“Crony Capitalism”

Despite a decade of flourishing growth in the US, what explains the increasing resentment against capitalism, especially amongst the younger generation? 

Does the ‘millenial’ generation have no hope of earning more than their parents?”

Prof. Zingales analyses the above pertinent questions in his talk. He explains why and how Capitalism, which had a triumphant start in the 1980s, is becoming a threat

around the world. Recent surveys convey that a majority of young Americans reject both capitalism and socialism. He added that World Survey data shows decreasing public trust with private enterprise with India in the lower end of the distribution.

He explains the reasons for resentment towards capitalism which include: no change in the median wage over the past 40 years (especially for the American white male worker), growth of unemployment, drop in the life expectancy of white makes in the US supported by the staggering mortality numbers due to increased use of opiates, end of convergence and dramatic drop in share output of labours.

He surmised that the probability of making more than our parents are shrinking with only 33% Americans optimistic of their children having a better future. It was surprising to know that at least 66% of Indians are hopeful for the next generation. He goes on to explain the problems of Fixed Market System. Prof. Zingales cited some instances such as Energy Deregulation in California, Mexican Telecom industry, the Chilean Fisheries industry and the pharmaceutical industry in the US to prove how Free Market System has failed. He explains that capitalism does not work without competition and impartiality in rules. In continuation he explained that maintaining capitalism is difficult as the powerful need to protect the power. Most of them follow the footsteps of the Medici of Florence during the Renaissance during which the medici family had destroyed the richness of the Italian city state by laying their hands on the political power and then to rule the entire city. Crony Capitalism is a market economy where rules are not impartial because they are affected by family, political, clan connections or open bribes. He suggests representative democracy to achieve the goal of formulating impartial rules to overcome crony capitalism.

This seminar brings us to the question of the role of crony capitalism in emerging economies and how to work around it. In his blog, Prof. Zingales says that, “The Indian banking system is mainly in public hands and was used to finance crony capitalism, which has held the country back for too many years”.The effect of crony capitalism on the banking sector in India is something that we need to seriously examine. Crony capitalism poses a major future threat to the Indian economy as well.

To understand his views on why it is important for the market to be more competitive and impartial, watch the entire seminar here.