The Pope’s AI Encyclical Marks the Triumph of Social Capitalism Over Neoliberalism: Part I

The recent papal encyclical on AI is being widely referenced as a leading call for a humanist approach to AI because it critiques “a common ‘sea’ of assumptions” that together represent “the central role of technology and the aspiration to transcend the limits of the human condition” while calling for significant regulatory and business limits on the technology.

Citing the Second Vatican Council, Pope Leo XIV writes:

the Church is not afraid to encounter human knowledge. Indeed, the word of God provides reliable standards for establishing paths of justice and opening ways of reconciliation and peace among peoples. When it comes to applying these standards to the complex situations of our time, the contributions of philosophy and of the human and social sciences is essential.

The only problem is that the social sciences are not sciences in the sense that physics and chemistry are. Especially in the last two decades, they have become ideologically determined doctrines, as a significant share of scholars now see their jobs, to use Marxian terms, as changing the world rather than understanding it.

As such, the encyclical reads less like careful analysis shaped by policy humility—the idea that any assessment of problems should be open to a variety of possible policy solutions, ideally guided by expert analysis and logic rather than emotion and ideology—than like a theological reflection of the doctrine of social capitalism (also known as progressive capitalism, inclusive capitalism, stakeholder capitalism, or Polanyian liberalism). This is perhaps not surprising because social capitalism has now, for all intents and purposes, replaced neoliberalism, at least among most center-left elites in the West. Social capitalism is now the default starting point for all conversations and policy discussions.

This matters because once a doctrine becomes the de facto reference point, real debates are over. Just as neoliberalism was a tight intellectual straitjacket that limited certain ideas and concepts from even being considered, such as tariffs, higher taxes, regulated markets, and a higher minimum wage, social capitalism today exerts the same, often unconscious constraints.

That means that with regard to most techno-economic issues, the core consensus has already been reached, and the only point up for debate is the mechanics of implementation—e.g., should we adopt universal basic income or just reduce taxes on “working people”? Of course, that has been the goal of progressives for at least the last two decades: Change the frame so that they dominate the conversation and their solutions are the only ones seen as acceptable.

The key problem is that the doctrine of social capitalism will lead to actions and policies that weaken the West vis-à-vis China while limiting the innovation and productivity growth needed. Indeed, in many ways, this is its goal, as it is grounded in an animus toward growth, technology-driven creative destruction, international economic competition, and large business.

To be sure, neoliberalism was not without its faults. But social capitalism may be worse. Moreover, as I have written, assuming they are binary options is a false, tribal choice. But rather than embracing the doctrine of national developmentalism or “innovation economics,” which offer superior ways to address the challenge of neoliberalism without undermining innovation, competitiveness, and productivity, the left has rejected any and all considerations of those alternatives in favor of the social capitalism religion.

This is evident in the encyclical, which reflects the social capitalism doctrine and, as such, embraces a kind of capitalism that is very different from what we have now, at least in the United States. (Europe has already fully embraced social capitalism.)

The encyclical comes down in favor of at least six key components of social capitalism.

1. Dependency Theory: This holds that low-income nations are low-income not because of domestic failures, such as corruption, poor institutions, bad business climates, or opposition to technology and creative destruction, but because of the oppression, or at least selfishness, of rich nations. The overlords of the North have kept the victims in the South down. This is why the encyclical argues that the way to improve living standards in developing nations is for the North to give them more resources. Indeed, the encyclical states that a key reason low-income nations remain poor is because of “economic, financial and commercial mechanisms that, managed by the strongest economies, structurally favor their own interests while stifling weaker economies.”

But if this theory is correct, why did South Korea, a country that had the same per capita income as Afghanistan in the 1950s, grow to equal America’s per capita income in the early 2000s? Did the North forget to stifle South Korea? No, of course not. The Korean political economy desperately wanted growth. As Joe Studwell points out in How Asia Works, institutions and culture matter, not oppression from the haves in the North.

2. Equity: Social capitalism sees growth as either problematic because it destroys the environment or inconsequential because workers don’t benefit from it. And so, the task for business and government is to put equity and fairness first. The Pope writes, “we can diligently contribute to every initiative that builds a more just world.” But does the Pope really prefer India, a country with a Gini coefficient almost half that of America’s? This is not meant to be a frivolous question, but it does suggest that if the goal is to support humans as children of God, then a nation with low income but greater equality is, by definition, inferior and less humane than a nation with a broad middle class coupled with a small share of highly wealthy people.

3. Technology Neutrality: A concept from the field of Science, Technology, and Society, this holds that technologies are not de facto good. Rather, all new technologies must be shaped by society so they do not become harmful. Without that shaping, including through regulation and even bans, the negatives will significantly outweigh the positives.

This sounds both logical and appealing, but history shows it to be largely wrong. Technological determinism driven by consumer welfare is the prevailing pattern. For example, once the internal combustion engine was developed, cars and suburbs were inevitable. Once biotech was developed, life-saving, but sometimes expensive, drugs were inevitable. Once the Internet and Web 2.0 emerged, social media was inevitable. All technologies have pluses and minuses, but if a non-military technology reaches the marketplace, by definition, its benefits significantly outweigh the costs.

4. Marxian Alienation Theory: This holds that because of the organization of capitalist economies, too many workers, if not most, are alienated from their true selves because they must serve their selfish capitalist masters. But the issue is not capitalism: Soviet workers were also alienated, in fact, even more so. The issue is that technology has not evolved enough to allow workers to have high incomes with few working hours, something AI can move us toward if society embraces it instead of shackling it. Yet the encyclical criticizes the current system for capitalist-generated alienation, suggesting that heavy regulation and anti-corporate policies are in order.

5. Lump-of-Labor Fallacy: This holds that once a job is eliminated by technology, it is gone for good, and workers are unemployed for long periods, if not forever. A corollary to this is the widely held belief that the only good process technology is one that complements labor, not one that replaces it. Logic, history, and economic analysis show that this is simply wrong. Yet the encyclical, like almost all work today on AI and employment, takes this fallacy for granted and endorses, like most social capitalists, slowing AI down.

6. Predistribution: This is the idea that it’s not enough for governments to work toward greater fairness through policies like social spending, progressive income taxes, and other taxes; policy should intervene directly in firm and technology development to reduce or even eliminate pre-tax and pre-transfer inequality. While the encyclical rightly points to the need for policy efforts to reduce inequality, such as higher taxes on the wealthy, it is clear that this alone is not enough. Policy must intervene in the production system. Of course, that comes at the cost of innovation and productivity.

With this encyclical, a message heard around the world in tens of thousands of news stories, the 30-year effort to overthrow neoliberalism is now virtually complete. The intellectual and political project of most elites in Europe, America, and the Commonwealth nations has been to fundamentally change the economy and the way policy is conceived. Through relentless attacks, most of them based on fallacies and distortions of evidence, these elites—academics, journalists, think tank scholars, and elected officials—have succeeded in destroying neoliberalism. Only the dedicated Hayekian right now offers a full-throated defense of it. And rather than embrace a pro-innovation, pro-growth, pro-business national developmentalism as the required alternative to a failed neoliberalism, they have established a dramatically different alternative, one that the Pope’s encyclical validates.

At its core, the Pope’s encyclical is channeling Hungarian social scientist Karl Polanyi, who argued in his 1944 book The Great Transformation that markets are socially constructed and must be re-embedded in social relations rather than allowed to become self-regulating. Polanyi argued that the self-regulating market of the 19th century was not a natural evolution but a deliberate political construction. And it was inherently unstable because it treated land, labor, and money as commodities. Labor is human beings. Land is nature. Money is a social institution. Treating them as pure commodities destroys the social fabric.

This maps directly onto today’s debate about AI and work: Labor being reduced to a fungible input optimized for machine compatibility is exactly the kind of commodification Polanyi was describing. The encyclical’s language about workers losing control, work speeding up, and rigid repetitive tasks reflects this orientation.

Pope Leo frames the overarching task as whether to “construct a new Tower of Babel or to build the city in which God and humanity dwell together.” Articulated this way, it’s an easy choice. The frame happens to be faulty. But still, in his view, unregulated AI will lead to the former.

As the Pope notes, his encyclical follows a long tradition, not just in Catholicism but in Protestant denominations as well, of the “Social Doctrine of the Church.” The idea was that Christianity should be concerned not just with spiritual and individual salvation but with changing the world to make it more just and humane. The Pope writes, “Today, the Social Doctrine of the Church is a legacy of wisdom, where we find principles for thought, criteria for discernment and judgment, and concrete guidelines for action.”

To be sure, the Social Doctrine was a force for good, as it directed needed attention to real challenges emerging from industrialization in the late 1800s that needed business and government responses. But it went far beyond calling out the harms and need for change to specific policy choices, where those choices were informed not only by the goals of the Doctrine but also by its biases. This was particularly true when it sought to engage directly in public policymaking choices grounded in an equity formulation, rather than a growth-with-equity formulation.

The encyclical follows in that tradition, especially because “In recent years, it has become increasingly evident how rapidly and profoundly digitalization, artificial intelligence (AI) and robotics are transforming our world.”

On the plus side, the encyclical does not indulge in reflexive, anti-technology Luddism:

Technology should not be considered, in itself, as a force antagonistic to humanity. On the contrary, it has formed part of our history since the beginning as “a profoundly human reality, linked to the autonomy and freedom of man.”

But rather than accept that virtually all non-military technologies that are commercialized are positive—why else would people buy them?—the encyclical channels the society-and-technology frame, which holds that:

each phase of progress has also revealed the ambiguity of tools that can cause harm when not oriented toward the good. Today, however, we find ourselves facing a new situation. The power and prevalence of emerging technologies are interwoven into the fabric of daily life, shaping decision-making processes and deeply affecting the collective imagination.

In other words, without significant societal and government involvement in the development of AI, it will do more harm than good, a view the EU has held for almost a decade. That is why the Pope writes: “It is necessary to establish adequate regulatory tools capable of upholding justice and curbing the distorting effects of technological power. Nevertheless, the issue is not limited to regulation.”

To be clear, I am not positing a neoliberal alternative. For example, AI safety and explainability are important factors. But these are best achieved not by slowing down AI but by boosting funding for safety research and working with leading AI companies to ensure certain aspects are limited, such as the ability to create a bioweapon.

One reason Pope Leo argues for much more intrusive involvement is because he believes power over technology lies in the hands of a few powerful companies and individuals:

As Pope Francis warned, we must realistically ask ourselves who holds this power today and how they use it: “It must also be recognized that nuclear energy, biotechnology, information technology, knowledge of our own DNA, and many other abilities which we have acquired… have given those with the knowledge, and especially the economic resources to use them, an impressive dominance over the whole of humanity and the entire world.”…

Today, however, the main drivers of development are private, often transnational, parties that are endowed with resources and the capacity to intervene that surpass those of many Governments. Technological power thus takes on an unprecedented, predominantly “private” aspect, which makes it even more challenging to discern, govern and direct such power toward the common good.

At best, this is an exaggeration. If AI and other large technology companies are so powerful, why have the EU and other nations ignored their opposition and passed laws such as the Digital Markets Act, the AI Act, and other similar restrictions? Why have many U.S. states passed laws that tech companies opposed? Why have data center buildouts slowed in the face of public opposition?

The tech industry, including AI, is no different from any other industry. When governments want to regulate it, they do. In fact, it’s less powerful than most industries. Anyone who follows business lobbying in Washington knows that the tech industry spends relatively little, particularly relative to its size, compared with other, longer-established industries like financial services, pharmaceuticals, and even real estate agents.

The idea that technology will be bad unless guided by the wisdom of the masses leads to the social capitalist prescription of government guiding technology:

crucial questions impose themselves on our conscience and can no longer be avoided: Where are we going? Toward what goal do we wish to orient ourselves? What direction should we choose as a people and as a human community?

How about this: We just enable AI innovation and get all the amazing innovation and productivity benefits? No, that is a bad idea according to social capitalists. AI must be constrained, controlled, and constricted. A key argument they make is that if only governments had regulated social media in its infancy, we wouldn’t have the problems we do today. But what regulation would they have liked to see? A law forbidding certain kinds of speech, which would usually focus on conservative speech that many social capitalists find abhorrent?

To be sure, if there were speech controls on social media, they would reduce some kinds of objectionable speech, but they would come at the cost of one of the core components of human flourishing—the ability to speak one’s mind, even when the powerful don’t like it. We’d all end up living in the UK, where people are jailed for posts that are subjectively deemed to be “grossly offensive.”

The encyclical goes on to assert that:

Technology has the power to heal, connect, educate and protect our common home; but it can also divide, exclude and generate new forms of injustice. In the abstract, technology in and of itself is not a solution to humanity’s problems, just as it is not inherently evil. In practice, however, technology is never neutral, because it takes on the characteristics of those who devise, finance, regulate and use it. Therefore, the primary choice is not between a “yes” or “no” to technology, but rather between constructing Babel or rebuilding Jerusalem; between a power that claims to dominate the heavens and a people who work together in the presence of God to rebuild the walls of fraternal coexistence.

This is straight from the social capitalist view of technology. But it’s not right. We have always relied on consumers to make decisions about most technologies. And where there are externalities, such as pollution, discrimination, or safety hazards, government, along with the legal system (tort law, for example), provides remedies. But at least in the U.S. tradition, it doesn’t try to slow down innovation.

And so, we get to the real critique in the encyclical, which states that unfettered capitalism and its “idolatry of profit that sacrifices the weak, a uniformity that neutralizes differences, and the pretense that a single language — even a digital one — can translate everything, including the mystery of the person, into data and performance” are the real problem.

Let’s start with the idolatry of profit. How would society work if all enterprises, large and small, lost money? We would all be poorer, and there would be no future investment. So, the problem is not profits; it’s putting in place needed protections that companies must follow. Car companies make profits, but they have to design cars in ways that improve safety and reduce environmental impact. Besides, if profits are now idolized, then why are profits in the United States today no higher than they were 60 years ago, an era of more regulated capitalism?

The risk of socially directed technology is who gets to call the shots. At least in regulatory capitalism, companies design products they think consumers want to buy, and government, through legislative and administrative processes guided by law, puts up guardrails where needed.

But social capitalism wants the entire process to be driven by “the people.” Indeed, the Pope writes:

We should not be intimidated by tensions or differences because they can become creative forces when guided by shared responsibility… Indeed, this is the possibility of building together, of transforming diversity into a resource and of making listening and dialogue the common ground upon which to cultivate justice and fraternity.

While this sounds ideal, it is far from the real world. In that world, many participants in the AI debate do not have a shared responsibility. They want a radically different kind of society, as we have seen with politicians like New York Mayor Zohran Mamdani and Senator Bernie Sanders of Vermont. There is no dialogue or common ground, only camps seeking to crush their opponents through any means possible. Not to mention adversarial nations that have no interest in a shared humanity unless it is one governed by their own anti-freedom ideologies.

A governance system shaped by pure democracy, rather than republican democracy, would likely lead to lowest common denominator solutions. What if one segment of society is more organized than the others, perhaps because a bunch of guilt-ridden rich people and foundations provide massive resources to them? Is the answer they advocate for the right one simply because it was purportedly bottom-up? If it is, then welcome to a world where AI is taxed, no more data centers are built, and it’s against the law to lay workers off. That is not a world that puts humans first. It puts anti-technology, anti-business advocates first.

The encyclical goes on:

Within this shared task, Christians discover their unique role of guiding actions toward God so that, in his light, pluralism does not dissipate into disorder, but instead, through the practice of synodality, it becomes the space in which humanity rediscovers its solid foundations and its final end.

But what exactly should be done to achieve that goal? For the Church to prescribe not just overall goals but specific outcomes and policies, as the practitioners of the Social Gospel did in the late 1800s, is to risk adopting policies that seem to provide grace but do the opposite.

We see this in the statement:

when the dignity of our brothers and sisters is violated, when politics fails to address the tragedies of humanity, when the economy turns against the person or science oversteps the limits of its competence, the Church — together with other Christian denominations and believers of other religions — must make her voice heard, not in order to dominate, but to promote communion.

How has the economy turned against the person? How have functioning states failed when it comes to AI? How has science overstepped the limits of its competence? These are normative claims that serve to justify social control of technology.

I will continue the discussion next week in Part II, with a particular focus on how the encyclical addresses AI and workers.