Friday, June 17, 2011

It's Friday: Here is One Link

One thing that we've noticed in Doug's Theory of Moral Sentiments Readings Group is that Adam Smith endorses the day to day functioning of commerce more than he ever idolizes "Big Business." In that light, this commentary by University of Chicago economist Luigi Zingales on the current American political situation is interesting. A "median" voter position right now might be enthusiasm for markets but distrust of "big business." (It should be noted that Zingales is the co-author of a book titled Saving Capitalism From the Capitalists).

I have a couple of reactions to this sentiment. Many of the respondents may frame their worries in terms of business abuses in the market. I am more worried about firms that are able to manipulate the government in order to protect their position in the market: what is currently known as "crony capitalism." Secondly, this distrust of "business" leaves open the question of the entrepreneur. I have a feeling that most Americans like the idea of somebody who creates wealth from an innovative product or service. When that entrepreneur is an outsider, then two streams mentioned by Zingales would seem to mesh. But what happens in those cases where the innovator is an established entrepreneur...someone already "big"? Then I think we see the kind of love/hate relationships that Americans currently express towards Microsoft, Nike, Apple, Google, and Facebook. We buy a lot of iPhones (Steve jobs wasn't working out of his parents garage when it was introduced) , but we are always keeping a wary eye on the "bigness" of these companies.

Finally, this kind of discussion perpetuates the idea that "the opposite of the government is 'the market'." As I'm know people get tired of hearing me say: the opposite of "the government" is voluntary activity. Sometimes this is the market, sometimes it could non-profit collective organization. In either case, firms and non-profits struggle to find the boundaries of the market and their own, preferred hierarchical or cooperative organizational boundaries. This is one of the hallmarks of the new institutional economics studied by people such as Williamson, Coase, Buchanan, Davis, North, and Alchian. Firms (and even non-profits) compete in the market, but within the firm or non-profit there are institutions and institutions help to shape behavior.

(Note: thanks to NRO for the original link to the Zingales article)

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