The shift from pro-market to pro-business
Jeff Horwich: In the midst of the U.S. financial crisis, the economist Luigi Zingales became known for hyping a “managed bankruptcy” for the big banks. That way the banks’ private investors, creditors and executives would bear most of the costs of their bad investments.
But banks did not want that — and that is not what happened. To Zingales it was a sign of a much wider malaise in the U.S. economy, and he’s put his frustrations into a new book. It’s called “A Capitalism for the People: Recapturing the Lost Genius of American Prosperity.” Luigi Zingales is with me from the University of Chicago’s Booth School of Business. Good to talk with you again.
Luigi Zingales: My pleasure.
Horwich: You launched the book with your experience as an immigrant basically, escaping the Italian economic system for the US. How was that so formative for you?
Zingales: So, I think in general in Italy nepotism is dominant. We invented the word nepotism and unfortunately, we still live by it. It’s more important who you know rather than what you know and it inspired in me a desire for freedom. I think I found that freedom in America so I’m very happy about that. What I’m less happy about is I see signs that America is becoming more like Italy and I say that not in terms of wine and food but in terms of the political system and the economic system.
Horwich: So this nepotism, this cronyism, as you call it, that you bothered you in Italy that you lead you to — now your thoughts about the U.S. You argue that here in America, our politicians and the U.S. economy have gone undergone kind of a dangerous change from pro-market to being pro-business. Can you define the difference there?
Zingales: Yes, everybody including businessmen wants a free market when they are trying to entire into a new industry. But businessmen don’t want a free market once they’re in, they want to close the door and increase bias to entry to make profit, which is I think, natural and healthy if this is done through normal competition, if it’s done through the political process this creates a problem.
Horwich: So you look at the financial crisis and you see what people in the Occupy Movement and the Tea Party both see, which is a reform captured, to some extent, by the industry it’s meant to reform.
Zingales: Yeah, I think that both the Occupy Movement and the Tea Party are revolting against a kind of leviathan. And they identify this leviathan in different ways: For the Tea Party the leviathan is the big government and for the Occupy Movement the leviathan is big business. In reality, these are two faces of the same leviathan because the problem is big business in bed with big government.
Horwich: You see a solution that is different it’s fair to say then both of those groups. How would you boil it down for us?
Zingales: The solution that I am trying to proposes are based on increasing competition and reforming the way you do economic policy to make it more difficult for business to lobby and obtain special favors because that’s a slippery slope that’s hard to stop. Also, I think we need to restore the fact that making money is not the only objective and we should stand up for what we think is right rather than just for what makes money.
Horwich: Economist Luigi Zingales at the Booth School of Business in Chicago, his new book is called “A Capitalism for the People.” Great to talk with you thanks.
Zingales: My pleasure.
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