Thursday, June 7, 2012

Crony Capitalism

Luigi Zingales has a nice Wall Street Journal oped today, decrying how crony capitalism has ruined Italy and is on its way to doing so in the US. A tidbit:
In Italy today, even emergency-room doctors gain promotions on the basis of political affiliation. Instead of being told to study, young people are urged to "carry the bag" for powerful people in the hope of winning favors.
Related, the University of Chicago Magazine had a very nice article by Dario Maestripieri explaining just how Italian academia works. Another tidbit:

The year I applied to the biology doctorate program at the University of Rome, there were eight open slots, and the eight winners had already been agreed upon. I wasn’t one of them. A couple of weeks before the concorso, however, the National Research Council offered funding to support two additional fellowships. The baroni did not have time to negotiate these positions, so two outsiders with good résumés and exam scores—a friend and I—were admitted. We squeezed in through a crack in the system. Yet despite the fact that we were straight-A students and had published scientific articles, we couldn’t find a professor willing to serve as our adviser.

The truth was that by filling a slot with an outsider without raccomandazioni or appropriate pedigree, the advisers might lose an opportunity to admit a family member or the child of the prime minister the following year. Admitting two outsiders had been a big mistake—someone would have to pay the price. Eventually, after some arm-twisting, my friend and I found an adviser. Three years later, however, after I finished my PhD, it was made abundantly clear that someone who had entered academia through a crack in the system could not expect to go very far. After doors were shut in my face one too many times, I moved to the United States.
Short version, translated to Chicagoan: "We don't want nobody nobody sent."


Economists tend not to pay enough attention to this sort of thing, in part because it's hard to measure. We argue about taxes and government spending because we can at least try to measure them. We acknowledge that government mandates are the same as taxing and spending, but tend to leave them out because it's hard to get numbers. Intrusive regulation, just as damaging, is even harder to quantify. And pervasive corruption harder still. Yet it's just as much, maybe more, sand in the gears as are headline taxing and spending.

It just looks like mysterious "low productivity." Keynesians see low output and employment and ask for more stimulus.  That's not the problem.

A lot of Luigi's work has been to try to seriously study and measure crony capitalism, which is the only way to address it.  (At some point soon I'll review his book)

Second thought. It is a wonder that US academic institutions, for all their many faults, are so much better than most around the world, and that the best faculty and students gravitate to the US. US universities  are still by and large a pretty severe meritocracy. Now you know why Dario isn't teaching in Rome. And why so much of Italy's great economics talent like Luigi is also working here.

The rot in Europe is concentrated in state systems, with new private universities and research institutes really the bright spots. The US meritocracy is driven by competition among private universities. I don't need to bash you over the head with the obvious conclusions and dangers.

Our advantage is not permanent or innate. Lots of the US system is protected from competition, and there is plenty of mediocrity here too. It also depends on an immigration policy that lets smart people come in, and lets smart students come learn from them.