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By Luigi Zingales

A Capitalism for the People: Recapturing the Lost Genius of American Prosperity

Eye on the News

Luigi Zingales
How Romney Can Win
The GOP candidate should stand for free markets—and align himself with the vast majority of Americans.
July 8, 2012

A recent New York Times op-ed by Bill Scher, “How Liberals Win,” must be commended for its honesty. Scher presents a compelling historical narrative of how Democrats are happy to ally themselves with big business in a Faustian pact to foster anti-market policies. From Franklin Roosevelt’s National Recovery Act, which promoted the cartelization of industry, to President Barack Obama’s Affordable Care Act, which bought off big pharmaceutical companies by suppressing free trade in the drug market, Scher describes how Democrats have promoted crony capitalism to foster their liberal agenda. They are pro-business—at least certain businesses—but fundamentally anti-market.

This is exactly the opposite of what most Americans want. According to a survey conducted as part of the Financial Trust Index, which I codirect, only 19 percent of Americans reject the free-market system. But 51 percent are suspicious of the excessive power of big business. In other words, they are pro-market, but not necessarily pro-business, especially when business is large and politically powerful.

In fact, by inverting Scher’s argument, one can see that a pro-market, but not pro-big-business, platform would be a winner for Republicans. From Tea Party supporters to Republican-leaning independents, a vast majority of potential Republican voters already hold these positions. The party establishment lags behind, partly for ideological reasons and partly for financial ones.

Ideologically, the Republican establishment doesn’t appreciate the difference between being pro-market and being pro-business. Many businesspeople want free markets only when they’re trying to enter a new market; when they’re already in a market, they lobby for barriers to entry and protection from competition. A pro-market advocate defends freedom of entry in all cases. Failure to understand this distinction makes the Republican establishment too timid in criticizing business when it undermines free markets.

Financially, the Republican establishment is afraid to lose its fundraising edge over the Democrats—especially when it sees Democrats following Scher’s advice and getting cozier with large corporations. Yet the Republicans’ presidential candidate, Mitt Romney, is not a member of the GOP establishment. Can he wage a battle against crony capitalism? At first glance, he might seem like the last person for the job: he is a multimillionaire who made his fortune with the private-equity firm Bain Capital. Yet on closer analysis, Romney might be precisely the right person to lead the effort.

First, only someone very confident of his pro-market credentials can take the risk involved in challenging the power of big business. As it took a Richard Nixon to go to China, it might take a Mitt Romney to rein in excessive corporate political power. Second, Romney’s experience at Bain Capital makes him potentially more attuned to the market’s needs than to the interests of large corporations. His work involved investing in start-ups and established companies to help them grow. So he should know first-hand the obstacles that ordinary businesspeople face in their daily work, and he should understand that many of these obstacles stem from large companies’ political power. Third, his wealth puts him beyond the need to cater to big corporations for a future job or donations to his presidential library.

For all of these reasons, Romney is eminently qualified to make the pro-market case. But his campaign, at least up to now, has lacked vision and followed in George W. Bush’s footsteps. Romney’s pragmatic, technocratic approach reassures people but fails to excite them. The Republican base is thus far uninspired, and independent voters fear a Bush repeat. Romney must differentiate himself from both Bush and Obama, rallying the Republican base while also attracting independents. Pledging a better future for America by defending the American free-market system against a Southern European–style crony capitalism is the perfect way to do it. It’s time for Romney to pick up this flag.

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