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the future of capitalism?

Friday 19 October, 2012

Apparently the Chicago Council on Global Affairs is questioning the future of capitalism. They invited Italian & University of Chicago Professor Dr. Luigi Zingales to present his vision of the future, while @ the same time promoting his latest book A Capitalism for the People.

When he came to America, he saw the world in a different way, that marrying/sleeping well is not the only way to the top.  America takes its merit system for granted.  He wanted to learn how we can make a system where inequality can function in a democracy.  3 elements are critical for survival:

  1. a more efficient system
  2. can’t have too much inequality, i.e. too many with nothing to lose
  3. there has to be a level of ideological consensus-Luigi’s mom was shocked to hear that all professors in America are not paid the same, as they apparently are in Italy.

The 1st 30 years after World War II saw a fair amount of social unrest from which the US learned by doing.  There was little risk of expropriation during that span, & illiteracy was drastically reduced like never before.  Italians take a test after the 2nd grade, after which you don’t pass, many drop out of school, which made high school literates scarce, which drove their “price” (wages) up.

In the last 30 years, the US succeeded on nation-building.  High school education became more widespread & the rule of law improved world-wide.  But now high school graduates are facing competition from comparably-educated workers throughout the rest of the world, while the highly educated are still earning well.  To bipartisanship, he found his son selectively enforcing rules when playing Monopoly.  The Tea Party & Occupy Wall Street Movements are not only complaining about similar things, while at the same time differing about what to do about them.

So what should we do now?  Is there a similar historical opportunity? @ the end of the 19th century, middle class farmers were being squeezed, which resulted in an explosion of populists.  The government took on the role of rebalancing, not as radical Marxists, rather by implementing some regulations.  How to do it?  Then, the answer was more regulation.  Today that doesn’t work.  Now regulations are designed, implemented, & applied for the regulators & not for those being regulated.

Turning to ideologies, he then differentiated between pro-business & pro-market policies.  The former favors incumbents who distort competition by using their influence over government, which leads to a decline the in the ability to compete over the long haul.  Historically, Catholics had monopoly power deigned by the state while protestants had to compete with 1 another.  He likens big companies to birds:  “Please don’t feed the firms!”  Lobbying is a way to get the government off your back & in your pocket, which creates a race to the bottom.  We need to break this logic.  There is a common thread between the Tea Party& the Occupy Wall Street Movement, a populist agenda.  The best way to scare the rich is for them not to know where “redistribution” will end.

The US attracts talent, but it can’t be taxed too much.  The Swedes tax the best football/soccer players even when they play in Spain-this is not the way.  Public schools don’t help.  We need to introduce quality control in education, pay better teachers more & fire the worst of them.  Vouchers have been criticized, but they create different values depending on your starting point.  Increases in social mobility are required.  Interestingly, leftists came here & became market economists.

We need to change the way we do regulation by simplifying it so that even congressmen can understand it, while they are attending their 400 fundraisers/year.  There are some good taxes, for example the soda tax in New York City, which is better than a new regulation.

In Italy, the level of ‘civicness”  is low, which makes it difficult to teach without value judgements. Not choosing a judgement results in choosing a judgement.  Without any moral philosophy, some decisions are detrimental.  Incumbents make sure the entrenched system survives.  The risk comes in addressing legal norms while @ the same time not addressing social norms.

What does all this have to do with the future of capitalism?  Got me.  Read the book-maybe you’re find the prediction there.

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