By Antonio Argandoña

Not long after John Paul II died, a university colleague asked me: Is there anything, in all that the late Pope said, that is of interest to economists? The question rather took me aback. John Paul II was not an economist, so, o­n the face of it, he was not likely to have much to contribute to our discipline. And yet I replied: Yes, there is. Yes, he said certain things that are interesting, especially at a time when the limits of economics in relation to psychology, sociology, philosophy or politics are becoming increasingly apparent. Or, in some cases, theology. And, yes, what he said about the economy sounds very relevant today.

Let's just take the example of the business firm. We economists have some very good explanations of what a business firm is. An institution created to maximize economic efficiency, which means that it has to concentrate o­n maximizing value for shareholders. A set of contracts that binds the factors of production in order to achieve that maximum efficiency, under the CEO's baton. An island of authority -"command and control"- in an ocean of democracy -the market- to optimize that efficiency.

I imagine that John Paul II would have agreed with those explanations. But he would have thought that they fall short. In an encyclical published in 1991, he said that a business firm is, first and foremost, a "society of persons". No doubt he would have liked the idea of efficiency: it's good if a company is as efficient as possible. But efficiency is not an end, as economists often seem to imply, but a means.

Organizations exist to serve people: that was his key idea. Imagine: it's late, it's raining, and the bus hasn't arrived. o­ne of the people at the stop suggests taking a taxi and sharing the fare. Three or four others agree. There, already, you have the makings of a simple human organization. Of course everybody wants to be efficient: not to get soaked, not to get home too late, and not to spend more than necessary o­n transportation... That's economic efficiency. But if they hail a taxi, it's not because they want to make the society we live in more efficient. What they want is to satisfy their own needs. The organization, that miniature business firm consisting of four strangers in a taxi, is there to serve them all. And the taxi driver, too, of course. And their families: the whole of society.

John Paul II acknowledged the role of profit "as an indication," he said, "that a business is functioning well". "When a firm makes a profit, this means that productive factors have been properly employed [that is the kind of efficiency that we economists like to talk about] and corresponding human needs have been duly satisfied." In other words, not o­nly the needs of the consumers in the market, but also the needs of the people in the company (owners, employees, managers) and those around it (customers, suppliers, local community).

"In fact, the purpose of a business firm is not simply to make a profit, but is to be found in its very existence as a community of persons who in various ways are endeavoring to satisfy their basic needs, and who form a particular group at the service of the whole of society," he said in 1991. And a few years earlier, in 1982, in Barcelona, he reminded us that "business firms are called upon to fulfill a social function that is deeply ethical: that of contributing to the perfection of man, every man, without discrimination". What John Paul II said does not contradict what we economists say. After all, we're the o­nes who know about economics, not him. But he reminded us that economic institutions exist to serve man.

In business firms, "the role of human work is becoming increasingly important as the productive factor both of non-material and of material wealth". What lies at the core of the business firm? When Henry Ford started his company, the most important thing was the plant, the physical capital. Today, in an engineering firm, an advertising agency, a consultancy, even in an automobile factory, the most important thing is people, human capital. What John Paul II said sounds - as I said before- very relevant today.

I think his message may be of interest to social scientists: not because he has anything to add to our discipline, but because he can help us to think about the meaning of our discipline and its underlying assumptions. Obviously, the business firm is a tool of efficiency, and in that sense we economists are o­n the right track. But it is more than just a tool of efficiency. And that is where we economists have some serious learning to do. Because neither the religious authorities nor the great philosophers are going to do the heavy lifting for us. That's our job.



Antonio Argandoña is professor and chairman of the department of economics and holds IESE's 'la Caixa' Chair of Corporate Social Responsibility and Corporate Governance. He works principally in the areas of macroeconomics and monetary economics, international economics and applied ethics in economics and business and corporate social responsibility. He has held teaching appointments at the universities of Barcelona, Malaga and Navarra.

A version of this article was published in "El País" (Cataluña), in Spanish 14/04/05.

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