Can Capitalism Be Saved?

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“We are in a dangerous period of hangover, the morning after the ecstasy of boom. Many feel betrayed by the bust — and are demanding action against the markets.”

“In the quest for growth, many countries have neglected to build a reliable system of social security that will help citizens buffer the market’s volatility.”

“If socialism is fundamentally flawed in its belief in the perfectibility of man, is capitalism also not fundamentally flawed in its belief in the perfectibility of markets? Nevertheless, I believe there is a way for capitalism to work well.”

“Capitalism’s biggest political enemies are the executives in pin-striped suits who extol the virtues of competitive markets with every breath — while attempting to extinguish them with every action.”

“The market is threatened by two diverse groups: The incumbents, who want to retain their position — and those who lost out, who would be happy if the rules of the game that caused their troubles were changed.”

"Markets will always create losers — if they are to do their job."

“By keeping borders open to the flow of goods — and especially open to the flow of capital — a country’s capitalists will feel the impact of bad government policies. That should entice them to become a force for good, market-liberating reform.”

“With a serious economic downturn, open borders will look less and less attractive — even though they are politically and economically most beneficial at such times.”

"The recent increase in militarism across the globe may hopefully be only a minor footnote in history. If it is not, however, we should be on guard — for such times bring faith, perhaps excessive faith, in the powers of government."

“In truth, each side has a source of comparative advantage. The developed world is getting access to cheap labor — and the developing world is getting access to infrastructure. But all this will imply dislocation and distress in the short run.”

“While workers in ‘traded’ industries like steel have faced up to foreign competition for decades and have adapted to it, for many people working in ‘non-traded’ service sectors, this global competition is something they have never experienced before.”

“The way to limit the chances of success of capitalism's vested interests is not to expand the power of the state. Rather, it is to narrow the state's ability to take inefficient economic actions — by favoring the few at the expense of the majority of its citizens.”

"Democratic capitalism's greatest problem is not that it will destroy itself economically, as Marx would have it — but that it may lose its political support."

Excerpted from “Saving Capitalism From the Capitalists” (Crown Business, 2003), co-authored by Raghuram Rajan and Luigi Zingales, professor of finance at the University of Chicago.