Better markets, but more or less?

Luigi Zingales has a good op-ed in Project Syndicate that summarizes a case he’s been making for years:

But this opposition of state and market is misleading, and it poses a major obstacle to understanding and addressing today’s policy challenges. The dichotomy emerged in the nineteenth century, when arcane government rules, rooted in a feudal past, were the main obstacle to the creation of competitive markets. The battle cry of this quite legitimate struggle was later raised to the principle of laissez-faire, ignoring the fact that markets are themselves institutions whose efficient functioning depends on rules. The question is not whether there should be rules, but rather who should set them, and in whose interest… In sum, we should strive to achieve a better state and better markets, and to contain each within its respective spheres.

Luigi has done more than anyone in the past decade to clarify that being “pro-market” or “pro-competition” doesn’t mean being laissez-faire and that it isn’t the same as being “pro-business.” And while that view began, in my estimation, as a pragmatic center-right idea (keep the appreciation of markets, lose the coziness with business) it won over some major adherents on the left. Most notably, Elizabeth Warren framed her progressive economic policy as pro-competition, and claimed she was a “capitalist to my bones.”

How might we think about the difference between Zingales and Warren on these issues? Certainly one might dive into specific policy areas and look for disagreements. But I’ve come to think of them as agreeing on the idea of better markets but parting ways over how much markets should structure the economy.

Although Zingales notes plenty of room for government to play an important role (see the op-ed for more), I think of him as wanting better markets and more markets. If the rules surrounding markets were written to be more pro-competitive, then markets would be able to take on even more tasks than they already do. I’m not certain this is what he thinks, but this is how I read his general perspective.

Warren, by contrast, I think basically wants better markets and less market control. She’d increase the government’s role not only as rule-setter but as provider of various goods, while simultaneously trying to make markets work better within a more limited sphere.

Of course nearly everyone would say, all else equal, that they want competitive, less corrupt markets over monopolistic ones (unless it’s one they personally benefit from). But it’s telling that some camps choose to prioritize this idea and others don’t. If these two dimensions are real, we can structure debate over the role of markets and business like this:

Better marketsStatus quo
More market control Zingales“Pro-business”
Less market controlWarrenSocialist

I outline all this because I think the left column contains a fascinating disagreement. If we could overcome some political-economy issues to get better, more competitive markets, what new uses might we put them to? Might we decide that more spheres work well under the control of regulated markets with the right rules? Or, having made that progress on political economy issues, might we find ourselves better able to write good rules to effectively use non-market institutions for things we currently leave to markets? Might we end up relying more on universities or open source communities or direct government provision?

The central challenge here, no matter where you land on these questions, is how to make progress on the political economy issues that limit competition. But if we could write the kind of rules we need to make markets truly competitive, would we use them more? Or less?

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