good: Secondly, the belief that it is possible to create a humane society and use nature in an ecologically sustainable way via a system of self-interested (capitalism) or centrally planned cooperation (socialism) is questioned by the confessions as unredeemed persons, because of their corrupted nature, are unable to do good. The Heidelberg Catechism is clear that outside of Christ we live in sin and misery – we are “wholly incapable of doing any good”. In an economic system predicated upon the promotion of self-interest, the common good is often lost. Instead of showing kindness and preventing hurt, a system of envy is created.
From a theological perspective, the relative success of capitalism as a wealth generator lies in its reliance on and promotion of people’s self-mastery, which also leads them to become “exploiters and despoilers of the world”.
Capitalism brings ambiguous results: enormous wealth is created amidst grinding poverty and weak re-distribution mechanisms; industrial cooperation has produced goods on a massive scale but with devastating ecological effect; and commercial advertising spurs on consumer spending but consumerism leads to a joyless economy in which everything has a price but nothing has value. From the confessions’ perception these ambiguities spring from an over-confidence in the notion that, because each person “intends only his own gain”, it will increase the wealth of society.
Theology does not – at a first take – share the optimism underlying human cooperation as set out in the Adam Smith tradition. From the perspective of the confessions, self-interest – even a temporary suspension of natural self-interest for the sake of impartial observation – can hardly be recognised as a virtue. The ambiguities of an economic system built on self-interest find their theological roots in incurvatus in se; it is the turn inward on oneself that bends the gifts of God to seek all things for its own sake and for the promotion of the self.
Three qualifications of this view are necessary. Firstly, redemption by itself does not guarantee good and just outcomes. Christians are often blinded by ideologies and even go so far as to defend injustices and unjust systems on the basis of the gospel. Both the Barmen Declaration and the Belhar Confession recognise that there need not be a direct correlation between Christian faith and the seeking of justice. What should have been confessed as wrong, grows over time into a powerful deception “to seem self-evidently right and to be ideologies foreign to good works”. Hence, confession often requires “the dismantling of structures of thought” that grew over many years. The road to reconciliation and justice is accompanied by pain and sadness. It is never easy to give up a genuinely held, but nevertheless false, belief.
Secondly, what about the good performed by virtuous non-religious people who fight for the rights of the poor, fairer global trade, ecological care, and other worthy causes? Outside of Christ’s justification, the performance of these goods cannot be seen as good works in the narrow confessional definition. Yet, they do contribute to preserve good order in society and nature. As such they should be supported by Christians and the institution of the church. Theologians and the church should indeed endorse efforts by business people to give a more humane and ecologically responsible face to capitalism via, for example, applying codes of good governance, using integrated reporting, subscribing to the Global Compact, creating socially responsible investment indices, and addressing the sustainable development goals.
The third observation flows from the confessions “seeing” that inequality arises from an unjust economic system. The Belhar Confession warned that the powerful and privileged “selfishly seek their own interests and thus control and harm others”. The Accra Confession rightly declares that ecological destruction is the result of pursuing unrestrained growth among industrialised nations. There are hints as to what the confessions mean with an unjust economic system, though the claims are not backed with empirical data. Although there is abundance in the world as a whole, the distribution systems do not benefit the poor. There is a strong power asymmetry among rich and poor, allowing the exploitation of the defenceless and the power to protect the existing order to become embedded in the system. Technology creates further divisions between those who benefit from and those outside the networked society. In addition, the population expansion puts pressure on social systems and the environment.
Instead of showing kindness and preventing hurt, a system of envy is created.
“Judge”: How economics and theology assess the moral qualities of inequality/inequality
Economists are recognising that inequality along various dimensions – such as income, wealth and opportunity – merits both analysis and, possibly, policy intervention.
There are two major theories for why one might not be concerned with inequality. Firstly, it is inequality (in ability, resources, perspectives, etc.) that creates the opportunity for specialisation and cooperation. Since the rise in prosperity depends in part on specialisation and cooperation, inequality seems to play at least a causal role in the process. According to this line of reasoning, one risks stifling the most powerful force for economic progress if one strives to eliminate differences. Secondly, others with forbearance for inequality see it as the consequence of the purposeful action that leads to private and social gains. Some scholars argue that specialisation is productive and requires cooperation and trade. In this line of reasoning, inequality emerges as the consequence and not as the initiating factor of productive specialisation and cooperation.
All the economic arguments about the potentially instrumental value of inequality rely on the assumed fairness of the process by which the inequality emerged. The premise is that the inequality emerging from voluntary exchange is unobjectionable while inequality due to plunder, exploitation, coercion or exclusion does not serve any of the instrumental roles envisaged here.
To ensure the equality of opportunity implied by voluntary cooperation, economists focus on public education as well as the removal of special privileges that artificially protect the incomes and positions of certain individuals and classes. However, they are reluctant to take the step towards ensuring equality of outcomes since such interventions may well undermine the instrumental value of inequality in the process of specialisation and trade – and thus bring about a trade-off between equality and efficiency.
Capitalism brings ambiguous results: enormous wealth is created amidst grinding poverty and weak re-distribution mechanisms
Applying theology
Next, we take a look at the criteria by which the confessions seek to judge morally unacceptable inequalities or unjust economic systems. The first criterion by which the church judges any system or institution is via deep-searching and humble self-criticism. The best example in the confessions is the Accompanying Letter to the Belhar Confession: “Along with many, we confess our guilt in that we have not always witnessed clearly enough in our situation and so are jointly responsible” that certain convictions and actions that are wrong, grew over time “to seem self-evidently right”.
However, the church knows that self-deception might still be at work. Confessing is a humble act. The church, therefore, speaks “pleadingly rather than accusingly”.
The Confession of 1967 makes this self-critical remark: “A church that is indifferent to poverty, or evades responsibility in economic affairs, or is open to one social class only, or expects gratitude for its beneficence, makes a mockery of reconciliation and offers no acceptable worship to God.” The Accra Declaration refers to “the complicity and guilt of those who consciously or unconsciously benefit from the current neoliberal economic global system”. It therefore seems clear that theology should be a humble dialogue partner in the discussion of economic justice.
The second set of criteria is summarised in the concept of justice in its relation to peace or reconciliation with a particular focus on marginalised people. In the Biblical traditions there is an integral link between God (on the one hand) and justice and peace (on the other). The theological judgement of inequality is firstly to be sought in the fact that such an economic situation contradicts the very nature and revelation of God: the Belhar Confession states that God has revealed himself “as the One who wishes to bring about justice and true peace among men”. To allow and defend injustice is tantamount to acknowledging “other events and powers” (including economic theories that would defend injustices) as sources of revelation.
… advertising spurs on consumer spending but consumerism leads to a joyless economy in which everything has a price but nothing has value
From this perspective, theology cannot endorse the arguments for unjust inequality set out above. Although one understands the need for and benefits of specialisation in economic cooperation, all inequality beyond reasonable differences are destructive whether such inequality is the cause for or the result of specialisation. Inequality resulting from voluntary exchange might be defended, but only if the underlying assumption of fair and open processes is realised to a considerable degree. However, this fair access is mostly absent in transitional societies and in the context of global competition between societies.
Secondly, the theological judgement of inequality is related to the fact that inequality is an expression of disunity among people and, therefore, it contradicts reconciliation. Morally unacceptable inequality is an injustice and contradicts peace and social cohesion. The threefold structure of the Belhar Confession is unity, reconciliation and justice. There are reciprocal relations among these three. Reconciliation comes via peace-making in the belief that God, through His Word and Spirit, “has conquered the powers of sin and death, and therefore also of irreconciliation and hatred, bitterness and enmity”, opening up new possibilities of co-existence in society. The Confession of 1967 emphasises that the mission of the church is to be a reconciling community.
What theology terms reconciliation can be linked to the economic argument above that inequality threatens social sustainability which in turn is a prerequisite for trust, business confidence, investment and growth. In divided societies, cooperation suffers, weak institutions cannot facilitate macro-economic processes, and the cost of trade risks increases significantly. In secular terms, reconciliation refers to the social (and ecological) capital required for business to operate efficiently.
The third theological criterion related to justice and inequality is an explicit preferential option for those who suffer and who are often forgotten. There is growing ecumenical consensus that preferential justice is embedded in the Christian tradition. The Belhar Confession states that “… in a world full of injustice and enmity He [God] is in a special way the God of the destitute, the poor, and the wronged”. God brings justice to the oppressed and intervenes on behalf of the marginalised. This refers to those who have fallen out of the job and consumer market, and are, therefore, often without social care and respect. This includes the hungry, the prisoners, the blind, the downtrodden, the strangers (refugees), the orphans and the widows.
“Act”: What remedies do economics and theology offer to alleviate economic inequality?
What economists call the primary income distribution is the labour market outcome in the economy. Policy can affect this income distribution by impacting the factors that cause different rewards in the labour market. The authors of this article argue that churches can play a powerful role in generating more egalitarian primary distribution in unequal societies such as South Africa.
What should have been confessed as wrong, grows over time into a powerful deception “to seem self-evidently right and to be ideologies foreign to good works
Various studies have confirmed the redistributive power of cash transfers such as grants. In South Africa, the social security system – with its social old age pension, disability and foster care grants and child support grants – is well developed. These grants, which have led to a considerable rise in social assistance expenditure by government, are benefitting more than a quarter of the South African population.
But how is social assistance reducing income inequality? The social sector of South Africa’s government budget is progressive. Grants are especially well targeted to the poor. To fund these grants requires taxes. The redistributive impact on the revenue side of a government’s budget is affected by the structure of taxes, the top marginal tax rates and the progressivity of tax scales. The redistributive impact of government revenue therefore depends greatly on different tax vehicles such as income, corporate, consumption, real estate, inheritance, social security and trade taxes.
The revenue side of the South African budget closely resembles that of a developed economy and stands in sharp contrast with the typical budget structure of countries at a comparable level of per capita income. Also, the tax system in South Africa comprises a large tax base.
The road to reconciliation and justice is accompanied by pain and sadness. It is never easy to give up a genuinely held, but nevertheless false, belief.
The theological response to inequality
When it comes to interventions to alleviate inequality, a general first point needs to be made: the most urgent cooperation between theology and economics is in the area of policy studies. It is clear that primary income distribution, which is the outcome of the labour markets, can be addressed via budgetary measures on both the income and expenditure side. Policy discourse is for theologians the most difficult of the ethical discourses because it requires compromises between high normative ideals of justice and what is practical and achievable under the constraints of monetary policy and political ideology. It is also relatively easier to express normative principles than actually take responsibility for their interpretation and policy implementation in everyday life.
However, herein lies the most fruitful cooperation: the preferential option for the poor in theology is a powerful rhetorical tool to move public policy while economists can demonstrate that in, say, social security provision, the state is able to target the poorest in a most effective manner. The ideal of greater re-distribution toward a more egalitarian society remains an ideal which theologians and some economists would put forward while the feasibility constraints of public revenue point toward a balancing act with regard to income tax raised. The point of balance in a budget will always be contentious, but the fact remains that such a balance (compromise between private income and public taxation) needs to be found.
What is the task of the church in situations of injustice?
There are three possibilities – the church as confessing, sharing and solidarity community.
The church as confessing community refers to the fact that situations sometimes arise where the very truth of the gospel is threatened. It is important to understand that a confession is always simultaneously addressed to the inside (the public of the church itself) and the outside (the array of other publics, including the economy). A prophetic critique of economic injustices is not adequate for various reasons. Nevertheless, it does not detract from the importance of the continued confessing voice of the church in combination with other forms of ethical discourse.
… fair access is mostly absent in transitional societies and in the context of global competition between societies
Although one understands the need for and benefits of specialisation in economic cooperation, all inequality beyond reasonable differences are destructive whether such inequality is the cause for or the result of specialisation. Inequality resulting from voluntary exchange might be defended, but only if the underlying assumption of fair and open processes is realised to a considerable degree. However, this fair access is mostly absent in transitional societies and in the context of global competition between societies.
Secondly, the theological judgement of inequality is related to the fact that inequality is an expression of disunity among people and, therefore, it contradicts reconciliation. Morally unacceptable inequality is an injustice and contradicts peace and social cohesion. The threefold structure of the Belhar Confession is unity, reconciliation and justice. There are reciprocal relations among these three. Reconciliation comes via peace-making in the belief that God, through His Word and Spirit, “has conquered the powers of sin and death, and therefore also of irreconciliation and hatred, bitterness and enmity”, opening up new possibilities of co-existence in society.
What theology terms reconciliation can be linked to the economic argument that inequality threatens social sustainability which in turn is a prerequisite for trust, business confidence, investment and growth. In divided societies, cooperation suffers, weak institutions cannot facilitate macro-economic processes, and the cost of trade risks increases significantly. In secular terms, reconciliation refers to the social (and ecological) capital required for business to operate efficiently.
The third theological criterion related to justice and inequality is an explicit preferential option for those who suffer and who are often forgotten. There is growing ecumenical consensus that preferential justice is embedded in the Christian tradition. The Belhar Confession states that “… in a world full of injustice and enmity He [God] is in a special way the God of the destitute, the poor, and the wronged”. God brings justice to the oppressed and intervenes on behalf of the marginalised. This refers to those who have fallen out of the job and consumer market, and are, therefore, often without social care and respect. This includes the hungry, the prisoners, the blind, the downtrodden, the strangers (refugees), the orphans and the widows.
“Act”: What remedies do economics and theology offer to alleviate economic inequality?
What economists call the primary income distribution is the labour market outcome in the economy. Policy can affect this income distribution by impacting the factors that cause different rewards in the labour market. The authors of this article argued that churches can play a powerful role in generating more egalitarian primary distribution in unequal societies such as South Africa.
Various studies have confirmed the redistributive power of cash transfers such as grants. In South Africa, the social security system – with its social old age pension, disability and foster care grants and child support grants – is well developed. These grants, which have led to a considerable rise in social assistance expenditure by government, are benefitting more than a quarter of the South African population.
But how is social assistance reducing income inequality? The social sector of South Africa’s government budget is progressive. Grants are especially well targeted to the poor. To fund these grants requires taxes. The redistributive impact on the revenue side of a government’s budget is affected by the structure of taxes, the top marginal tax rates and the progressivity of tax scales. The redistributive impact of government revenue therefore depends greatly on different tax vehicles such as income, corporate, consumption, real estate, inheritance, social security and trade taxes.
The revenue side of the South African budget closely resembles that of a developed economy and stands in sharp contrast with the typical budget structure of countries at a comparable level of per capita income. Also, the tax system in South Africa comprises a large tax base.
The theological response to inequality
When it comes to interventions to alleviate inequality, a general first point needs to be made: the most urgent cooperation between theology and economics is in the area of policy studies. It is clear that primary income distribution, which is the outcome of the labour markets, can be addressed via budgetary measures on both the income and expenditure side. Policy discourse is for theologians the most difficult of the ethical discourses because it requires compromises between high normative ideals of justice and what is practical and achievable under the constraints of monetary policy and political ideology. It is also relatively easier to express normative principles than actually take responsibility for their interpretation and policy implementation in everyday life.
However, herein lies the most fruitful cooperation: the preferential option for the poor in theology is a powerful rhetorical tool to move public policy while economists can demonstrate that in, say, social security provision, the state is able to target the poorest in a most effective manner. The ideal of greater re-distribution toward a more egalitarian society remains an ideal which theologians and some economists would put forward while the feasibility constraints of public revenue point toward a balancing act with regard to income tax raised. The point of balance in a budget will always be contentious, but the fact remains that such a balance (compromise between private income and public taxation) needs to be found.
What is the task of the church in situations of injustice?
There are three possibilities – the church as confessing, sharing and solidarity community.
The church as confessing community refers to the fact that situations sometimes arise where the very truth of the gospel is threatened. It is important to understand that a confession is always simultaneously addressed to the inside (the public of the church itself) and the outside (the array of other publics, including the economy). A prophetic critique of economic injustices is not adequate for various reasons. Nevertheless, it does not detract from the importance of the continued confessing voice of the church in combination with other forms of ethical discourse.
Thus the first intervention in arresting economic inequalities is to confess the counter-truth of justice and peace. It is especially the task of the ecumenical church to address matters of economic injustice in cooperation with policy bodies like the United Nations, International Monetary Fund, World Bank, World Economic Forum, and national and local governments.
It is crucial that economists and theologians work together. This will ensure the credibility of the prophetic voice which is backed by empirical data. There must be a move toward policy alternatives where a balance is sought between what is ideal and what is feasible.
The church as sharing community refers to the ideal that the church demonstrates in its own life the embodiment of justice and peace. In the context of negative individualism, self-centred accumulation of wealth, using power to attain and maintain privileges at the expense of others, and the building of social structures of inclusion/exclusion along class lines, the church community must stand as visible symbol of an alternative life.
Where the church itself is sociologically structured on the basis of class or where a gospel of prosperity is preached, the credibility of the incarnation is compromised. Equally true, where the church itself becomes an exemplar community of alternate altruistic values to the competitive and performance culture of the economy, the incarnation is credibly embodied. Furthermore, the values of justice and peace and sharing must be embodied in the faith community and this embodiment has significance by and for itself: the disciples are a light to the world.
In many countries churches are powerful institutions in civil society. Churches do exceptional work in social services, with or without state support, and often in association with faith-based NGOs. Many of these activities are geared toward poverty relief and empowering people to regain dignity.
However, if economists demonstrate that quality pre-school and primary education are the most powerful long-term forces for redistribution and upliftment, the church must seriously consider (re)establishing and expanding its historical concern with education. This is a form of solidarity beyond the reactive, and will over time alleviate economic inequality in real terms.
… if economists demonstrate that pre-school and primary education are the most powerful forces for redistribution and upliftment, the church must consider … its historical concern with education.
This bi-disciplinary journey is challenging. The two starting points in theology and economics provide a conceptual and empirical grounding for a description of inequality: some economists argue for the positive instrumental value of inequality, others for the negative consequences of inequality for economic growth. From a theological perspective some clarification was provided regarding the optimistic tradition of cooperation. Hence, it was claimed that high levels of inequality remain unacceptable irrespective of its source in relational, exploitative or achievement systems.
It is encouraging to see that theological and economic discourse can find common expression in policy studies: reconciliation and social capital describe the same ideal from different perspectives, including economists’ warning against the creation of patrician societies. The preferential option for the poor finds expression in social grants policies targeting the most vulnerable in society and in progressive tax regimes in which those better off provide the funds to serve those worse off. The discussion of budget policy demonstrated the requirement in applied ethics of compromises between the ideal (a more egalitarian society) and the real (feasibility constraints).
This discourse from two different viewpoints – theology and economics – enables empirical data to be placed in dialogue with ideals of justice and it points to a third way in which economic inequality can be addressed via policy interventions in which the church (can) play a key role.
- The original article, titled “Economic Inequality: Economics and Theology in Dialogue”, was published in 2018 in the International Journal of Public Theology, 12(1), 73-101. Click here to access the full article.
- Prof Piet Naudé is Director of the University of Stellenbosch Business School. He lectures in ethics related to politics, economics and business.
- Prof Stan du Plessis is the Chief Operating Officer and Professor of Economics at Stellenbosch University.