The action of the State and of other public authorities must be consistent with the principle of subsidiarity and create situations favourable to the free exercise of economic activity. It must also be inspired by the principle of solidarity and establish limits for the autonomy of the parties in order to defend those who are weaker.733Cf. John Paul II, Encyclical Letter Centesimus Annus, 15: AAS 83 (1991), 811-813. Solidarity without subsidiarity, in fact, can easily degenerate into a “Welfare State”, while subsidiarity without solidarity runs the risk of encouraging forms of self-centred localism. In order to respect both of these fundamental principles, the State's intervention in the economic environment must be neither invasive nor absent, but commensurate with society's real needs. “The State has a duty to sustain business activities by creating conditions which will ensure job opportunities, by stimulating those activities where they are lacking or by supporting them in moments of crisis. The State has the further right to intervene when particular monopolies create delays or obstacles to development. In addition to the tasks of harmonizing and guiding development, in exceptional circumstances the State can also exercise a substitute function”.734John Paul II, Encyclical Letter Centesimus Annus, 48: AAS 83 (1991), 853; cf. Catechism of the Catholic Church, 2431.
The fundamental task of the State in economic matters is that of determining an appropriate juridical framework for regulating economic affairs, in order to safeguard “the prerequisites of a free economy, which presumes a certain equality between the parties, such that one party would not be so powerful as practically to reduce the other to subservience”.735John Paul II, Encyclical Letter Centesimus Annus, 15: AAS 83 (1991), 811. Economic activity, above all in a free market context, cannot be conducted in an institutional, juridical or political vacuum. “On the contrary, it presupposes sure guarantees of individual freedom and private property, as well as a stable currency and efficient public services”.736John Paul II, Encyclical Letter Centesimus Annus, 48: AAS 83 (1991), 852-853; cf. Catechism of the Catholic Church, 2431. To fulfil this task, the State must adopt suitable legislation but at the same time it must direct economic and social policies in such a way that it does not become abusively involved in the various market activities, the carrying out of which is and must remain free of authoritarian — or worse, totalitarian — superstructures and constraints.
It is necessary for the market and the State to act in concert, one with the other, and to complement each other mutually. In fact, the free market can have a beneficial influence on the general public only when the State is organized in such a manner that it defines and gives direction to economic development, promoting the observation of fair and transparent rules, and making direct interventions — only for the length of time strictly necessary 737Cf. John Paul II, Encyclical Letter Centesimus Annus, 48: AAS 83 (1991), 852-854. — when the market is not able to obtain the desired efficiency and when it is a question of putting the principle of redistribution into effect. There exist certain sectors in which the market, making use of the mechanisms at its disposal, is not able to guarantee an equitable distribution of the goods and services that are essential for the human growth of citizens. In such cases the complementarities of State and market are needed more than ever.
The State can encourage citizens and businesses to promote the common good by enacting an economic policy that fosters the participation of all citizens in the activities of production. Respect of the principle of subsidiarity must prompt public authorities to seek conditions that encourage the development of individual capacities of initiative, autonomy and personal responsibility in citizens, avoiding any interference which would unduly condition business forces. With a view to the common good, it is necessary to pursue always and with untiring determination the goal of a proper equilibrium between private freedom and public action, understood both as direct intervention in economic matters and as activity supportive of economic development. In any case, public intervention must be carried out with equity, rationality and effectiveness, and without replacing the action of individuals, which would be contrary to their right to the free exercise of economic initiative. In such cases, the State becomes detrimental to society: a direct intervention that is too extensive ends up depriving citizens of responsibility and creates excessive growth in public agencies guided more by bureaucratic logic than by the goal of satisfying the needs of the person.738Cf. John Paul II, Encyclical Letter Centesimus Annus, 48: AAS 83 (1991), 852-854.
Tax revenues and public spending take on crucial economic importance for every civil and political community. The goal to be sought is public financing that is itself capable of becoming an instrument of development and solidarity. Just, efficient and effective public financing will have very positive effects on the economy, because it will encourage employment growth and sustain business and non-profit activities and help to increase the credibility of the State as the guarantor of systems of social insurance and protection that are designed above all to protect the weakest members of society. Public spending is directed to the common good when certain fundamental principles are observed: the payment of taxes 739Cf. Second Vatican Ecumenical Council, Pastoral Constitution Gaudium et Spes, 30: AAS 58 (1966), 1049-1050. as part of the duty of solidarity; a reasonable and fair application of taxes;740Cf. John XXIII, Encyclical Letter Mater et Magistra: AAS 53 (1961), 433-434, 438. precision and integrity in administering and distributing public resources.741Cf. Pius XI, Encyclical Letter Divini Redemptoris: AAS 29 (1966), 103-104. In the redistribution of resources, public spending must observe the principles of solidarity, equality and making use of talents. It must also pay greater attention to families, designating an adequate amount of resources for this purpose.742Cf. Pius XII, Radio Message for the fiftieth anniversary of Rerum Novarum, 21: AAS 33 (1941), 202; John Paul II, Encyclical Letter Centesimus Annus, 49: AAS 83 (1991), 854-856; John Paul II, Apostolic Exhortation Familiaris Consortio, 45: AAS 74 (1982), 136-137.