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 / Winter 2012 / Issue 69(originally published by Booz & Company)


Best Business Books 2012: Capitalism

Of Markets and Morals

Luigi Zingales
A Capitalism for the People: Recapturing the Lost Genius of American Prosperity
(Basic Books, 2012)

Michael J. Sandel
What Money Can’t Buy: The Moral Limits of Markets
(Farrar, Straus and Giroux, 2012)

Jonathan Haidt
The Righteous Mind: Why Good People Are Divided by Politics and Religion
(Pantheon, 2012)

The 2008–09 financial meltdown, and the continuing failure of the global economy to fully recover from that blow, has prompted legions of economists and social scientists to author books with recommendations on how to resolve what is now widely referred to as the “crisis in capitalism.” Unfortunately, those experts disagree about what caused the crisis, how to remedy it, and what the underlying problem with the system may be (or if there even is one).

Arrayed right to left across the political spectrum, the lineup of such works this year begins at one extreme with Why Capitalism? (Oxford University Press, 2012), by Allan H. Meltzer, a professor of political economy at Carnegie Mellon University. In his book, Meltzer concludes that the financial crisis was caused by government actions and has been prolonged by critics of capitalism focused on “property confiscation and redistribution” in the name of “equity and fairness.” He astringently argues that these types of moral values and ethical principles have no part to play in economic systems that are, and must be, amoral and evaluated by one metric only: their ability to generate economic growth. Hence, his solution to capitalism’s current crisis is simple: We need totally unregulated markets.

At the other ideological extreme is Joseph E. Stiglitz’s The Price of Inequality: How Today’s Divided Society Endangers Our Future (W.W. Norton, 2012), in which the Nobel Prize–winning economist basically rebuts Meltzer’s familiar libertarian arguments with equally familiar egalitarian ones. Personally, I doubt readers will find much that is useful in either of those books — or in the dozen or so other recently published ones that, similarly, are ideologically bent. Certainly, readers will find nothing that wasn’t said, and said better, decades ago in Milton Friedman’s seminal Capitalism and Freedom (University of Chicago Press, 1962) on the right, and in Arthur Okun’s classic Equality and Efficiency: The Big Tradeoff (Brookings Institution, 1975) on the left. Now, those books are worth reading, and that’s why I am eschewing the extremes and recommending three new books that are a bit closer to the center of the spectrum.

Crony Capitalism

In A Capitalism for the People: Recapturing the Lost Genius of American Prosperity, Italian-born University of Chicago finance professor Luigi Zingales — who, significantly, is a libertarian disciple of Milton Friedman — argues that the current crisis of capitalism stems from an unholy alliance of Wall Street financiers and Washington politicos. He claims the effects of this “crony capitalism” amount to about the same thing as having the government own the means of production and commissars set the price of goods and services. Either way, democracy is compromised and the economy is made inefficient.

Zingales says that the two political parties are equal offenders in this unholy alliance, the poster children for which are former U.S. Treasury secretary and Citigroup executive Robert Rubin and former Goldman Sachs chief and Treasury secretary Hank Paulson. The author offers evidence that conflicts of interest are the water in which such crony capitalists swim. More insidious — because they are less visible — are the thousands of corporate lobbyists in a symbiotic relationship with D.C. officialdom, both on the Hill and in regulatory agencies. The sum of all this mutual back-scratching amounts to old-fashioned corruption, perhaps not to the degree found in Zingales’s native Italy, but tending in that direction.

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