While one of the most salient features of globalisation is the growth of the financial markets, “financial markets are certainly not an innovation of our day: for a long time now, in different forms, they have been seeking to meet the financial needs of the productivity sector. The experience of history teaches that without adequate financial systems, economic growth would not have taken place.

Large-scale investments typical of modern market economies would have been impossible without the fundamental role of mediation played by financial markets, which among other things brought about an appreciation of the positive functions of savings in the overall development of the economic and social system.

 If the creation of what is called the ‘global capital market’ has brought benefits, thanks to the fact that the greater mobility of capital allows the productivity sector easier access to resources, on the other hand it has also increased the risk of financial crises.

The financial sector, which has seen the volume of financial transactions far surpass that of real transactions, runs the risk of developing according to a mentality that has only itself as a point of reference, without being connected to the real foundations of the economy.”

John Paul II at a meeting of the Centesimus Annus Pro Pontifice Foundation in 1999 expressed this concern. He noted that the financial sphere has grown so much that it has acquired its own autonomy from the rest of the economy.

“A financial economy that is an end unto itself is destined to contradict its goals, since it is no longer in touch with its roots and has lost sight of its constitutive purpose. In other words, it has abandoned its original and essential role of serving the real economy and, ultimately, of contributing to the development of people and the human community. 

In light of the extreme imbalance that characterises the international financial system, the overall picture appears more disconcerting still: the processes of deregulation of financial markets and innovation tend to be consolidated only in certain parts of the world.

This is a source of serious ethical concern, since the countries excluded from these processes do not enjoy the benefits brought about but are still exposed to the eventual negative consequences that financial instability can cause for their real economic systems, above all if they are weak or suffering from delayed development” 

“The sudden acceleration of these processes, such as the enormous increase in the value of the administrative portfolios of financial institutions and the rapid proliferation of new and sophisticated financial instruments, makes it more urgent than ever to find institutional solutions capable of effectively fostering the stability of the system without reducing its potential and efficiency.

It is therefore indispensable to introduce a normative and regulatory framework that will protect the stability of the system in all its intricate expressions, foster competition among intermediaries and ensure the greatest transparency to the benefit of investors.”

Pope John Paul II highlighted that from an ethical point of view, the fact that the financial system has acquired its own autonomy, creates the need for new principles to guide our judgments.

In the old-style economy there was a clear relationship between the amount of work done and the quantity of wealth produced. But in financial markets, enormous sums can be earned without the need for much work – all some have to do is buy or sell the right stock at the right time.

John Paul II reminded however that we should keep in mind that financial activity must be directed to serving the common good of the human family. What therefore becomes of paramount importance is the need to develop codes of conduct for the financial sector, since there is no international juridical or normative framework to guide financial markets. 

This is important, Pope John Paul II observed, because in times of financial crises it is normally the weakest who pay the highest price. This however is not to say that globalising markets in themselves are bad; they are not to be condemned summarily. 

Christians who work in the financial sector, are called upon to apply the principles of social justice in their activities. Pope John Paul II said "The objective of all your activity in the financial and administrative field must always be never to violate the dignity of man and, for this reason, to build structures and systems that will foster justice and solidarity for the good of all”.

Next week we look at the role of the international economy in an era of a global economy. 

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