Cure capitalism to make markets by the people, for the people
Academy called upon to help correct increasingly corrupt economic system. Matthew Reisz reports
A leading economist has warned that the US economic system risks replicating the corruption of his native Italy and has urged fellow academics to take greater responsibility for "promoting a better form of capitalism".
Luigi Zingales, Robert C. McCormack professor of entrepreneurship and finance at the University of Chicago Booth School of Business, made the comments last week at the institution's London campus when discussing his new book, A Capitalism for the People: Recapturing the Lost Genius of American Prosperity.
Twenty-four years ago, he told his audience, he had left his native Italy - "the country which invented the word 'nepotism'...where even emergency room doctors are promoted on the basis of political affiliation instead of ability" - to discover "a sense of freedom" in the US.
Although he had never regretted the decision, he was now "worried about the future" and noticed "signs of degeneration" in the US that he recognised from his youth in Italy.
Professor Zingales pointed, for example, to "a move from reactive lobbying against stupid regulation to proactive lobbying to rig the system in favour of particular industries", as well as the creation of "fake grass-roots organisations" known as "astroturfing".
The "average American's sense of disenfranchisement", accompanied by vast income differentials, now provided "conditions ripe for populist revolt", he said.
Although they might seem very different, continued Professor Zingales, the Tea Party's assault on "big government" and the Occupy movement's anger at huge corporations were in reality both responses to "a Leviathan with two faces".
Nonetheless, he believed it was possible "to channel the outrage to promote and not destroy markets" and find ways to regulate business "simple enough even for congressmen to understand". Academics had an important role to play, he said.
Business schools, in Professor Zingales' view, had failed to "do a good job in inculcating social norms".
"We have to stand up for good ways of doing business - because we have an interest in promoting a better form of capitalism and the survival of free markets," he said.
"We need to speak out against business behaviour which is bad for the economy and society, even when it is legal."
One example he cited was introducing "modern marketing methods" into the gambling industry, which translated into targeting people likely to become addicted.
It was also important, urged Professor Zingales, for academics to be much more aware and honest about conflicts of interest and the dangers of bias. Just as regulators, who have to maintain friendly relations with the industries they oversee, can easily become "captured" by them, researchers are often subject to a similar form of "intellectual capture", he argued.
Academics working in highly specialised areas such as financial derivatives or nuclear engineering had strong incentives not to be too critical if they hoped for jobs or consultancy assignments in the field, he suggested.
"Experts", concluded Professor Zingales, were often "too embedded" to act as reliable sources of information.