On Zingales' crony capitalists

Abstract

Capitalism, if played according to the rules will work efficiently and be good for everybody. The other day at the IIM Bangalore, we had an interesting lecture by Professor Luigi Zingales of the University of Chicago Booth School of Business on ‘Crony Capitalism’. Professor Zingales’ premise is simple: capitalism is being destroyed by bad/crony capitalists, in cahoots with the State trying to garner surplus/monopoly-profits/rents.

He went on to establish how at the heart of “capitalism” is the crucial role of perfect (or near perfect) competitive markets. And he gave numerous instances of where this was absent – from the California Power de-regulation to Mexican Telecom industry, the Chilean Fisheries industry to the pharmaceutical industry in the US. He went on to link this to the crisis facing capitalism today: stagnant real wages (especially for the American white male worker), increasing unemployment, fall in the share of wages in the total output of the US economy, fall in the life expectancy of while males in the US and staggering mortality figures in this demographic, induced by opiates. The link he established is that because of lack of competition, all surplus is being cornered by rentiers and is not going either to labour or to capital. The “politics” behind this development is that monopoly rentier-capitalists are able to sustain their surplus because of their alliances with the political elites. He gave the example of the medici vicious circle, where within a span of 200 years, the medici family of Florence had decimated the flourishing Italian city-state, first by capturing political power and then using it to pretty much to own the entire city. These are your crony/bad capitalists. The danger he alludes to is real. Democracies, he warned, are thereby getting reduced to becoming either populist demagogies or elitist plutocracies or swinging wildly between the two. Read more at: https://www.forbesindia.com/article/iim-bangalore/on-zingales-crony-capitalists/52221/1