Tuesday, July 7, 2009

Pope calls for new economic system

The Washington Post today reports that the Pope has weighed in on the current financial situation. He bemoans that:
"Without doubt, one of the greatest risks for business is that they are almost exclusively answerable to their investors, thereby limited in their social value."


I think the Pope is a little off the mark here. There is actually tremendous social value in an enterprise whose goal is to maximize shareholder wealth. First, millions of us rely on these firms to create wealth for our retirement. Second, maximizing shareholder wealth often results in greater resources being available for charitable work - take the Bill and Melinda Gates foundation for example. Third, the free market system in which capital flows to the most productive use is responsible for the improvement of the lives of millions - through medical advances, technology etc.

I don't think that this is the first time the Pope has been off the mark, but this is a finance blog so we won't go there.