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Walter Lesch

Wage Justice - a Pious Wish?

 

From: Stimmen der Zeit, 12/2008, P. 819-830
webmaster's own, not authorized translation

 

    Excessive manager salaries and the debate about minimum wages anew raise the issue of wage justice. WALTER LESCH, professor of social ethics and moral philosophy at the Catholic University of Louvain-la-Neuve, examines ethical theories on the issue of wages.

 

Issues of fair wages are less passionately discussed in times of full employment and the feeling of economic security than in periods of unemployment and an immediate threat through the labour market's restructuring. The current debates {1} are undoubtedly much influenced by the experience of crises and the loss of clear standards when it is about the assessment and the control of business processes and of abortive developments. But where economic ethical competence regarding the future of the working society is more than ever in demand we meet with elegant restraint among ethical specialists. Wage justice, after all one of the classic themes in the conversation between economics and ethics, cannot so simply be defined as we would like.

Only in 1981 Pope John Paul II in the encyclical "Laborem Exercens" described "the question of a fair wage for the work carried out" as "the key element of social ethics" (No. 19) {2}. Of that in the current efforts in that field is - apart from a few initiatives - relatively little to be felt. But there are, as cause of public outrage, extreme phenomena which almost provoke spontaneous comments. The lowering of wages below a certain minimum intuitively seems to be just as unacceptable as the striving for astronomically high manager salaries, the immodesty of which is beyond the imagination of ordinary citizens. On the one hand wealth felt as scandalous and on the other hand sinking under the borderline of the subsistence level through no fault of one's own are the two issues which for some months have again given much food for disputes and which compel us again to take up the interrupted economic ethical discourse.

 

Declaration of Bankruptcy of Ethics?

An elementary sense of decency and appropriateness tells us what extremes should be avoided. But the "golden mean" can by no means be clearly defined. We are faced with the dilemma to operate with two basic assumptions which come into conflict with each other. If you look at the literature on economics and business ethics of recent decades, it seems to be an incontestable dogma that the manner of speech of 'fair prices and wages' irretrievably belongs to the past.

 


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For there were no absolute criteria for fixing prices and wages that could be described as "fair". The always only temporary fixing of those dynamic economic quantities was primarily an effect of the market tendency, which had as little as possible to be disturbed by irrelevant factors, because otherwise undesirable effects would be the result of the wage-price spiral. With that verdict all those ethical approaches are disqualified as counter-productive which distrust the power of self-regulation of the market and instead want to assert normative points of view of justice.

In the interest of maintaining an all in all rather advantageous economic system we had therefore to accept that there can not at all be wages that can be described as fair in an absolute sense. That is the one basic assumption which was less and less contradicted on the part of economic ethics. The other starting point is in a relationship of tension to it. For it is not at all true that we just blindly trust in market mechanisms. Especially wages result from highly complicated negotiation processes in which union and management play an active role and in which - while respecting the autonomy in negotiating wage rates - also additional aspects of economic, financial, labour and social policy have an effect. Wages are therefore never just the result of market effects but always also expression of normative premisses by which the application of certain control instruments can be legitimated {3}.

It would be like a declaration of bankruptcy of ethics to withdraw from the dispute over fairness in the economy and to give up in the face of the hegemonic paradigm of a liberal economic rationality. Argumentation can admittedly not be replaced by moral outrage alone. But the sense for injustice is not to be underestimated as a starting point for the search for workable rules of justice. There is also the fact that certain normative concepts are already at work in the economy and must be explicitly mentioned so that the myth can be contradicted economy could only be thought correctly as a logically consistent moral-free process.

If the research on justice, which in the past decades anew gained momentum and became interdisciplinary, does not also become clearer again in economical respect, the fatal impression very soon occurs that ideas like that of "wage justice" were fantasies of incorrigible dreamers who, perhaps even with a religious background, do not want to give up the faith in a better world. This contribution is meant as protest against such scepticism by showing why the traditional concepts of fair wages and fair income must admittedly be modified, but must by no means be put away in the archives of the history of theory.

On that occasion the hackneyed ideas of tradition are of course to be taken into account with enlightened caution. The often found Bible quote according to which the worker was worth his salary (Luke 10.7), marks a moral matter of course, but is not necessarily a help with finding concrete decisions.

 


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Provocative however is the story of the remuneration of the workers in the vineyard, (Mt 20:1 - 16) which opposes our ideas of payment dependent on performance and points in the style of the deliberately "immoral" parable beyond the criteria of a distribution doing justice to performance. Here too it would be grotesque if you wanted to formulate immediate conclusions for an appropriate wage-fixing.

When the Christian tradition asserts its entitlement to a special competence in wage matters it goes, from the perspective of sceptics, very carelessly on the uncertain terrain of legend. A narrative example of the idealization of a justice that arrives more or less automatically is an episode from the life of the in Carinthia revered Saint Hemma of Gurk ( about 1045), a wealthy noblewoman, founder of the cathedral and monastery of Gurk. She occasionally supervised the construction work and sometimes even in person took care of the payment of wages. As a builder was dissatisfied with the payment and demanded more Hemma gave him the purse and asked him to take out the money himself. The man helped himself and it turned out that it was exactly the amount to which he was anyway entitled. The edifying message is a call for moderation, because the economic things are anyway already wisely regulated. For good reasons we today do not hold it against employees that they have lost confidence in the entrepreneurial anticipation of fair conditions, and we know that there is no other way but the rational analysis of economic conditions.

 

Ethical Theories on the Question of Wages

Ethical theories as a rule have trouble with economic facts provided that one assumes that there is a deep ditch between economy's own logic and the humane values of ethics. But one then overlooks that the discourses of ethics and economics have many connecting lines. "Values" as a central category of ethics are also at home in the economic thought. As measurable quantities they could be compared with each other and brought in a relation of balancing. Precisely that ethics has always opposed when it compared the absolute category of "dignity" with those values which are eventually estimated by a price. But if ethics entirely withdraws on assertions of the in certain respects inviolable dignity, it has no longer much to say in the area of sober comparisons. Such a capitulation in the face of calculating and negotiating criteria of assessment for a humane economy would be unfortunate, because ethics would then refrain from being more than an authority of solemnly appealing to us for intentions and aims that would always be ridiculed in the harsh reality.

 


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The semantics of "price", "value" and "dignity" is therefore responsibly to be dealt with in order to avoid counterproductive polemics.

A closer look shows that economic approaches sometimes definitely meet ethical concerns. Take for example the simple assumption that wages are nothing else but prices for the work done and had therefore to be left to the price regulation of the market. But the thus assumed analogy of labour and goods market can easily be criticized. For the capacity for work put at somebody's disposal is certainly not a commodity the value of which could clearly be calculated according to the principles of exchange. Between the work carried out and the wages paid a mathematically precisely identifiable connection will never exist, because wages are always influenced also by other aspects: training prerequisites, age, individually negotiated conditions, contractual agreements. Not least every individual rate of output is to be seen in the context of processes based on the division of labour and thus depends on the team spirit of the immediate colleagues and the entire enterprise. These mutual influences and dependencies too are only difficult to be expressed in objective pay standards.

Wages are therefore de facto always withdrawn from pure competition mechanisms - much to the annoyance of those who expect from the market all the information that otherwise in the dispute shaping the public opinion inevitably remains controversial. De facto we have got accustomed to concluding from the facts of a restricted competition and a tamed market that we're entitled to be protected from the dynamics of price and wage fluctuations in line with market conditions. In accordance with that in prosperous societies with regard to the sense of justice in matters of wage a mentality corresponds that can best be characterized as "justice of vested rights" {4}. Wages must rise - in adjustment to rising costs of living, but also as recognition of an achieved professional and social status the loss or reduction of which would be felt as insult and as an existential threat {5}.

These considerations show that there's a particular story behind wages that cannot be reduced to a flawless market happening. On the other hand it is clear that neither a defiant attitude of maintaining one's living standard at any price can be the yardstick of a just society. It entirely corresponds to our intuitions of justice that performance is to be worth it, though it is not suitable as the sole criterion of pay. Although we do not live in a corporative society, in which the economic opportunities were to a large extent pre-conditioned through the birth into certain conditions, we do for good reasons not trust the optimistic slogan in every respect to be the architects of our own fortune and that we therefore have to bear responsibility for economic success and failures alike.

 


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Most of us will all our life work in employment conditions and thus have to rely on the advantages of as far as possible fairly negotiated wages. The intelligent combination of justice of performance and redistributions tailored to the needs is a quality mark of social market economy and should not be carelessly sacrificed to the naive belief in the omnipotence of the market.

In contrast to Friedrich August von Hayek (1899-1992), who regarded social justice as a "category of nonsense" {6}, but also in contrast to Karl Marx (1818-1883), who thought that a fair compensation in a capitalist class society is illusory, there are ethical attempts of a "Middle Way" which holds on to a differentiated theory and practice of justice. The Catholic social doctrine developed at the end of the 19th century represents such an attempt which contradicts the Marxist thesis of the inevitably exploitative conditions of wage-labour as well as the liberal thesis of a self-regulation of the market. According to the understanding of the Catholic tradition of social ethics wage contracts are to be brought into line with standards of justice {7}. That begins to emerge already in 1891 in "Rerum Novarum", the founding document of that social doctrine (No. 34) {8}, and grew stronger in 1931 in "Quadragesimo anno" in for the further debate about the calculation of wages momentous specifications (No. 70 - 75) {9}.

Accordingly the decisive criterion are the necessities of life of the worker and his family. This needs-based justice is related to the viability of the enterprise and the public good of society. The premiss of the family wage, taken for granted in the context of that time, bears the signature of a time when the professional activity of the husband, the housewife, and the larger number of children were standard. Although we cannot transfer that as norm to the present time, that constellation shows the complexity of the criteria for wage calculation, which, provided that they are separated from the family situation, is dependent on compensatory mechanisms. The calculation of wages therefore implies far more than the remuneration of an individual job performance and is interconnected with additional measures of family and tax policy.

The Catholic social doctrine has often been accused of holding with its world-view moulded by natural law a static understanding of justice that had nothing to do with the dynamics of business management's rationality and the complexity of modern economies or even of globalized markets. It is true that this tradition of social ethics especially in matters of salary lays claim to contributing to the taming of an unbridled capitalism, a claim that is highly topical under the present conditions. That is no less reflected in the equally controversial doctrine of the "fair price", which in questions of fair trade has also an international dimension. In matters of wage and price theories the Protestant social ethics has always been much more cautious regarding normative claims {10}.

 


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But the problems of wage justice are by no means a confessional specialty of papal encyclicals. The demand for a fair wage became also established in the Universal Declaration of Human Rights (1948); Article 23 reads:

"(1) Everyone has the right to work, to free choice of employment, to just and favourable conditions of work and to protection against unemployment. (2) Everyone, without any discrimination, has the right to equal pay for equal work. (3) Everyone who works has the right to just and favourable remuneration ensuring for himself and his family an existence worthy of human dignity, and supplemented, if necessary, by other means of social protection. (4) Everyone has the right to form and to join trade unions for the protection of his interests." {11}

Such cornerstones of social legislation have been developed further in other documents and are part of the normative self-understanding of the European Union, even if its social components are still less pronounced than it would be desirable. Of course, also here we come up against limiting factors of some postulates as e.g. the "right to work", which is morally plausible but cannot be sued for. All the more important is the agreement about the fundamental social rights in a supportive society; which must feel mass unemployment to be a scandal and cannot be satisfied with the declaration the state created no jobs, economy alone was responsible for that. What, however, matters here, is that a framework is created for the entrepreneurial activity which involves clear obligations and guarantees for all parties.

The search for social justice definitely has its place also in the calculation of wages, even if that topic up to now had no prominent value in the recent interdisciplinary research on justice. All the same it is in a sketchy way brought up in the key texts of the main reference theories, for example with John Rawls {12} and in Michael Walzers "Spheres of Justice" {13}. They express that wages are a specific and complex case of the application of distribution rules which in view of extreme inequalities must prove their worth and which, because of the imperfections of the market, sincerely test the general principles of justice {14}.

 

The Current Situation

The current problems of wage justice are embedded in a fundamental transformation of the working society, the foundations of which had become firmly established in times of economic growth and now begin to totter {15}. So there are deep cracks in the previous plausibility of a proven system of collective agreement that is more and more replaced by individual regulations.

 


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The breaks of fixed rates for wages and salaries partially even approved of by employees in order to avert the threatening loss of jobs. It goes without saying that these new structural conditions are anything but comfortable for the trade unions. On the other hand in tighter structures of competition they are, in their role as representatives of the workers' interests and authorized partners in negotiating fair working conditions and wages more challenged than ever.

Holger Lengfeld has formulated the "structural change from the principle of equality and performance to the market principle" {16} as the core of the problem. According to the principle of equality equal pay for equal work has to be guaranteed: within an enterprise and with comparable activities in other undertakings of that branch. According to the principle of performance the component is added that for the individual effort an appropriate compensation is to be paid, so that on the basis of a common basic rate fluctuations are possible. With the market principle now besides criteria are asserted which take into account the profit situation, and also may be welcome in the sense of the employees' share in the economic success of the enterprise. Nevertheless, that new standard of wage calculation is felt to be ambivalent:

"That the employees to a great extent argue in favour of the market principle is relatively unlikely, because it burdens them with a clearly higher income risk. In that respect it is to be expected that they hold on to the established standards of justice of performance and to the wage principle of equality." {17}

Lengfeld proves this thesis with results from empirical studies from the West German metal industry (1999), which are confirmed by recent studies of the years 2001 to 2003. The following trends are significant: 90 percent of the poll welcome high bonuses for high-performance employees as fair and motivating impulses. Only 40 percent find it fair when their own wage exclusively depends on their belonging to a certain tariff group, whereas 60 percent think that that is unjust and accept the use of other criteria; 90 percent want a share in the success of the enterprise. But two-thirds oppose a cut in wages in case their enterprise suffers losses.

In addition it can be noted that despite scepticism in principle about the market principle its acceptance is growing if the employees have confidence in the management's orientation towards the public good and feel the management to be transparent and competent. Furthermore the confidence in a strong position of the works committee increases the readiness to consider the linking of the wages to the successes or failures of the enterprise, provided that there are reliable monitoring bodies and the benefits and burdens are distributed fairly.

The leeway for negotiations expressed in those judgments is also reflected in studies on the sense of justice in case of dismissals and wage cuts.

 


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According to it the perceptions of injustice and the readiness to protest actions depends on whether the impression prevails that in the run-up to business decisions which are represented as "inevitable" and are at the expense of the workers, every conceivable alternative has been seriously taken into account by the parties involved. It is typical that under such prerequisites wage cuts are felt to be more unjust than dismissals.

The few references to the current restructuring and the indications of a change of mentality foreshadow how great the employees' loss in motivation as well as the crisis of the unions' legitimacy can be, when the worst comes to the worst. Lengfeld nevertheless concludes his presentation with an optimistic outlook:

"If the works committees are strong and the management seeks to achieve openness and to get confidence, the assessments regarding injustice and the losses in legitimacy linked with them can stay within limits." {18}

That assessment very aptly characterizes the approach of social science, which can concentrate on the examination of the empirically measurable attitudes towards values. The question of the persuasive power of ethical arguments, however, has thus not yet been answered. But the relevant ethical backgrounds are important, when you are to explain the beliefs and strategies of the negotiating partners in using the existing leeway, and what compromises they regard as tolerable.

 

Prospects

As provisional result can be recorded that our ideals regarding fair wages have a strong anchorage in needs-based justice and justice of vested rights. But under the economic pressure calling for more flexibility such a retreat position can hardly be kept up as only reference point, so there is no getting around constructively dealing with the performance and market criteria. Since we are given the alternative of either devoting ourselves to a radical critique of capitalism or testing ways of a more dynamic theory of justice, which may help to " deflect" capitalism {19}, the second option is preferable, when it is about offering orientation in the current conflicts of interests and to react to the extreme developments in the area of low wages as well as of top-level-salaries. So it could e.g. perfectly be worth it to examine in principle the rapid development of profits in some businesses, while at the same time the employees' wage levels and purchasing power are declining.

 


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In the sense of justice of performance the question had to be asked why an entrepreneurial action was to be rewarded that puts jobs at risk on a massive scale. Are not more sensible incentives created, if managers had to reckon with a consequent reduction of their salaries as soon as the employees' protection is sacrificed in the name of the better overall balance of the enterprise? Such trains of thought compel us to review the coherency of ideologically bogged down viewpoints. There is no reason to exclude top managers from the question of transparent criteria for the benefit of their activity both for the enterprise and for society.

In this context the works of Oswald von Nell-Breuning SJ remain invaluable, because here a fundamental analysis of capitalism is always connected with practical solutions {20}. His approach is groundbreaking for the economic and social ethics, because in questions of wage justice it never loses sight of the extremely unequal distribution of wealth, and takes the difference in power as an opportunity to give expression to the unionized employees' legitimate interests. If there is no absolute standard for calculating fair wages, everything depends on forming the basis for negotiation for a fair balance of interests as democratically as possible. It is therefore also a matter of entrepreneurial culture to put the high regard for human labour in concrete terms by giving all parties a right to a say. Nell-Breuning admittedly was not yet in a position to see that the rights to participation supported by him are now threatened by uncertainties, which partly result in a de-solidarization of the employees. This deficit of solidarity becomes visible in dealing with employees who (for whatever reasons) are less efficient, and whose social security is suspended if only criteria of performance are to be applied. From the perspective of solidarity also the growing readiness is problematic to deviate from wage standards and to enter, in the interests of job preservation, into the dangerous spiral of wage dumping.

The attempt constructively to implement fairer structures cannot be thought from the neutral observer's position but takes place in the middle of the tension between the necessities of the enterprise and the long-term work on the framework of economic responsibility. Questions of fair tax policy and redistributive measures of the welfare state are therefore also relevant for the issue of wage justice, especially since the taxes on labour wages are an important source of financing the common tasks.

The call for minimum wages established in law, which triggered fierce party political disputes in Germany whereas in many countries such regulations have already for decades been common practice, belongs into that context. The basic concern is extremely simple: It cannot be acceptable that the number of those people who are often very hard-working and nevertheless live in poverty (working poor) is steadily growing.

 


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Even in jobs with low skill levels working should insofar be worthwhile as it serves the social security and needn't be supplemented by additional payments of the welfare state. The state therefore has a very selfish interest in ensuring that employment can secure the subsistence level. Against it one argues that too high minimum wages endanger just those jobs the maintenance of which is just fought for, when the shift of production and investments abroad is the more profitable alternative. Here it appears that any wage fixing is linked with the socio-cultural criteria of the respective context and that the international comparison must not be abused to justify a levelling down. Dependent on the actual circumstances it will be necessary to examine whether models of combination wage (i.e. state wage subsidies) are preferable to too high minimum wages, provided that the latter let rather disappear jobs in the low-wage area. But in principle from the experience in an international comparison it can be referred to the positive effects of minimum wage regulations, since they help to prevent the precarious living situations in the low-wage sector.

The linking of minimal wage employment with an additional income regulated by the welfare state has already been brought up with the model of wage combination. The difficult interlinking of labour market and social security systems was recently increasingly the cause for radical reform proposals aiming at a decoupling of work and income and bringing up the idea of a guaranteed basic income {21}. The discussion of such a project would go beyond the scope of this contribution. But it is clear that with it also the reflection on wages would get entirely new dimensions, which would directly be linked to the ethical criteria of distribution and justice of sharing. This once more shows that the absence of absolute standards for a fair calculation of income does in negotiations not excuse us from looking for in each case fairer solutions and from being ready to correct traditional practices.

With all that it will be important not to let a fundamental "sense of injustice" {22} be stunned if "social justice" is to remain a trade mark of the European model of a pro-democratic society and economy. This model stands out for its ability to confront the profit interests of the shareholders with the legal claims of all "stakeholders", i.e. (to include) the totality of the actors in the economic process. That is already on the national level not easy, and in the international comparison reaches a new degree of complexity also in the inner European wealth gap.

The Christian social ethics has got a duty to pass on its heritage with uncomfortable questions and social inventiveness and to take part in the debate about the transformation of the working society.

 


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In this respect a self-critical agreement on the "key element of social ethics" is an urgent task, because the difficult matter of wage justice impressively shows what model of a fairer economy and society people are striving for and what distribution rules they are ready to accept as compensation for inequalities that will never be entirely solved {23}.

 

NOTES

{1} A first version of this text served on 26 June 2008 in the International Trade Union House in Brussels as basis for a lecture at the conference "Just Wages and Fair Income in Europe" of the initiative "Dialogue between Trade Unions and Churches in Europe", supported by the KAB Germany, the Nell-Breuning-House, the European Trade Union Institute for Research, Education and Health and Safety and the European Centre for workers issues.

{2} Texte zur katholischen Soziallehre, edited by Bundesverband der Katholischen Arbeitnehmer-Bewegung Deutschlands (Kevelaer 61985) 607.

{3} From the viewpoint of economy the labour markets are characterized by information deficits. Contracts of employment are therefore always "only incomplete contracts in which all eventualities are not exactly regulated by contract. These incomplete contracts give the parties the opportunity to behave in an opportunistic fashion and to deviate from the spirit of the contract. Fair behaviour of the parties to the contract is of central importance in that situation." See H. Ribhegge, article Wages, in: Lexikon der Wirtschaftsethik, edited by G. Enderle and others (Freiburg 1993) 624.

{4} See about this category in the context of further terms of justice W. Kerber, Sozialethik (Stuttgart 1998) 80.

{5} Corresponding to the issue of standing on the part of the employees is the question of reputation on the part of the employers who are in the position to offer fair wages and if necessary to win particularly competent and motivated employees by an above average payment. The normal payment can be completed by further advantages as well. So e.g. on the Belgian labour market beside the wage under collective agreement other privileges (company cars, shopping discounts, free Kindergarten places, etc.) which are made possible by the company are of great importance for the calculation of the monthly available income and purchasing power.

{6} Quoted from K. Homann and F. Blome-Drees, Wirtschafts- u. Unternehmensethik (Göttingen 1992) 64.

{7} See the concise summary in St. H. Pfürtner and W. Heierle, Einführung in die Katholische Soziallehre (Darmstadt 1980) 99-102.

{8} See Texte zur katholischen Soziallehre (note 2) 57.

{9} In the same place 115-120.

{10} See the text fir the Swiss Institute for Social Ethics compiled by H. Kaiser: Gerechter Preis? Materialien u. Erwägungen zu einem entwicklungspolitischen u. wirtschaftsethischen Problem, edited by H.-B. Peter (Bern 1990) with a review of the positions in Catholic and Protestant social ethics. See about the ethical problems of the price theory from the philosophical viewpoint also P. Koslowski, Prinzipien der Ethischen Ökonomie (Tübingen 1988) 261-302.

{11} Internationale Dokumente zum Menschenrechtsschutz, edited by F. Ermacora (Stuttgart 31982) 25f.

{12} J. Rawls, Eine Theorie der Gerechtigkeit (Frankfurt 1975) 338-343.

{13} M. Walzer, Sphären der Gerechtigkeit. Ein Plädoyer für Pluralität u. Gleichheit (Frankfurt 1992) 178-182.

 


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{14} An inspiring compilation of the reconstructible positions of social philosophy you find in dialogue form in W. Pfannkuche, Wer verdient schon, was er verdient? (Stuttgart 2003) 12-62.

{15} H. Lengfeld, Lohngerechtigkeit im Wandel der Arbeitsgesellschaft, in: Aus Politik und Zeitgeschichte 4-5/2007,11-17.

{16} In the same place 15.

{17} In the same place

{18} In the same place 17.

{19} See the reader with texts of 0. von Nell-Breuning, Den Kapitalismus umbiegen. Schriften zu Kirche, Wirtschaft u. Gesellschaft (Düsseldorf 1990).

{20} F. Hengsbach, Kapitalismus kritisch betrachtet Oswald von Nell-Breuning wieder gelesen, in: Misere u. Rettung. Beiträge zu Theologie, Politik u. Kultur (FS Nikolaus Klein SJ, Luzern 2007) 269-288; see particularly about that topic also 0. von Nell-Breuning, Kapitalismus u. gerechter Lohn (Freiburg 1960).

{21} See the Homepage of "Basic Income Earth Network" (BIEN): www.basicincome.org coordinated in Louvain-la-Neuve.

{22} See Sinn für Ungerechtigkeit. Ethische Argumentationen im globalen Kontext, edited by I. Kaplow and Ch. Lienkamp (Baden-Baden 2005).

{23} It is a question of credibility when the churches as major employers take as their theme wage justice with regard to their own entrepreneurial activities. In that sense there is a reference to fair wages in the Common Social Word of 1997, in the final section on Responsibility in Diakonia and Caritas (No. 245). See: Für eine Zukunft in Solidarität u. Gerechtigkeit, edited by M. Heimbach-Steins and A. Lienkamp (München 1997) 244.

 

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