Saving Capitalism from the Capitalists: How Open Financial Markets Challenge the Establishment and Spread Prosperity to Rich and Poor Alike

by Raghuram G. Rajan, Luigi Zingales

Capitalism's biggest problem is the executive in pinstripes who extols the virtues of competitive markets with every breath while attempting to extinguish them with every action.
Saving Capitalism from the Capitalists is a groundbreaking book that will radically change our understanding of the capitalist system, particularly the role of financial markets. They are the catalyst for inspiring human ingenuity and spreading prosperity. The perception of many, especially in the wake of never-ending corporate scandals, is that financial markets are parasitic institutions that feed off the blood, sweat, and tears of the rest of us. The reality is far different.
-Vibrant financial markets threaten the sclerotic corporate establishment and increase corporate mobility and opportunity. They are the reason why entrepreneurship flourishes and companies like The Home Depot and Wal-Mart--mere fly specks a quarter of a century ago--have surged as they have.
-They mean personal freedom and economic development for more people. Throughout history, and in most of the world today, the record is one of financial oppression. Elites restrict access to capital and severely limit not only general economic development but that of individuals as well.
-Open borders help check the political and economic elites and preserve competitive markets. The greatest danger of the antiglobalization movement is that it will keep the rich rich and the poor poor. Globalization forces countries to do what is necessary to make their economies productive, not what is best for incumbent elites. Open borders limit the ability of domestic politics to close down competition and to retard financial and economic growth.
-Markets are especially susceptible in economic downturns when the establishment can exploit public anger to restrict competition and access to capital. While markets must be free to practice "creative destruction," Rajan and Zingales demonstrate the political and economic importance of a sustainable distribution of wealth and a baseline safety net. Capitalism needs a heart for its own good!
There are no iron laws of economics that condemn countries like Bangladesh to perpetual poverty or the United States to perpetual prosperity. The early years of the twentieth century saw vibrant, open financial markets that were creating widespread prosperity. Then came the "Great Reversal" during the Great Depression. It can--and will--happen again, unless there is greater understanding of what markets do, who benefits, and who really wants to either limit them or shut them down.
Saving Capitalism from the Capitalists breaks free of traditional ideological arguments of the right and left and points to a new way of understanding and spreading the extraordinary wealth-generating capabilities of capitalism. "From the Hardcover edition."

Genres: Economics, Finance, Nonfiction, Business, Politics, History, Unfinished

392 pages, Kindle Edition

First published January 1, 2003

About the author

Raghuram Govind Rajan is a world-class Indian economist who has also served as the twenty-third Governor of the Reserve Bank of India. He also serves as Eric J. Gleacher Distinguished Service Professor of Finance at the Booth School of Business at the University of Chicago. Rajan is also a visiting professor for the World Bank, Federal Reserve Board, and Swedish Parliamentary Commission. He formerly served as the president of the American Finance Association and was the chief economist of the International Monetary Fund (IMF).

In 1985, he graduated from the IIT, Delhi with a bachelor's degree in electrical engineering, and he completed his MBA at the IIM, Ahmedabad in 1987. He received a PhD in management from the Massachusetts Institute of Technology (MIT) in 1991 for his thesis titled "Essays on Banking".

Reviews

[Matthew · Rating 4 out of 5]

Even though this book is almost a decade old, its description of the state of the economy is a reflection of what is happening today. It's interesting how many economic books from years past still remain relevant. Do we not learn from our mistakes? Unfortunately, the book ends on a pessimistic note. As if the authors do not believe that their policy prescriptions will ever become reality. Their basic argument is that free markets do not benefit anyone, since at any point someone could be the loser. This is true. This is also the reason why politicians and large companies work against free markets. Today those people could be the winner but tomorrow they could be the loser. And insecurity is scary. In order to create a free market we must enact the social support systems to re-train those who lost due working for a company that lost its competitiveness. Maybe this will alleviate the fear of workers by ensuring they will develop new skills for a new job. We must never subsidies failing industries for fear of losing jobs. Those same jobs can be re-gained in another industry with the proper labor support.

[Paul · Rating 4 out of 5]

This book, written by two heavyweight University of Chicago financial economists, was published during our last financial market “crisis” in 2003. This was the time of the post internet equity bear market, the time of the Enron, Worldcom and Global Crossing scandals. The thesis is that free markets, for all their benefits particularly to the poor and powerless, rest on precarious political grounds. The impulse of elites to curtail the functioning of markets is strong and always a threat, particularly in times of crisis when the public loses confidence in markets’ fundamental fairness. . The authors fret about the dark clouds of 2003; the clouds are certainly darker today. Moreover, they show that the threat to markets often comes from the “capitalists” themselves, established incumbents who seek to use the power of government to curtail the free functioning of market to protect their entrenched position

Seems uncontroversial as a thesis. The “rent seeking” impulse in modern democracies has been elaborated before. Nevertheless, this book makes some new and worthwhile contributions. The authors are professors of finance and thus skew much of their discussion to the operation of financial markets. They show in accessible terms the benefits to society of smoothly functioning financial markets, and how in particular they benefit new entrants and indirectly enforce competitiveness in product markets. Oftentimes even reputable economists will rationalize nations’ desire to protect domestic financial markets even while advocating openness in product markets. Rajan and Zingales show that this is typically the result of some politically powerful vested interest in the country protecting its own position. Indeed, open financial markets are arguably even more potent in bringing the benefits of capitalism to the masses. The authors explode the myth of the financier as economic parasite, and show how through the spreading of risk, required returns are reduced and productive investment increased.

They introduce an intriguing and, to me at least, novel theory that private property will be more robust as an institution in circumstances where property is held by those who are the most efficient users of it. The better part of an entire chapter is devoted to an explication of the emergence of the “Squirearchy” in Tudor England, and how it, through the increasing strength of Parliament, was able to suppress the power of the Monarchy and its arbitrary control over property rights. The argument is the that redistribution of land previously expropriated from the Church into the hands of efficient gentleman farmers not only helped create a free market in land, but buttressed the institution of private property because more efficient holders of land had both the economic power and the interest to defend their property rights. Although the argument feels slightly ad hoc at times, the question of why and how strong property rights emerged in some societies and not in others is an important one, and the authors’ thesis is plausible and worthy of consideration.

Thus England emerged first among western European countries in establishing secure property rights and circumscribed government, and from there led in industrialization and the development of financial markets. The authors emphasize the importance of financial markets in nurturing industrialization and the importance of keeping governments and vested interests from rigging the financial markets for the benefit of a privileged few. Here however is where the essential argument becomes ambivalent. Developed countries have an advantage over the developing world in that their financial markets are well-established and tolerably transparent: they have established a functioning financial “infrastructure”. For developing economies to emulate this, they need to establish similarly strong institutions to protect property rights, enforce contracts, prevent and punish fraud, etc. The implication for the authors seems to be that many of the trappings of modern Western finance are part and parcel of this minimum institutional framework for the stable operation of markets. Financial regulation via, e.g., the SEC, the FDIC, the Federal Reserve system, forms the essential infrastructure for efficient financial markets. But most of this regulatory framework is of reasonably recent origin (the Fed from just before World War I, the rest from the Depression era), and it is not at all clear why the authors assume that none of it is the result of regulatory capture by the incumbents they worry about elsewhere.

The book describes the precariousness of a regime of mostly free markets and documents “the great reversal” of the 1930’s and beyond when hostility to capitalism and free markets led to a backtracking on the longer historical trend of increasing freedom and expansion of markets. They document how deeply the development of financial markets were set back, and for how long – by many measures in much of West they still had not reached their pre-WW I level by 1980! And they show how many of the measures instituted, in Italy, in Japan and in the U.S., were bald sops to the established interests of incumbents and not, as advertised, public-interested reforms to protect the majority of the populous.

The point is well-taken, but the authors don’t take it far enough. At one point they write:

It is worth dwelling on this last point, for it goes counter to the belief that the securities legislation in the early 1930s, with its emphasis on disclosure and transparency, was entirely focused on laying the foundations for a vibrant, competitive financial system. It may have broadly done that, but particular interest groups also shaped the legislation for their own benefit. The legislation on securities issuance offers an example of how seemingly innocuous changes in laws can limit competition severely” [Emphasis added.]

Isn’t the securities legislation of the 1930s the very financial infrastructure the authors cite elsewhere as essential to well-functioning financial markets? They repeatedly make the point: “a little government good, too much government bad”. But nowhere do they attempt to distinguish the good from the excessive regulation, the stuff of smooth modern markets as distinct from the detritus of rent-seeking incumbent opportunists.

Alas, in the end, the book does not live up to its subtitle, for nowhere will the reader find the answer to how we can “unleash the power of financial markets to spread opportunity” while keeping the incumbents and their government enablers at bay. The last chapter offers the authors’ suggestions, but it feels little different in character from the typical policy recommendations of mainstream economists. Ensure economic power is not concentrated for that gives incumbents more latitude to tilt the field their way. Build a social safety net so the general public will not turn against free markets during downturns. Keep borders open to trade in goods and capital. Educate the public on sound economics. The authors seem to forget themselves; how in the real world of self-interested political dealing do they think these high-minded ideas will be put into force?

The worries that the authors express in this book are valid and important. The “capitalists” of the title are meant to represent the vested interests of the status quo and the real world evidence of the politically connected writing the rules of the game to their own advantage under cover of “public interest” is overwhelming. The arguments Rajan and Zingales marshal in favor of openness, in particular in financial markets, are convincing and more relevant today than ever. However, in these days of bailouts of elite Wall Street firms and special handouts to politically favored unions, one wishes they had some useful recommendations on how exactly to save capitalism from the capitalists.

[Sajith Kumar · Rating 3 out of 5]

Capitalism and communism are the two extremities in between which national economies strive for progress. To argue that there is no ideal form of any one system is probably cliché. But that is a fact which keeps the financial systems securely on the middle ground with variations in the proximity to any of the two ends. Capitalism, or free market system, is the most cost-effective way to organize production and distribution that human beings have found till date. Healthy and competitive financial markets are essential or else economies would ossify and decline. When competition slackens occasionally, the incumbent market leaders prefer to stay in power and feel threatened by renewed competition from new entrants from either within the country or overseas. Even though democracy is, by definition rule by majority, that majority is often quite defused and unsure of what their interests are. This makes a well-heeled, focused body of opinion very powerful in engendering legislation that further stifle free competition in the market. In such instances, the society has to intervene in reining in the government from overstepping its mandate of providing a level playing field for all players and trying to erect hurdles against new rivals of the existing participants. This book seeks to create awareness in the society to monitor the descent to market oligarchy and intervene as part of well-informed public opinion to check the unbridled power of incumbents. In other words, this book points to a way through the society can save capitalism from the capitalists. Raghuram G. Rajan was the former Governor of the Reserve Bank of India and a former professor of finance at the University of Chicago’s Booth School of Business. Luigi Zingales teaches entrepreneurship and finance at the same institution. The book was first published in 2003.

Not all capitalist countries possess the same type and genre of capitalism. The level of freedom and competition in the financial markets also vary. History has a major role to play in the wide diversity we see at present. For free competitive markets to develop, first of all, the government has to respect and guarantee the property rights of even the weakest citizen. The authors then make a historical comparison of Britain and other countries to establish how this came about. The historical narrative is delightfully simplified, but at the same time, is too simplistic. Moreover, the preconditions for the way it progressed negate any chances of its duplication in any other country on account of their specificity to the situations prevailing in the original country. Finance in an undeveloped system tends to be chubby, uncompetitive and conservative.

On several occasions the authors make a clear elucidation of what they mean by markets. It does include the place of exchange for products and services which are also affected by increased competition by domestic and foreign participants. Rajan and Zingler however assert the primacy of financial or capital markets in determining growth. This particular market controls the flow of capital in a society and decides who gets what and how much. It is the just and proper allocation of resources that helps a financial system to flourish by maximizing employment and production of goods and services. It needs to be competitive as well as innovative to remain relevant under fast changing conditions. Exotic forms of economic activities are to be devised routinely. The book describes a peculiar innovation developed in the US to broaden access of the public to finance. Most terminally ill AIDS patients had valid life insurance policies, but that provided no succor to them while they were alive. When they died, their heirs pocketed the insured amount. Some companies devised a clever instrument called viatical for those patients whose chances of recovery were very slim. It linked the life insurance policy of the patient and paid him for basic comforts in the last days, but staked a claim with a profit margin on the amount payable when he actually died. The scheme looks macabre as the company stands to gain only if the client died. Naturally, the company looked for the most critically ill to have any chance of recouping its investment! Such are the ways in which financial enterprises innovate.

The authors then make an observation that the first enemies of free market competition are not any external agents but the incumbents themselves who had long become accustomed with the way things are ‘managed’ in business. At first, they group together to prevent the entry of fresh players. India’s much famed liberalisation drive in the 1990s is a case in point. Decades of protectionism, crony capitalism, and misdirected populism had sapped the vitality of the Indian economic system that its foreign reserves were almost totally wiped out and creditors were prepared to lend further only if the nation’s gold reserves were pledged as collateral and physically moved to the vaults of the Bank of England in London. There was near unanimous consensus that the nation urgently needed reforms and should open up its markets for free competition. Still, a group of industry majors formed an informal platform called the ‘Bombay Club’ to oppose the initiative. Prominent among them was Bajaj who was enjoying a very high market share for his products. Capitalism is to be saved from the clutches of this type of capitalists, because they very well know that foreign competitors would make common cause with domestic entrants in making life difficult for domestic incumbents.

The book’s claim that the financial markets were not fully free even in developed countries till the 1980s comes as a surprise to many. However, they carefully arrange all the pieces in the puzzle in order. This was because the markets that went down in the Great Depression of 1929 recovered completely only after half a century! The great crash of 1929 shook the Western Civilization to its core. Stock market crash, bank runs and huge surge in unemployment became common. At the same time, economy in communist Russia appeared to be making great strides. Or so the communist propaganda machine made it look like. Revulsion of financial markets welled up among the public and strict government oversight was ensured by legislation. Then came the next big shock in the form of the Second World War. In the first two decades after the war, the system of managed competition (relationship capitalism) worked well in guaranteeing phenomenal rates of growth in a politically stable environment. This was aided by the Bretton Woods Agreement which imposed curbs on the cross-border capital flows. However, the oil shock of 1973 and events that followed it helped bring about the smooth capital flow across nations. This created the political and economic conditions for the resurgence of capital markets.

Each chapter in the book begins with an introduction and ends with a summary of the major ideas discussed in the chapter. It also sports a conclusion and an afterword that attempts to focus on the 2008 crash, but this effort is half-hearted. Rajan is remembered for predicting the crash, so the logic of the effort is clear. The remaining text belongs to the year 2003. In a sense, the book thus looks somewhat outdated. A review of capitalism and what to expect from it in future is very interestingly given. Capitalism is not fundamentally flawed. Its biggest enemies are not the firebrand trade-unionists spewing vitriol against it, but the executives in pin-striped suits who extol the virtues of competition with every breath while attempting to stifle it with every action. To ensure a healthy financial market it is essential to keep borders open to the flow of goods and capital. The country’s capitalists will then feel the impact of bad government policies and they will become a force for good, market-liberating reform.

Every page of the book rings out loud with the clear logic of the scholarly authors, but one obviously shortsighted observation stands out like a sore thumb. The book notes that there is such overcapacity in telecom bandwidth that if all the six billion people in the world talked continuously for a year, their words could be transmitted in a few hours. No doubt, the authors claim, that we will find new kinds of information to send along these wires and eventually much of this investment will be utilized (p.105). This was written in the early 2000s when data transmission was in its infancy. The authors couldn’t foresee the explosion in data exchange that occurred within a few years. Anyhow, the remark on education reform is novel yet very prescient. They say that “a system of formal education that terminates when one is 25 probably leaves one with too much information relative to what one needs for the first few years of one’s career and too little knowledge for the half century that follows. Would it not make more sense to cut back a little early on and have more formal doses of reeducation later on so that individuals can cope with changes in environment and preferences?” (p.304)

The book is recommended.

[Rakshita]

The book is a powerful defence of the free market system. It breaks free of the traditional ideological arguments of the right and the left, that is, pure laissez-faire capitalism vs anti-capitalism and radically changes our understanding of the capitalist system. It is also a strong advocate for the role of financial markets in the growth of an economy.

The authors acknowledge the bad press financial markets recieve due to various scandals such as that of Enron. And they illustrate how the perception of financial markets being parasitic blood sucking monsters that feed on the rest of the population is in fact far from the truth. They also go on to give various recommendations on the steps to be taken to protect it from powerful private interests that only harm the efficiency of the system. It also shown how free markets cannot flourish without the visible hand of the Government.

The beginning and the end of the book are very interesting. Gets too technical and dry in the middle.However I thoroughly enjoyed it. It is a good read for anyone wishing to understand why free markets are the best bet we have.

[Arun Pandiyan · Rating 4 out of 5]

With surmounting aversion towards Capitalism in the public discourse, we needed Raghuram Rajan to explain why the faultlines are inherently not in the system, but with the finance which runs the system. This book is neither pure rhetoric in favor of laissez-faire capitalism nor a polemic defense of it. Rather in this book, the author who served as former RBI Governor explained the frailties prevailing in the free market economy, primarily dealing with the ‘lack of finance’. The language is lucid and the arguments are cogent. The data presented are unequivocal, as we know Dr. Rajan is an academician par excellence (not to forget he predicted the 2008 crisis in his 2005 paper titled, "Has Financial Development Made the World Riskier?")

To begin with, the book narrates how skewed financial opportunities can widen income inequality. Citing the Grameen Bank founded by Noble Prize Winner Mohammed Younus of Bangladesh as an example, the author explains how the lack of information on the creditworthiness of individuals in a society can disrupt the allocation of finances. Observing that “Opportunities are allocated to those that happen to have resources, without a messy fight”, the author argues that we need better financial institutions which can create resources and allocate the same for every individual rather than relying on state-owned machinery which keeps allocating credits to vested interests, further widening the inequality.

In a developing country like India, where the financial institutions are not as matured as other developed countries, Dr. Rajan suggests that facilitating finances from foreign direct investments (FDI) and foreign institutional investors (FII) are much-needed policies. I loved the arguments in favor of FDI and FII from the author who further explained how keeping transparent accounts, dividends and revenue statements (as a marker for creditworthiness) from a domestic business can attract foreign investors. To make it further interesting, Dr. Rajan brings in analysis from multiple data sets to give us a clear understanding of how FDIs can have a positive impact on overall GDP.

In today’s era of globalization, the world is engaged in a worldwide debate on the very question that Adam Smith probed: what causes the wealth of nations? Dr. Rajan writes about the importance of economic openness to argue that the wealth of nations primarily depend on their trade policies, rather than their resources. Writing in 2003 that open economic borders and free flow of economic goods are vital for the growth of the country, one cannot disagree with Rajan, looking at the current trend of India’s forex reserve in 2021. The move to remove certain trade barriers in form of tariffs through a new trade policy in 1991 by P Chidambaram has yielded us enough dollar reserves to be utilized for low-cost financing of infrastructure projects in the future.

Time and time again, people who are antagonistic to the idea of open trade and liberal import-export policies fail to understand that the productivity of a firm depends on the size of it, and unless there is an element of trade to bring in some revenue to the firm, the firm will eventually lag in productivity and will be left out. Raghuram Rajan in this book, terms such phenomenon as ‘creative destruction where the domestic companies which are least innovative and more closed to trade cannot sustain the competition from other innovative and already grown international players. One of the recommendations suggested by the author to boost the morale of the losers in the market is to create a social safety net for them.

Dr. Rajan had written a beautiful and informative chapter on the importance of equity markets and private property and their impact on economic prosperity. With only 4% of the Indians directly into the equity markets (based on Demat account holders data), Dr. Rajan writes:

“Countries requiring a lot of procedures to start a business also tend to have an underdeveloped capital market, with low equity market capitalization to GDP ratio. The negative relationship suggests that financial underdevelopment is another form of entry barrier.”

In sum, Dr. Rajan believes that “Capitalism's biggest political enemies are not the firebrand trade unionists spewing vitriol against the system but the executives in pin-striped suits extolling the virtues of competitive markets with every breath while attempting to extinguish them with every action.” The entire crux of the book relies on the argument that though the system of capitalism has generated wealth in the past few decades, the allocation is unjustifiably concentrated in the hands of few due to two reasons, viz., firstly, the incumbents who interfere with politics (crony capitalists) and do not want ever-evolving economic policies which can create competition and openness and secondly, the politicians who pretend to act in the public interest without having any understanding on what the interests of the public are.

Finally, Dr. Rajan suggests that the state should play a visible role in determining the rules that govern the market and support it with the proper infrastructure. As I finished the book, I remembered Montek Singh Ahluwalia’s closing lines from Backstage, “Good economics may not seem to be good politics in the short run, but wise political leaders will realize it is almost always the best politics in long run.”

[rai · Rating 3 out of 5]

the book makes a strong case for the need to reclaim capitalism for the people, highlighting how powerful corporations and political elites have manipulated systems to maintain their grip on wealth and power.

but hm, while the book is well-researched and offers important perspectives, it felt repetitive, especially in its critique of the state-business nexus, which could have been shortened by a LOT. the solutions proposed, while practical, don’t always feel fully fleshed out in terms of how they could be realistically implemented without significant pushback. with all that being said, if you’re trying to get an intro to understanding key issues with modern capitalism, this is a good book for it.

[Savil Srivastava · Rating 5 out of 5]

Writing in 2002, Zingales and Rajan’s main thesis is that the primary threat to Capitalism comes from powerful incumbents (“the Capitalists”). In preparing to defend this, they walk us through an understanding of how financial markets help the world, and the history of financial development. A better, alternative title would have been: How Finance Helps The World, and Why Your Local Crony Capitalist Is Trying To Capture It.

As Economics and Finance professors at the University of Chicago, they first present in Part A a compelling defence of free markets, and focus specifically on how financial markets have enabled “creative destruction”, where old ideas can be challenged and replaced by new ideas.

They then in Part B focus on their main thesis to showing how incumbent forces distort financial markets to their benefit, and using this line of reasoning to take us from the start of property rights in 16th century England to banking in Modern Japan and Italy.

Finally in Part C, they say that free-markets are politically delicate and present some policy suggestions for strengthening their cause politically: providing a strong welfare state to help workers during downturns or when their skills have become obsolete, vigorously enforce anti-trust laws to limit the powers of incumbent firms, and support cross-border trade as well as financial flows to ensure firms face competition.

Overall, i found the first Part A and Part B to be very well argued. They focus not just on the effects of financial development, but also talk about the mechanisms and power dynamics that affect the rules of the market and how they evolve. As part of this, they explain the concept of arms-length finance, in opposition to relationship-finance: where connections and the ability to put up collateral dominate credit. They then trace how a shift from relationship-finance to arms-length finance helps broaden economic growth, and how this is reliant on strong institutions (legal like courts, or financial like credit ratings agencies) being built in an economy.

[Abhinav Anand · Rating 4 out of 5]

A compelling case which advocates for free markets. Why is it important to have open markets in the long run, how is it in the best interests of the people, a nation's economy and the world. The author sees a free market as a tool of creative destruction as it helps the economy to flourish and operate efficiently. It throws light upon the impediments in the process of creating a free market, the incumbents and the loath governments which fail to provide equal opportunities. It not only kills the competition but obstructs the growth, at times due to pressure from the incumbents or the unaware political society which have been marred in the process of creative destruction. The book not only serves the academians but is for all, to make themselves aware of the benefits and beauty of free markets.

[Brijesh · Rating 4 out of 5]

although its good , much of the context is sent in early capitalistic nations like Europe and north america , and brief mention of developed country in asia(japan) , the emphasis seems to be more on developed nations where the conflict between incumbents , govt policies, entrepreneurs , banks and regulatory authorities like SEC and some time courts its a bit of vicious circle, some thinks lots of things are in a paradox and de-puzzling the mystery is a challenge to all

[Lucas Ribeiro · Rating 4 out of 5]

Interessante discussão sobre a influência das empresas incumbentes na restrição do desenvolvimento de um mercado competitivo. Apesar de mais de 20 anos do livro, ele continua atual.

[Nicolas B · Rating 5 out of 5]

The book speaks to its title. Capitalists are a well-organised group of people that manage to lobby governments effectively. They lobby for regulations that entrench their dominant positions that might otherwise be threatened by international competition. The book is thus very timely as governments around the world are returning to protectionist policies. The official party line is to ensure independence by producing some essential goods, retaliate to foreign anti-market policies, or to isolate countries that have a low human rights record. However, it could as well be that these policies are serving the interests of national capitalists that are concerned with international competitors eating into their market share. The book provides many examples where governments went a long way to shelter their capitalists, even when their gains were much lower than the costs incurred by the public or other national companies. In macroeconomic terms, there was an overall loss of domestic welfare. It is argued that such inefficiencies occur because some groups are better organised than others, thus in better position to lobby governments. Otherwise, the politicians could realise that it would be even more efficient to pay the newly unemployed a generous retirement or help them re-train. In other words, they should ignore the capitalist beggars and let international competition run its course in delivering better products or services at a lower cost. Of course, it must be ensured that this competition is sustainable and fair - there is no doubt about that. But it should be checked that issues about sustainability and fairness are not just presented as an excuse to prevent a long overdue adjustment to new competition.

I think the book presents the line of argument above very well. I guess I would have liked to see more discussion about whether some protectionist measures are justified or even necessary for developing countries to propel their economy before they open it up completely to advanced competition. I am not sure whether it is enough to say that at first the developing economy will provide cheap labour until they are able to compete. Besides, it’s all about power. The risk is high that the more advanced economies will dictate the rules of competition and ensure that the developing ones will never catch up. I realise the book is exactly about not letting this happen. But from a developing country‘s perspective: would you play the odds?

[Puwa · Rating 5 out of 5]

The Vattern academic, economist, professor, entrepreneur, and former governor of RBI, and many more titles are belonging to one genius Dr. Raguram Rajan. The introduction focuses on the financial management and cash flow in society and the system of money compounding. He addresses the issues of cash flow in the industrial sector and the barrier or the walls between the global territories and the limitation of the trade, currency market strength, and the economic impact in the world market.

The author addresses the contradiction between the capitalist and socialist unsolicited power and inequitable wage distribution among the labor based on the power and competition of capitalist owners. The classic example the author made in the reducing risk premium of demand money by the investors, privatizing a state-owned enterprise panic the shrinking stock market by the employees and the tension has been scraped by a US Bank and Bankers Trust on the minimum guaranteed deal of 25% and without bare any risk by using “Dynamic Hedging” technique.

I am a trained Project Management Professional, the risk is a relative term, you cannot define it in a certain way, and Risk Management experts should find ways to mitigate risk than find a solution for the risk because, there is no solid reason for risk. The author’s view on risk in the property and natural disaster and the patient and disease, encapsulated the two different types of risks in one as “Catastrophic Risk” and therefore, some loans brought the insurance companies to its knees. Waste management in financing or investment and also exploiting investors' money stimulus the reader's mind, and how the firm owners on the one hand became a superstar rich and on the other hand the firm theft of resources and burying the dead.

Financial liberalism is a key factor to open up the global financial market and the blockchain will be a continuous supply for the demand across the global territory wall. Dr. Rajan precisely arguing the above in the industrial sectors how overpaid and underpaid and diminished the aristocracy authority and open the gates to everyone. The internet bubble enrooted the static financial system to the dynamic, automated, and virtual finance market establishment in the Global Village. The market share of the internet between 1998 and 2000 rose to five times their initial value, the author said. The eCommerce business revolution formed new companies (1998 Zapata Consolidate). But the bubble starts to dry up and bursts on the new entrance of smart money for the public to batting against the internet bubble, and the consequence of the boom and bust eventually disappear.

The misallocation of resources for any invested firms leads to bankrupt and the capital market value drastically falls. The author argues that the economic liberalization also causes the desirability of the developed financial sector because the new competition squeezes profits, so a “market-oriented economy is productive and fair”. As a reader, I realized that the strength of money mobilization and the impact of the GDP growth widened the policymaking, the backslash also should be measured in terms of the potential crisis in order to satisfy the customers and liberalized money market for new opportunities.

The real democracy system will abolish the disproportionate power in any nation with regard to the interest of growth. The author stress here the nation’s wellbeing of the economy and the financial market progress relying on the geopolitical and foreign policies to open its borders to exchange technology, idea, and import and export process. The examples reference each and every subject/title holding the weight of the authors' value. The entire book is covering the entire world’s financial and economic focus interns of the fund adjustments, legal system, equity issues, fund ricing, profit sharing, money circulation, and bond issues.

“by perhaps the best-known economist of his age, John Maynard Keynes. In his pathbreaking book The General Theory of Employment, Interest, and Money, Keynes argued that it was quite possible for the demand for goods and services in an economy to fall below the economy’s potential to supply them.”

As a reader, my understanding is that the potential for extraordinary change invested interest in technological transformation and upgrade maintain the status quo and transparent the free market and financial system, advance rapid technology and skills create the new competitive advantage between developed and developing nations. In my conclusion “Saving Capitalism from the Capitalist” is the noble purpose of humankind and politically not fragile.

[David]

The writing may not be "dense" by strictly academic standards, but most readers may find it dense. It IS academic - each chapter has numerous footnotes at the end, plus the book's last 30% is bibliography and index. Subtracting that, it's relatively short. A question of definitions: Developing nations (not just remote villages) aren't classified as "capitalist."

Early in the book, it's said capitalism depends on rising wages for consumption. Capitalists' increasing wealth needs more than just making the same number of products. They're always trying to sell more of the old products plus new products. To sell more stuff, there must be consumers with more income to afford it. Capitalists don't want to raise wages, so labor, government or other forces need to overrule the capitalist class' inclinations.

The author believes capitalism is beneficial - such as rising living standards, but the above argument doesn't clearly attribute it to the capitalist system. Living standards have grown since prehistoric times - if it grows at a higher rate now, that may be a faster pace of technology.

The book describes a process from simple society to hierarchical society. I think some aspects are missing from his view, but I don't think that crucial to this post.

It argues capitalism is "acultural." ... He says capitalism's use of slavery, colonial exploitation, etc. was bad, but isn't essential to capitalism. He says checks and balances are needed in capitalism and other systems, but doesn't ask if checks and balances could "save socialism from the socialists." He doesn't compare Communist nations' economic results with the economic results of other nations at similar economic levels prior to Communism (or how other nations' economies would have done under Cold War conditions.)

The book says capitalism doesn't control all areas of society - pointing to international relations dealing with national security. Countries (capitalist or not) have concerns about possible harm by others. But the example might suggest business never drives capitalist international relations. That would be wrong.

The book's final part is on globalization. He says under globalization Keynesian economics doesn't work well on a national level, so would have to be done on a global level. He advocates a social democratic system. He says the best path forward for labor in developed countries is to support globalization. This is supposed to prevent developing nations from reverting to ancient tributary forms. This seems inconsistent to me. Regarding social democracy, Wikipedia says: "Sweden still belongs to the group of the most equal OECD countries, despite a rapid surge of income inequality since the early 1990s." Sweden also had a banking crisis in the early 1990's. Further, the book says that when the oil-rich developing countries used OPEC to try to get more oil income to develop and diversify their economies, the social democratic parties in developed nations didn't support them. I fear that capitalists are too powerful to be controlled in the long-term (if not short-term) as long as their system continues.

Final note regarding capitalism's need for expanding production:
As much as I'd like to see new kinds of products which might help or interest me, climate change and other issues may make it necessary to limit the growth of production until we prevent impending disasters. Capitalism's needs and our survival seem to conflict.

[Virendra · Rating 4 out of 5]

The book starts with a brief introduction on what capitalism stands for & how it is practiced in general economies. The authors provide a detailed example of how capitalism came into play. Book is divided into 4 major parts

1. The benefits of free financial markets

This part deals with how capitalism came into play. How the poor are denied access to finance by the capitalists & how options like collateral & connections fail to aid the poor & ultimately benefit the rich. It also details the tactics like diversification of risk, information about the borrower can help in enhancing the access to finance to poor. This part also deals with how the institutionalisation of stock ownership, shifted the concentration of management from stakeholders to shareholders. Increase in competition forces the firms to outsource their unproductive works, which leads to more employment and access to finance. Improvement in technology and worker mobility are also major reasons which lead to financial revolution. It also talks about the dark side of finance & what leads to financial bubble & how to overcome it. Towards the end of this part, the authors detail the ways to strengthen the financial system to ensure access to finance to the needy.

2. When do financial market emerge

This part deals with Why do some countries have a flourishing financial market and others not ? It details how the government plays an important role in ensuring that property rights are protected. How to prevent excessive power of government over its citizens. It logically explains how sometimes, the government favour some classes (Capitalist) over the other (general public). Also, it provides details on how sometimes the government is unable to help incumbent/capitalist because of external competition. It also details the ways to break the collusion of the government & capitalist.

3. The great reversal

This part provides examples from the history of various countries about how the world war affected the economies around the world, how the finance functions have developed through those phases. It provides details on how during these economic downturns, governments intervene by suppressing competition and making common cause with the firm's owner. How the governments continued the active and passive policies that sought to repress domestic financial market. It provides details on how the governments also control the credit flow by the nationalisation of banks, often the finance flow from these bank to either government or incumbent. It details how the market-driven system & Relationship Capitalism system differ, & pros & cons of both.

4. How can markets be made more viable, politically

This part deals with future challenges of capitalism & also provide the detail solution to the problems mentioned in the previous parts of the book.

All in all, the book is a powerful defence of the free market system. It radically changes our understanding of the capitalist system. It is also a strong advocate for the role of financial markets in the growth of an economy. This is a great book to be read by people who are interested in capitalism & how that ails the economies around the world, and solutions to erode it.

[dudereadthis · Rating 4 out of 5]

A lot is said almost every day about capitalism and its evils. Wealth inequality, the devilish perception of bankers, shady finance companies, regularly uncovered scandals and the still evident effects of the recession are at the forefront of any finance blog or newspaper or magazine. It wouldn't be wrong to be wary of the capitalist systems that prevail all over the world, no matter what country you live in. Rajan and Zingales present a different picture, however. According to them, capitalism by itself isn't harmful at all and it is only a perverted version of them that is currently practised everywhere we see.

The picture that the two present and the analyses they make do seem beyond reproach although to a person who has a layman's understanding at best, this may be nothing more than all show and no substance. But a glance at some of the studies quoted do make things clearer and remove a lot of sensationalism that the claims may inaccurately project. The book takes a step by step approach to the development and benefits of financial markets. It then talks about what are the factors that impede such markets and how the powerful use seemingly benign tools to shape markets to their own needs.

I cannot speak to the level of economic analysis performed by the two writers or to their views. But it cannot be denied that Saving Capitalism from The Capitalists is bold and unflinching in its critique of current financial markets, economies and politicians. Many observations ring true and some of the analyses make sense while the rest warrant further study although I am pretty sure those studies shall prove remarkably illuminating.

Saving Capitalism from The Capitalists is a book that is meant to help us, the public, in understanding all that takes place in a world we have such low access to and how it affects us. It also shows us how policies and decisions that may help us are actually more harmful than they appear while those that seem harmful end up making it all easier. This is a book that should definitely be read by everyone who wishes to understand the elusive financial markets of the world and how they might just be a blessing nobody asked for instead of a necessary evil.

[Valeria López · Rating 4 out of 5]

"Saving Capitalism from the capitalists" aborda, de manera neutral, la realidad de nuestra economía global y los mercados financieros. Me gusta la manera en la que el autor sustenta que la forma del "libre mercado" es la más eficiente cuando se trata de mejorar la condición humana y propiciar la prosperidad, siempre y cuando se tenga cierta intervención gubernamental. Por otro lado, tenemos la problemática de los intereses personales, los cuales son, en su mayoría, los que mueven el actuar de ciertas organizaciones y particulares. Derivado de lo anterior, tenemos los problemas de corrupción en la actualidad, especialmente en el ámbito financiero y económico. Me gusta mucho la manera del autor de presentar las ventajas y problemáticas del capitalismo en la actualidad; es necesario dejar de lado los intereses personales para poder progresar como sociedad y en los mercados financieros (es por esto que entiendo que el título hace alusión a salvar el capitalismo de los mismos "capitalistas"). De hacer lo anterior, se reduciría fuertemente la brecha entre clases socio económicas, teniendo una sociedad con acceso a distintos servicios financieros y oportunidades laborales. Por consiguiente, el autor realiza sugerencias que considero sumamente pertinentes para las reformas económicas de un país; proporcionar redes de seguridad para el sector vulnerable de una población, educar a la ciudadanía, y aumentar los incentivos para respaldar el libre comercio (reduciendo las barreras de entrada y los incentivos para actuar por interés personal). Finalmente, creo que es un libro que presenta, a manera de resumen, la posibilidad de crear mayores oportunidades y aumentar la calidad de vida de la sociedad, no obstante, considero que las soluciones que presenta son más fáciles escritas que puestas en práctica.

[Sangam Agarwal · Rating 2 out of 5]

great book written by professional who have gone though the things from top to bottom and bottom to top.
this book will teach how different countries using different strategy to escape poverty and become rich.
how and why it is hard to implement capitalism in emerging market .
how to exploit socialist and capitalist economy as an investor

how an illiterate person with no money can exploit these economy, these type of concepts are not explained in this book, since write has scene the india from bottom when was young and from top when he was at the imf.

he has given the example of ambassador car which a poor illiterate person can exploit being a mechanic in small village even if he can't be engineer which require lots of money and education which shown perfectly in the movie Avtaar (1983 ), hero was living good life being mechanic despite no education than suddenly he lost his one hand and become poor, one of his son sold his blood to buy tools because banks will not give him money but due his skill despite being poor and no education and tools require for production funded by his son's blood he build new technology better than trained engineer and become rich despite no education and no money.

these type of strategy and example are completely missing from the book which i did't expected from former imf chief economist and rbi governor,the true insider of India

[David Wunderlich · Rating 3 out of 5]

This is a fascinating time capsule of a book. Written in the wake of the tech bubble bursting and corporate scandals like Enron and WorldCom, it's primarily a full-throated defense of financial markets — the freer, the better.

I got a lot from the history portions of this book, as I was not aware of a lot of the ways financial markets developed. The contrasts between the US and Europe were particularly enlightening.

Ultimately, the "Saving Capitalism from the Capitalists" portion is really only the last chapter. It also contains the huge blind spot of having been published in 2003, years before the Global *Financial* Crisis of 2007-08 (though one of the authors, Rajan, predicted a lot of the carnage in the interim in 2005).

Even so, many of the prescriptions in the last chapter really do hold up and wouldn't be out of place in a book with the same title (with a different subtitle, obviously) published today. It's very long, though, and a bit of a slog. It takes patience to get through it these days given how many times your brain will recall events of 2007-09 and object to some of the things discussed in the book.

[Shariq · Rating 5 out of 5]

I started this book way back in 2015 leaving me with a regret that I should have finished this earlier! having said that the contents of this book are more enriching to me right now after having gained more insights about economies.

recommended for everyone who ever has any kind of thoughts about capitalism or what it actually is or supposed to be. The books sticks to the classic economist approach of trying to convince you with reason and data and does a pretty good job albeit the fact that I agree with the author's premise even before reading the book. but the naysayers would also be convinced to some extent as there is no forceful ideological mooring to put anyone off.

[Armaan · Rating 3 out of 5]

Started off well but later on information overload took place. Couldn't complain because of the inherent nature of two acclaimed figures and PhD holders from Univ. Of Chicago.

Starts with talking about primary vested parties to the free economy, their interests and their expectations from the market. It goes on to speak for/against free economy, it's pillars and their place/origin in history. It closes by providing solutions.

Found it difficult to keep up the connect and relation throughout. It felt more like I was reading a research paper and therefore lacked a much more deeper connection with surroundings and the actuals.

[Peter Gehred · Rating 5 out of 5]

One of the best books I've ever read, drilling into the precise details of capitalists rigging laws with the help of business-supported political officials to entrench their own profits and station. A searing critique of capitalism in practice by two University of Chicago economists, the epicenter of pro "free market" scholarship.

Libertarians like to talk about regulatory capture as a means to criticize government. This book actually follows through to the real heart of the matter, a critique of crony capitalists as much as crony government.

[Sandeep Nair · Rating 4 out of 5]

The title wholly captures the essence of the book.

The authors provide historical context and evidence of how 'Finance' has contributed to the arc of progress, and how 'Capitalism' is indeed the most efficient way to allocate resources. They laud openness, deregulation, democratic institutions, and defend the often vilified characters of Wall Street by very lucidly showing how these pinstripe suited icons of inequality - even if not by intent - do provide capital to a much wider base of people thus promoting equality and uplifting society as a whole.

Once they establish the success of free markets, they immediately discuss how it's often the self-proclaimed saviors of capitalism - the incumbents, the business empires and conglomerates, the old money people - who harm it the most. The authors ask, if capitalism too has the problem of impractical idealism that socialism is often blamed for?

They conclude that true capitalism (i.e. market democracy) cannot survive when left to the free markets' devices alone.

"...ideal of free markets is not the anarchy of the jungle or the Wild West but a transparent, level playing field where everybody has a fair chance of participating ..."

For capitalism to thrive, 'some' state intervention is needed.

" ... a truly free and competitive market occupies a very delicate middle ground between the absence of rules and the presence of suffocating rules"

[Kurtbg · Rating 2 out of 5]

Not a very satisfying read. Capitalism itself doesn’t deal with what’s best for people and makes no corrective advice on asbestos, polluting, or sustainability.

It all comes down to the role of economics a country decides on, and how much it lets profiteering cut into what a reasonable person would be willing to sacrifice.

Those in charge of the societal needs can either support and protect or sell out for personal gains and to the advantage of “those that brought them” to political power (usually not referenced as the voting public.)

[Nikhil Kumar · Rating 5 out of 5]

With a deep sense of history of international political economy and development of financial institutions, this book is a forensic analysis of all that ails the existing economic system of capitalism and how free markets can be saved for the good of the humankind.

The authors recognize the constructive role of government in fostering markets while underlining the excesses that come with political and economic incumbency.

[Midhun Jose · Rating 5 out of 5]

Love the narration style and the way chapters are structured. Moreover the content is very detailed and easy to understand for a reasonably educated reader. As a central theme, the book defends open boundaries and free flow of goods, services and capital. This book definetly helped me to clear some of my misunderstanding on the free market capitalism. Extra points for the apt anecdotes and analogies to explain difficult concepts

[Yakov · Rating 3 out of 5]

A clear and compelling defence of free financial markets with a nice overview of economic development in the US and UK. The argument, however, loses much of its power since the book was written before the 2008 financial crisis, and so in retrospect it's not very nuanced. The book was good for its time of publishing (2003), but if you'd like to read about financial markets and capitalism, there are more relevant books out there than this one.

[Martins Untals · Rating 5 out of 5]

Amazing book about structure of markets

After reading many economics books that focus on downsides of market economics, and are in general left leaning, it is refreshing to read detailed and honest defence of markets themselves, that at the same time does not go into dismissing all the vices of capitalism. Right as the title says - this is defense of market economy, not defence of every capitalist in a tophat. Great read, and I will be reading Rajan’s follow up books as well.

[Prakash Holla · Rating 4 out of 5]

Understanding market capitalism through economic ages of the world is a very complex business..the book tries to simplify it as much as possible..you get to know about the nexus between political, social and economical factors prevalent and their concurrent influence on the economic/financial world passing through different ..isms..

[Andrew · Rating 4 out of 5]

Very interesting book, although a bit dated given we had the global financial crisis over a decade ago. I really appreciated the authors' insight into "relationship capitalism" vs "free market capitalism".

[Md Morshedul · Rating 5 out of 5]

Learnt a lot of new perspectives. The book seemed quite elaborate, offering a fluent way of story telling. Having said that I personally struggled a bit by losing myself in the volume of stuff. Very good read for those having some knowledge / relevance in the subject.