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Few today believe that socialist economics is the wave of the future, but most nations still find it difficult to root themselves in capitalism, democracy, and moral purpose. Most have little experience under the rule of law. Most of the countries of the former Soviet Union, most of Asia (emphatically including China), much of the Middle East, and most of Africa lack many of the cultural and political habits and institutions required for a successful capitalist system. What, then, is the proper conduct for United States businesses with respect to such countries? Let us invent a composite, fictional nation called Xandu and perform a case study.

A Test Case: Xandu

Suppose that Kavon (a fictional, new electronics firm) is scouting out the possibility of launching an operation in Xandu. The general rationale for such projects is that “constructive engagement” is the only way in which Xandu will be brought into the circle of democratic, capitalist, and law-governed nations. That rationale has merit, no doubt, but will its premises be realized? What must be done to make sure that they are?

The political system in Xandu is still a narrow, closed, paranoia-feeding system, whose elites remain in power only by maintaining total political and psychological control over their population. These elites are intelligent and have come to see that capitalist methods deliver abundance, whereas socialist methods deliver scarcity.

The Xandunese leaders, however, have studied recent history and found that many societies that first pursued economic growth then awakened demands for political democracy. That was the sequence in such countries as Greece, Portugal, Spain, South Korea, the Philippines, Kenya, Chile, and Argentina. The Xandunese leaders can see that a system of economic liberties generates a desire for political liberties. The social mechanism seems to be as follows: Successful entrepreneurs learn by experience that they are smarter and in closer touch with some realities than political commissars. They resent being badly governed. They begin to demand republican institutions–that is, institutions of representative government.

In the Xandunese diagnosis, therefore, the business corporation is the camel’s nose under the totalitarian tent. The Xandunese know that they need Western corporations, at least for the next twenty years, but they discern the essentially moral character of business and its subversive effect, since the corporation embodies principles of limited government, the rule of law, and high internal ideals of person and community. Through the practices of business corporations, these ideas spread like a “disease,” which Xandu wants to keep in quarantine. The Xandunese need the technical and moral culture of the corporation–the technology, the skills, the methods, the training. They do not want the political culture it gives rise to, however. They hope that by redoubling their efforts at control, they can quarantine liberty within the economic sphere. They want at all costs to prevent the principle of liberty from gradually seeping into the political life of Xandu.

By seven favorite devices, the Xandunese leaders attempt to control the efforts of Kavon and all the other foreign companies now bringing their factories, know-how, and new technologies to Xandu.

Seven Favorite Devices

First, the Xandunese insist that all employees of some new foreign firms be selected and “prepared” by a Xandunese personnel company. This company will be run by the Xandunese National Party, and this Party will insist on having an office on the site of the foreign firm to mediate any labor problems. From that office, it will also maintain strict political control over the work- force.

Second, to the extent that labor unions will be represented within the foreign firm, these will be limited to official Xandunese national unions and will also be used as instruments of political control.

Third, some foreign firms will be required to provide information about the behavior of their employees. For instance, showing signs of religious practice, having children beyond the mandated minimum, or reading certain political materials are matters about which the labor monitors want to be informed.

Fourth, foreign entrepreneurs who own small firms will be obliged to enter into “partnerships” with Xandunese firms owned either by the government or by freelancing officials. From time to time, in fact, a recalcitrant foreign entrepreneur has been arrested, thrown into jail, his assets seized, and communication with the outside world entirely cut off. One such imprisonment has been known to last six years. Larger foreign firms will be expected to turn a blind eye.

Concerning the government, there is no rule of law. Even one or two large firms have been bilked out of large sums–$50 million in one deal, $100 million in another–when Xandunese partners (government officials or their proxies) walked away from losses caused by their own behavior.

Fifth, foreign firms are sometimes expected to accept suppliers assigned to them. Factories in Xandu, unhappily, are very often staffed with slave labor maintained in appalling conditions and forced to toil for years for the sole benefit of the ruling Party elite. To say that standards of nutrition, sanitation, and living quarters in the Xandunese labor camps are primitive is too weak. They are intended to humiliate and to intimidate. Details have been confirmed in texts smuggled out by survivors.

Sixth, Kavon and other high-tech companies will be requested, cajoled, and compelled to share with their counterparts in government firms important secrets of U.S. satellite, missile, metallurgic, or computer technology. Xandunese engineers, scientists, and technicians have learned enormous amounts from their American counterparts, particularly when their own rockets, hired to carry aloft U.S. satellites, blew up and when, to avoid more such heavy expenses, U.S. technicians coached the Xandunese in the details of more advanced rocket technology. The latest Xandunese rockets are now being sold to at least three sworn enemies of the United States.

Seventh, the government of Xandu regards religions of the Creator (such as Judaism, Christianity, and Islam) as threats to its own total power. Because the leadership is obscurely aware that respect for the individual arises from belief in a Creator who transcends the power of governments, the government of Xandu regards personal acts of religious piety as dangers to the regime. It discreetly watches over Xandunese employees of international firms for signs of religious deviation. It especially persecutes Christians.

The Need for Advance Precautions

Under conditions such as these, the mere presence of American firms in Xandu will not necessarily lead to social change for the better. “Constructive engagement” that is complicit in the practices described above can be a delusion. If American businesses blindly, unintelligently, and uncritically collaborate with leaders who implicate them in barbarous practices, they will destroy the reputation of capitalism, democracy, and their own declared moral purposes.

If, on the other hand, fully prepared for techniques such as those listed above and armed with countermeasures and a firm insistence on living up to their own international standards, American firms might well use their bargaining power (Xandu needs their know-how) to creative moral purposes.

A handful of American firms, for instance, are led by evangelical Christians with a strong commitment to following the practice of Jesus by taking their efforts to the whole world, no matter how unsavory the reputation of the regime. Such firms will need to have procedures in place to protect themselves against complicity and scandal, lest they be taken advantage of. So, also, will other firms whose interests are predominantly economic. There may be some firms whose leaders are so cynical that they make it a practice not to raise moral or political questions about potential business activities, yet even they will need to take precautions against the sort of abuses listed above, lest large sums be lost in crooked dealings.

Corrupt government officials are found all around the world. Some firms better than others know how to draw a bright line around the edges of their own dealings and to instruct their agents clearly to live by U.S. company standards. They do not enter negotiations expecting Sunday School, but they are prepared to spot and to avoid abuses in advance.

No doubt, few are the governments that in the full range of their attitudes and practices manifest all the behaviors ascribed above to this fictional country of Xandu, yet even within countries whose record, on the whole, is good, there are rogue operations that need to be checked.

Thus, in planning their operations in Xandu, the executives of Kavon might wish to consult a checklist of all the abuses of sound business ethics that have been reported in various countries. They should certainly prepare defensive tactics. They will need an ongoing capacity to gather accurate information about their business contacts. They will also need to be on guard against contractual provisions for any practices that they would not wish to expose to the world public. They need a set of positive proposals to suggest in the place of those they find objectionable.

The chief justification for encouraging American businesses to invest in foreign societies such as Xandu is to help build up an international civil society. If and when business corporations indulge in activities that injure or destroy civil society, then they commit a fourfold evil: (1) They do things evil in themselves; (2) they distort and damage the internal moral structure of the corporation; (3) they injure the moral reputation of their firm; and (4) they defile the model of the free society to which they swear allegiance, and in whose name they justify constructive engagement in the first place.

Maintaining Moral Self-Respect

By such practices, some companies have injured the moral reputation of capitalism around the world. They have acted as if all they were interested in was their own financial gain. They have allowed observers to infer that they were indifferent to the plight of human beings and to the immoral and oppressive structures of the lawless nations in which they operated.

It is because business organizations are economic organizations rather than political or moral organizations, that they are allowed to function in totalitarian countries, while moral and political institutions are not. Nonetheless, business corporations are not merely economic institutions, for they develop to normal growth and in normal ways only within certain kinds of political regimes, and only in certain kinds of cultural ecology. In this sense, corporations are fragile plants; they grow only in certain kinds of soil. Corporations, therefore, cannot shed their commitment to law, liberty, and moral purpose as snakes shed their skin. Commitments to law, liberty, and moral purpose are part of their inner constitution.

It is therefore crucial for American and other Western firms to maintain their moral self-respect. They must become acutely conscious of their own moral and political identity, determined not to sell themselves as less than they are. Business corporations truly are the avant-garde of free societies. They represent the first wedge of the development of healthy civil societies, the rule of law, and the new birth of activities, associations, and organizations independent of government.

The first practical step for Kavon and other companies is to recognize that some rare nations may for a time, under a certain regime, be so bad that it would be a blunder for any self-respecting firm to collaborate with them. The second practical step is to outline new rules of engagement for our new international era. Such internal rules of behavior, including conditions of immediate dismissal for specified acts of wrongdoing, would guide internal corporate initiatives and practices. The cleaner the ethical principles within the company, the easier decisions are for executives in the field. They know in advance which sorts of behavior will receive moral support from the home office, and which will end in reprimand or dismissal.

Negatively, then, businesses must avoid those activities that injure or destroy the moral structure of civil society. Positively, they must proactively seek out ways–quiet ways–to nurture the political and moral soil that the universal growth of commerce requires. If they fail these responsibilities, they will win disdain from the very foreign tyrants who will welcome them like prostitutes bought and paid for. And they will not deserve to be honored by their fellow citizens back home.

By contrast, when firms fulfill their responsibilities to their own full identity, they strengthen commerce, and commerce is the foundation of a free polity. Commerce is the “commercial” half of “the commercial republic” envisioned by our founders. Commerce multiplies human opportunity and generates economic growth and thus opens upward pathways for the poor. Commerce promotes inventions and discovery. As new talents rise and obsolete technologies die, commerce constantly stirs the circulation of elites. Commerce helps to establish a complex system of checks and balances. Further, commerce makes resources available for projects outside the orbit of state activities and thickens social life while subtracting from the power of the central state. It gives incentives to enterprise and character and inculcates an important range (but not the full range) of moral virtue, especially the virtues necessary for prudent living and the rule of law.

A Highly Moral Profession

To summarize, the success of many new businesses from the bottom upward is crucial to economic growth. The success of these businesses is crucial to the success of democracy, especially where large majorities are poor. All these goods belong not solely to Americans, but to all people on earth. To help set in place the preconditions for the achievement of these great social goods–to help break the chains of worldwide poverty–is the international vocation of American business.

Being a business leader today, then, is a highly moral profession. The bad news is that one can fail at it. The good news is that one can succeed.


The presidents of three nations – the Czech Republic, Poland, and Slovakia – have given Michael Novak the highest award they can bestow on a foreign citizen. Each cited Novak’s work as human rights ambassador under Ronald Reagan, his eleven years of service on the boards of Radio Free Europe and Radio Liberty, and the pre-1989 influence of his book The Spirit of Democratic Capitalism (1982), translated and distributed by underground presses behind the Iron Curtain in the 1980s. As one reviewer said of that volume, it “may prove one of those rare books that actually changes the way things are.”

Mr. Novak himself considers his greatest honor to be that Pope John Paul II several times mentioned him in public as his friend. Margaret Thatcher has highly praised him and his work.

Mr. Novak is the author or editor of more than forty-five books from 1961 until the present, including two novels and one book of verse. His books have been translated into every major Western language, as well as Bengali, Korean, Chinese, and Japanese.

Novak’s whole life has been a story of religious scholarship, social commentary, and intellectual independence. His insights into the spiritual foundations of economic and political systems and his articulation of the moral ideals of democratic capitalism have secured his place as an original thinker of the late twentieth and early twenty-first centuries.

On issues as diverse as capitalism versus socialism, human rights, faith, labor union history, sports, ethnicity, peace, liberty and justice, the American presidency, families, welfare reform, television, and the role of the churches in a pluralistic world, Novak has provided critical and literate debate in his books, syndicated columns, and innumerable lectures, articles, and commentaries.

His work has been effectively applied by a variety of world leaders – from Eastern Europe to Latin America, from Beijing to London. Indeed, Novak’s work on the moral basis of democracy and capitalism may be more widely celebrated outside the United States than within it. In her 1993 book, The Downing Street Years, Lady Thatcher praised Novak’s “new and striking language” and “important insights,” and added that his writing on the morality of political economy “provided the intellectual basis for my approach to those great questions brought together in political parlance as ‘the quality of life.’”

Behind the Iron Curtain in Czechoslovakia, the dissidents of Charter 77 and Civic Forum used The Spirit of Democratic Capitalism and The Experience of Nothingness (1970) in their clandestine study groups. In El Salvador, former president Alfredo Cristiani once noted that after hearing Novak lecture in San Salvador and reading Novak’s work, he committed himself to running for the presidency of that war-torn land, in order to work for a just peace. In Chile and Argentina, proponents of democracy from right to left – including, often, Christian Socialists – turned to Novak’s writings on democracy and free markets for guidance. So it was also among democrats in South Korea in the early 1980s. In Poland in 1984, a great debate raged within Solidarnosc over whether to risk the underground publication of The Spirit of Democratic Capitalism. In a very close vote, supporters triumphed. Many today look back upon that vote as a watershed in the movement away from socialism and toward a new ideal.

Novak’s reflections on religious, political, and economic issues have been consistently marked by foresight. He has repeatedly staked a lone position that eventually became mainstream thought.

Before the widespread recognition of ethnicity as a potent political force, Novak published The Rise of the Unmeltable Ethnics in 1972. As opposition to nuclear weapons swept the Western world in the early 1980s, Novak demurred, citing the need for fundamental change in Soviet politics as the only sure way to reduce the danger of nuclear war. Only later, after Gorbachev assumed the Soviet presidency and began moving toward internal political reform, did the world first see a decline in the nuclear threat.

When Gorbachev introduced glasnost, Novak, then U.S. ambassador to the Helsinki process in Bern, urged Western leaders to embrace the first tentative moves to openness but to reject inadequate measures proposed by the Soviets.

When many theologians embraced liberation theology as the preferred political course for Latin America, Novak questioned the practical value of recommending socialism for poverty stricken peoples, long before the public collapse of socialism in 1989.

When most Catholic scholars were defending a “middle way” between capitalism and socialism, Novak’s work on the three systems of liberty – political, economic, and moral – was widely regarded to have influenced the argument of Pope John Paul II’s encyclical Centesimus Annus.

Much of Novak’s life work has sprung from his childhood. A descendent of Slovak immigrants, Novak was born in 1933 in Johnstown, Pennsylvania, a steel town in the middle of coal country. The oldest of five children, he grew up in a home where the Harvard Classics were the first joint purchase of his parents. His mother imbued Novak with a love of Catholicism. His father, who had only an eighth grade education but was an avid reader of history, gave him a healthy skepticism of the customary and conventional.

To test his call to the priesthood, at age fourteen Novak entered Holy Cross Seminary of the Congregation of Holy Cross at Notre Dame. From there, he went on to receive a B.A. from Stonehill College, graduating summa cum laude. His religious superiors selected him for higher studies at the Gregorian University in Rome, where he earned a Bachelor of Theology degree, graduating cum laude. Beginning to question his vocation, Novak transferred to Catholic University in Washington, D.C.

A younger brother followed Novak in religious study, eventually becoming a priest. While on missionary work in East Pakistan (now Bangladesh) in 1964, Father Richard Novak, C.S.C. was murdered during a Hindu-Muslim riot.

In January 1960, after twelve years in the seminary and within months of being ordained, Novak left the Congregation of Holy Cross, moving to New York City to work on a novel, before being accepted to Harvard on a graduate fellowship that autumn. In 1963 Novak married Karen Ruth Laub. A native Iowan, Karen was an art instructor at Carleton College when the couple met, and had studied with Oskar Kokoschka and Mauricio Lasansky. Mrs. Laub-Novak died in 2009. The Novaks have three children and four grandchildren. Their dinners in Washington were described as a favorite salon of conservative Washington – even though both Karen and Michael were active Democrats well into mid-life. Their regular guests included Clare Boothe Luce, Jeane Kirkpatrick, Irving and Bea Kristol (Gertrude Himmelfarb), Charles Krauthammer, vice-presidential candidates, several senators and congressmen of both political parties, Supreme Court justices, Steve Forbes, and many others

Novak traveled to Rome in 1963 and 1964 to cover the Second Vatican Council for various publications, including Time, and in the process wrote what is now considered a landmark report on the second session, The Open Church (1964). From the time he was a young man, Novak thought that philosophers err when they break contact with the concrete issues of their time, and he resolved to hold his judgments under the pressure of regular journalism.

Novak introduced an empirical dimension to traditional Catholic teaching on family issues as editor of The Experience of Marriage (1964). Resisting the “God Is Dead” school, he developed a philosophical method of self-knowledge, which he called “intelligent subjectivity,” as a way of deciding between atheism and theism in Belief and Unbelief (1965). After initial support for American involvement in the war in Vietnam, Novak spent a month there in 1967 and soon became a resister, co-writing Vietnam: Crisis of Conscience with Robert McAfee Brown and Rabbi Abraham Heschel. He helped liberal Democratic presidential contenders Eugene McCarthy and Robert Kennedy in 1968, and ended up working for George McGovern in 1972. He served as speechwriter for McGovern’s running mate, Sargent Shriver, during the final months of the 1972 presidential campaign.

From 1973 to 1974, Novak launched a new humanities program for the Rockefeller Foundation. Many of his initiatives, including the humanities fellowships and the National Humanities Center in Raleigh-Durham, North Carolina, endure today.

Perhaps the most surprising of Novak’s religious meditations has been his sustained inquiry into sports, especially baseball, basketball, and football, the three sports “invented by Americans for Americans.” Norman Mailer wrote of Novak’s The Joy of Sports (1976), “If America is the real religion of Americans, then the sports arena is our true church, and Michael Novak has more to say about this, and says it better, than anyone else.”

In 1976 Harper’s published Novak’s “The Family out of Favor” as a cover story – years before the term “family values” became a political buzzword. Later, The New Consensus on Family and Welfare (1987) cited “dependency” rather than “poverty” as the deep social problem, and highlighted the crucial need to reverse welfare incentives that lead to out-of-wedlock births and their destructive social consequences.  For this edited volume, Novak convened a diverse group of experts to hammer out points of agreement. Many believe that The New Consensus was the spark that moved serious welfare reform to the forefront.  Its recommendation of a work requirement for those on welfare was controversial at the time but became a mainstream position and the centerpiece of the 1996 welfare reform legislation.

As the years went by, Novak’s experience in liberal environments led him to ever-deeper dissent – first on foreign policy issues, then on cultural issues such a labor union policies, abortion, the family, and crime. Gradually, he became a trailblazer in what came to be called the neoconservative movement. (Novak defines a neoconservative as “a progressive with three teenage children.”)

Novak cemented that position in 1983 when the National Review devoted an entire issue to “Moral Clarity in the Nuclear Age,” a lengthy letter drafted by Novak and signed by 100 fellow Catholic laypersons, including such notables as former Treasury Secretary William E. Simon and former Education Secretary William Bennett. Whereas the statements of the American Catholic bishops focused their moral reasoning on various weapons systems, the lay letter emphasized the need to change the closed Soviet political system. It also recommended a switch from an offensive deterrent strategy to strategic defense, a position taken before President Reagan announced the Strategic Defense Initiative, commonly known as Star Wars.

Novak’s efforts to keep his thoughts concrete have taken many forms. His syndicated column “Illusions and Realities” appeared in the Washington Star from 1976 to 1980 and was nominated for a Pulitzer. His column on religion, “Tomorrow and Tomorrow,” appeared monthly in the National Review from 1979 to 1986. Forbes featured his column “The Larger Context” from 1989 to 1994.

In 1978 Novak began work as a resident scholar at one of the world’s most influential think tanks, the American Enterprise Institute for Public Policy Research in Washington, D.C., where he was director of social and political studies. In 1983 he was named the George Frederick Jewett Chair in religion and public policy. Novak retired from the American Enterprise Institute in 2009.

Novak has been granted twenty-six honorary degrees (including four in Latin America and three in Europe), the Friend of Freedom Award from the Coalition for a Democratic Majority, the George Washington Honor Medal from the Freedom Foundation, and the Ellis Island Medal of Honor, among numerous other honors. His selection as recipient of the 1994 Templeton Prize for Progress in Religion capped a career of leadership in theological and philosophical discourse.

Novak has taught at Harvard, Stanford, SUNY Old Westbury, Syracuse, and Notre Dame. Since 2010 Novak’s home base during the academic year has been southwest Florida, where he continues writing and teaching at Ave Maria University. He spends his summers in Lewes, Delaware, and lectures at universities and other venues worldwide. A memoir of the development of his political and economic thought, Writing from Left to Right, was published in September 2013.

Compiled by Derek Cross, Brian Anderson, and Elizabeth Shaw