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


Best Business Books 2012: Capitalism

Most pointedly, Zingales claims the financial crisis was, and is, the inevitable outcome of a system in which large, publicly traded corporations operate in highly concentrated markets and thus have so much economic clout that they compete with one another more for political favors, such as subsidies and regulatory exemptions, than for customers. Thanks to a facilitating government, Zingales argues, market competition exists among global corporations today mainly in theory, and he believes the public’s trust in this system is now at the breaking point.

But Zingales parts company with his fellow economists on the right by firmly grounding his arguments in the language of values and morality. (“Most economists recoil at the word ethics,” he reminds us.) He believes the United States can have both fairness and prosperity; moreover, he says we are unlikely to get the latter without the former. Indeed, he sees the failure to provide both fairness and prosperity as the fuel behind the Tea Party and Occupy movements: Ordinary people at both ends of the political spectrum are outraged by government bailouts of incompetent financiers and the fact that egregious rewards consistently go to corporate executives who are better at exporting jobs than goods. Zingales also concludes that the current concentration of wealth and political power in the U.S. undercuts the equality of opportunity necessary for an efficient and just meritocracy.

Clearly, such a critique is uncharted territory for a libertarian economist; Zingales’s argument that the U.S. needs policies that are “pro-market” as opposed to “pro-business” would not convince either Meltzer or Friedman. Yet his proposals come primarily out of the libertarian canon. To increase meritocracy, Zingales advocates vouchers for primary and secondary education. To reduce the economic power of giant corporations, he favors more antitrust activity, tighter limits on copyrights and patents, and greater use of class-action suits (all in place of government regulation). To decrease corporate clout in Washington, he would put a progressive tax on political contributions. Most intriguingly, he would attempt to bring greater transparency to the system by requiring greater access to corporate data because the public “shaming” of corporations and financial institutions is the most powerful, and underutilized, way to instill the market-based ethics needed to restore faith in competitive capitalism.

In sum, the first half of Zingales’s pro-market, anti-corporation book makes the case that the U.S. is going to hell in a handbasket politically and economically; unfortunately, the proposals he offers in the second half appear inadequate to the task of redemption. As in Dante’s Inferno, it seems we sinners may end up having to abandon all hope.

The Amoral Market

Zingales’s most controversial proposal — to replace the current method of financing higher education through debt (loans) with equity financing, in which investors would own a share of the college graduates’ later income — illustrates his basic belief that there are market solutions to almost every social problem. Michael J. Sandel, a Harvard professor of government, agrees that market solutions are usually more efficient, but says that they often carry a heavy ethical price tag. In What Money Can’t Buy: The Moral Limits of Markets, he takes direct aim at the most basic assumption of libertarian economists, namely, that unfettered markets lead to the optimal and virtuous (because everyone benefits) allocation of goods.

Sandel argues that we are living in an era of “market triumphalism” in which everything is for sale, including the right to immigrate, admission to elite universities, and life insurance policies that are taken out on unsuspecting old and dying people by strangers. He worries that if the likes of Meltzer and Zingales have their way, we will end up monetizing and commercializing every activity relating to our health, education, public safety, procreation, recreation, environmental protection, and all the other social goods that were once the domain of families, communities, churches, and civic organizations. “Putting a price on the good things in life can corrupt them,” he writes. He not only feels this trend leads to irresponsible risk taking, but claims it undermines individual ethics and erodes the Tocquevillian “community capital” needed to bind people together in democratic society.

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