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It is not that there was a lack of government regulation of the financial sector. To put the regulation of finance into some kind of context in the UK, from 1979 to 2010 there was an increase from one government regulator for every 11,000 people employed in finance to one regulator for every 300 people employed in finance. And this excludes the growth of compliance officers working within banks themselves. At that rate of growth, by the time today’s students retire, there will be more financial regulators than people working in finance — again excluding compliance officers.

There was no shortage of financial regulation: it just did not seem to have the effects hoped for — indeed, much of it had the opposite of the effects hoped for.
In addition, one of the characteristics of the regulatory interventions of the past 40 years was that the taxpayer came to underwrite the reckless behaviour of financial institutions. Given a Christian understanding of human nature, nothing can be more foolish than underwriting imprudent and risky behaviour in a situation where those indulging in the behaviour take the profits and society as a whole bears the losses. It is certainly not how to help people “choose the good”.

My point is not in any way to excuse those responsible who worked within banks in the 2000s. The point is that nearly all actions taken by regulatory authorities or central banks made the financial crash either no less likely or more likely. Those who regulated banks were carved out of the same block as the rest of humanity and share the same imperfections as the rest of us.

So, where do we go from here? Pope Francis often says that we don’t want unfettered markets. He is right and his intentions in commenting on these issues are certainly good. But, a free economy no more equates to unfettered markets than freedom from government interference in sexual relationships equates to unfettered promiscuity. The issue is not “fettered versus unfettered”, the question is, “Who should do the fettering?”

Fortunately, the rich tradition of Catholic social teaching does have something to tell us about how to approach these issues, though it has to be said that discussion of such things has been less apparent in recent years. The particular aspect that I want to focus on is the way in which non-governmental institutions can regulate economic and civil life.

Centesimus Annus, for example, pointed out: “Another task of the state is that of overseeing and directing the exercise of human rights in the economic sector. However, primary responsibility in this area belongs not to the state but to individuals and to the various groups and associations which make up society.” These would include professions, trades unions, and so on.

Rerum Novarum
made similar points back in 1891. The important principle in Catholic social teaching is the principle of subsidiarity which was defined in a Papal encyclical letter of 1931, Quadragesimo Anno, in which it was stated: “It is an injustice and at the same time a grave evil and disturbance of right order to assign to a greater and higher association what lesser and subordinate organisations can do.” In other words, in this field of regulating the economy perhaps civil society and other institutions should be the main players.

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