Making Capitalism Work for Everyone

Raghuram Rajan and Luigi Zingales

World Economics, 2006, vol. 7, issue 1, 1-10

Abstract: There is a widespread belief that free markets do not benefit the common person, let alone the poor: they are only an instrument for the rich to get richer. Not only is this belief false, but in fact the opposite is true. Free markets are the single most important tools to eliminate poverty and spread opportunity. The problem is that people do not distinguish enough between true free market capitalism, which implies competition and equal access, and the failed version experienced in many countries where powerful elites protect their position by denying fair access to markets. Particularly in developing countries, ordinary people never see the benefits of properly working capitalism. To make them work for all, markets need political support to provide the right amount of rules and regulations that will allow them to flourish; a government that is not too interventionist and not too laissez-faire. While there is no single proposal that will preserve the system of free enterprise from its enemies, the authors suggest three mutually reinforcing broad policy objectives: keep borders open to the flow of goods and capital; encourage the transfer of productive assets into efficient hands; and maintain safety nets focused on individuals.

Date: 2006
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