Exactly how involved should the State be in the economy? Should it have an active role, a passive role or no role? This has been debated time and again. The Church’s position on this is based on several principles, two key ones being subsidiarity and solidarity.

Subsidiarity states that nothing should be done by a larger and more complex organisation which can be done as well by a smaller and simpler organisation. In other words, any activity which can be performed by a more decentralised entity should be.

What this means is that “the action of the State and of other public authorities must…create situations favourable to the free exercise of economic activity.” In other words, if the State’s involvement is likely to hinder economic activity rather than promote it; the State should not take an active role.

This principle promotes “limited” government and encourages personal freedom and so conflicts with the whole notion of centralisation and bureaucracy characteristic of the Welfare State. 

The State’s involvement “must also be inspired by the principle of solidarity and establish limits for the autonomy of the parties in order to defend those who are weaker”.

The virtue of solidarity propels individuals and communities to go beyond their narrow selfishness, and to care for their neighbours, their communities and even the world. Solidarity moves us beyond blind self-interest and private advantage; solidarity reminds us that we are social beings.

In solidarity, we are joined in a greater body of being and the fruitful sharing of common desires. This means that the State must ensure that blind self-interest of a few does not prevail in the free market economy. 

The Church however warns, “solidarity without subsidiarity, in fact, can easily degenerate into a Welfare State,” while subsidiarity without solidarity runs the risk of encouraging forms of self-centred localism. In order to respect both of these fundamental principles, the State’s intervention in the economic environment must be neither invasive nor absent, but commensurate with society’s real needs.

“The State has a duty to sustain business activities by creating conditions which will ensure job opportunities, by stimulating those activities where they are lacking or by supporting them in moments of crisis.

 The State has the further right to intervene when particular monopolies create delays or obstacles to development. In addition to the tasks of harmonising and guiding development, in exceptional circumstance the State can also exercise a substitute function

“The fundamental task of the State in economic matters is that of determining an appropriate juridical framework for regulating economic affairs, in order to safeguard ‘the prerequisites of a free economy, which presumes a certain equality between the parties, such that one party would not be so powerful as practically to reduce the other to subservience” (Encyclical Letter Centesiumus Annus, 15).

Economic activity, above all in a free market context, cannot be conducted in an institutional, juridical or political vacuum. “On the contrary, it presupposes sure guarantees of individual freedom and private property, as well as a stable currency and efficient public services.” (Centesiumus Annus, 48).

To fulfil this task, the State must adopt suitable legislation but at the same time it must direct economic and social policies in such a way that it does not become abusively involved in the various market activities, the carrying out of which is and must remain free of authoritarian – or worse, totalitarian – superstructures and constraints.” 

“It is necessary for the market and the State to act in concert, one with the other, and to compliment each other mutually. In fact, the free market can have a beneficial influence on the general public only when the State is organised in such a manner that it defines and gives direction to economic development, promoting the observation of fair and transparent rules, and making direct interventions – only for the length of time strictly necessary – when the market is not able to obtain the desired efficiency and when it is a question of putting the principle of redistribution into effect.

There exist certain sectors in which the market, making use of the mechanisms at its disposal, is not able to guarantee an equitable distribution of the goods and services that are essential for the human growth of citizens. In such cases the complementarities of State and market are needed more than ever.” 

Next week we continue to look at the role of state in keeping with the principle of the Common Good.