The recent economic challenges combined with rising income inequality has led to renewed debate about economic systems, and the role of markets. In A Capitalism for the People, Luigi Zingales puts forward his argument that what is needed is a renewed focus on a meritocratic based market system (attached is a review of the book, and the second chapter). Central to his argument is that too many "capitalist" economies (including his native Italy) have degenerated into "crony capitalism", where who you know matters more than what you know (i.e. where abilities and hard work matter less than personal connections). Zingales argues that there are worrying signs that the U.S. may be following the Italian path, both due to increased support for "cronies" from government and a loss of popular support for markets. What Zingales argues is needed is a renewed focus on competitive markets, as the best selector of merit is a market where buyers are able to choose the product that best serves their needs. However, Zingales also highlights the fact that well-functioning markets requires institutional support – both from a legal system that protects property rights, and popular support.
Has "cronyism" become more of an issue over time? One can argue that while the jury is still out on the quantitative rise in cronyism in the U.S. (or Canada), that the increased scope of government intervention has created increased scope for large firms to invest resources in lobbying for legislative protection from competition, instead of improving their products. The attached article "My Little Crony" (from the Economist) discusses some recent research showing the large impact that Senators can have on companies stock prices – highlighting the scope for legislates to shelter "friends" from competition.
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