Crony Capitalism, taught by Luigi Zingales, meets in the basement of the Harper Center on Wednesdays at the unpopular hour of 8:30 a.m. Nonetheless, by 8:15 a.m. several students are already in their seats. “I hate waking up early,” one student wrote on an evaluation for the course in a past year, “but I dragged myself out of bed at 7:30 a.m. to get ready to go listen to Professor Zingales talk for three hours.”

Zingales, the Robert C. McCormack Distinguished Service Professor of Entrepreneurship and Finance at Chicago Booth, is highly entertaining and loves to poke the bear. He cohosts the podcast Capitalisn’t, which aims to explain “how capitalism can go wrong, and what we can do to fix it.”

Crony Capitalism takes a similarly skeptical approach. Economies throughout the world do not really resemble “the idealist version of free markets generally taught in economics classes,” the syllabus states: Corporate governance, wealth inequality, regulation, the media, and the political process all distort the market. Public-serving entities are subject to regulatory capture, when an agency meant to act in the public interest instead acts in the interest of the industry it’s supposed to regulate—a concept first described by Chicago Booth professor and Nobel laureate George Stigler, PhD’38.

Zingales’s course focuses on why crony capitalism in all its forms—giving unfair advantages to those with the right connections—“prevails in most of the world,” and why it’s increasingly prevalent in the United States.

At 8:30 a.m. Zingales quickly reviews last week’s homework on sugar subsidies. Students were assigned to read a ProMarket article on the Fanjul family, Cuban refugees who have made a fortune selling sugar in the United States. Students had to use opensecrets.org, which tracks money in US politics, to compute the Fanjuls’ campaign donations and lobbying expenditures (directed at Republicans and Democrats alike), then calculate their company’s benefits from subsidies and protections. The return on their investment, students discover: a staggering 4,000 percent.

As well as the carrot, the Fanjuls employ the (implied) stick. Zingales shares a story about an unnamed presidential economic adviser who, during a talk, remarked that the United States should get rid of sugar subsidies. Driving back to the White House, the story goes, the adviser received a phone call suggesting that he not do that again. “The Mafia does exactly this,” says Zingales, who comes from Italy. “For most people, it’s convenient to behave.”

Homework dispatched, it’s on to the lecture, which at first doesn’t seem to have much to do with economics, let alone crony capitalism. The first image in Zingales’s slideshow: a painting of Prometheus holding a burning torch and casting a worried glance at the sky. “There is a strong analogy between knowledge and fire,” he says. The next slide lists the similarities: Both spread naturally, can be shared at no cost, and are powerful, even potentially dangerous. Lucifer, Zingales notes, means he “who brings light.”

He flips swiftly through the slides—many could have been borrowed from an art history class or European Civ—tracing the history of knowledge and its preservation and dissemination. Speaking without notes, he shares anecdote after anecdote of how human knowledge builds on itself. Arabic numerals and the concept of zero, for example, made calculus possible: “With the Roman numerals, you cannot do that,” he says. “It is a pain in the buttock.”

But once human beings figured out how to preserve, share, and monetize knowledge, life was transformed. Here is the connection with economics.

One slide, titled “The Acceleration of History,” shows the growth of gross domestic product (GDP) per capita in China, India, Japan, the United Kingdom, and the United States from 1000 to 2000 CE. For 700 years it’s roughly flat. Beginning around 1700, it skyrockets. In the case of the United States, it’s just one steeply increasing line.

“What Happened?” the next slide asks. Zingales rattles off a list of explanations. In the 15th century the printing press and patent law had been invented—the latter by Venetians, Zingales points out with a hint of Italian pride. Knowledge could be widely disseminated, and now that scholars could build their reputations by sharing knowledge, “modern academia” came into existence.

He cites Fra Luca Pacioli (another hint of pride), who in 1494 published Summa de Arithmetica, Geometria, Proportioni et Proportionalita, the first book that explains double-entry accounting. “For all the accountants,” he says (if there are any in the room, they do not self-identify), “this is an important masterpiece.” It’s also an early example of monetizing an idea, by writing a book that could be sold.

A final reason for the steep growth in GDP: Military competition inspired governments to invest in research. “One of the big, big ideas of America after World War II,” he says, “is to continue to subsidize universities to do research.”

Next comes a rapid-fire history of the effects of the printing press. Before its invention, books were expensive, the Bible was available only in Latin, and the linguistic landscape was extremely diverse. Every little area spoke its own dialect, and being illiterate “wasn’t a big loss,” he says.

Afterward, seismic changes. Books were written in national languages—to appeal to the largest possible group of readers—and therefore “created, to some extent,” the notion of nationality.

The printing press brought newspapers, which the internet—in a parallel seismic process—disrupted. The slide “A Paradox of the Information Age” points to the current dire situation for both legacy media and democracy: More information is easily available, but there is a greater diffusion of low-quality information.

With just a few minutes left in the three-hour lecture (which also covered the history of censorship, propaganda, cancel culture, social media, artificial intelligence, and more), Zingales brings his troublemaking home. He’s already covered how regulators can be captured—influenced to make decisions that benefit certain industries. His astonishing claim: “Academics are not very different from regulators.”

Academics—paid by universities and protected by tenure—are subject to capture?

The issue is data, he says. Research in his and many other fields requires data: “So these days, if you have an IQ above 90 and you have access to a proprietary set with fantastic data, you get tenure at the top university,” he quips. But who controls the data and how they use that control shapes the research.

Bob Woodward—the crusading journalist of Watergate fame—is now known for writing “biographies that are clearly tilted in favor of the person,” Zingales says. That’s because famous people don’t want to share their information with a biographer who would be critical: “You need to be nice.”

Just like famous people, organizations have reputations to protect. Data is shared “with an implicit quid pro quo,” Zingales says. “If you find results we like, we keep giving you data, and if you don’t find results we like, we stop.”

“What is funny,” Zingales says, is that when he makes this argument to other economists, they claim to be immune from such corrupting influences. “I say, ‘Wait a minute. You’re an economist and not affected by incentives?’”

Syllabus

Crony Capitalism, ECON 28620, “analyzes what makes capitalism work and what distorts it.” Assigned texts include books and book chapters, academic papers (old as well as new), reports from think tanks, newspaper and journal articles, podcasts, and more.

For the class meeting described here, required readings included two articles from ProMarket (a publication of the Stigler Center at Chicago Booth): “The Present and Future of Journalism: How the News Media Lost Its Purpose” (2021) and “‘Doubt Is Their Product’: The Difference Between Research and Academic Lobbying” (2020). In addition, students read “Preventing Economists’ Capture,” a chapter Zingales contributed to the 2013 book Preventing Regulatory Capture: Special Interest Influence and How to Limit It (Cambridge University Press).