In 1988, Luigi Zingales emigrated to the U.S., because he wanted to get away from Italy. Now, he worries the U.S. is turning into Italy.
A professor at the University of Chicago, Zingales is a firm believer in the free market—but not the kind of free market that ends up advantaging companies with the best government connections. He wants the U.S. to go back to a time when firms were rewarded for their ingenuity, not for their ability to milk favors.
In his book, A Capitalism For The People, Zingales describes how the 2008 financial crisis opened his eyes. "What I was watching was the transformation of American finance into an Italian-style crony capitalist system," he says.
"Indeed, in one way the American situation is worse, since Americans, unlike Italians, cannot place blame on one bad guy. Berlusconi is us. Through our retirement funds and stock investments, we are the owners of the very companies that lobby to grab our tax money and dominate our political life."
He says the 2008 bank bailouts, and several before them, were testament to the power of financial lobbyists to win gains for particular companies at the expense of taxpayers. And both parties ended up signing on to the idea.
Though Zingales is a libertarian who believes in smaller government, there is a lot in his book that will appeal to both left and right. His argument is not to endorse political platforms, but rather to show how both parties have departed from American free market ideals, and how dangerous that is for the future.
Rather than being "pro-market" and creating a level-playing field where everyone has a fair chance, Zingales says politicians are "pro-business"—meaning they inevitably favor one set of companies over another.
"I have a comparative advantage because I’ve seen what happens when people confuse pro-market and pro-business to a massive degree, like a prime minister saying he’s pro-market when he’s pro his own business. I’ve seen generations of that, and that’s why I think it’s important to alert people," he says in an interview.
The scary thing about lobbying is that economic theory indicates that it’s only likely to increase, Zingales says. The cost of hiring an advocate in the capital is still small compared to the potential rewards from passing a law in an organization’s favor. The wonder is that they don’t spend more money on it.
Zingales says we should simplify regulation to make it more transparent, and reduce the opportunity for "people to sneak in a favor here and there."
He also thinks business schools can play a more central role, teaching new "social norms" in core classes such as finance and marketing, and ostracizing alumni who don’t live up to standards. "One social norm would be you couldn’t lobby to take advantage in competition. Business schools can decide not to give prizes, or even ostracize alumni who succeed using this method," he says.
Zingales says b-schools contributed to the financial crisis by not being tougher on students. "If you cheat in an exam, you can be kicked out of school. If you cheat in businesss, you don’t get kicked out. That’s a bit strange."
Some of his ideas are idealistic. For example, he says if we really want to do something about climate change, we should introduce a carbon tax, rather than giving loans to particular clean energy startups. A tax would incentivize cross-the-board innovation, not just in corners of the green economy. It’s an idea that many economists and policy-makers agree with—but it denies political reality, perhaps. The clean energy spending in the Democrats’ 2009 stimulus may be problematic. But the alternative was probably not a carbon tax, but doing nothing at all.
It’s an arguable point—though, throughout his book, Zingales is readable, engaging, and full of insight. A Capitalism For The People is worth the time of anyone, left or right, who cares about the future of the American market system.