Restoring Trust in Capitalism with Luigi Zingales

University of Chicago Booth School of Business Professor Luigi Zingales recently appeared on SHRM's Tomorrowist podcast. A summary of that conversation appears below.

As dissatisfaction with capitalism grows, particularly among young people in the U.S., business leaders must address concerns about the integrity of the system they operate in. Amid accusations of ballooning executive pay and perilous regulatory capture, many Americans believe capitalism no longer delivers on the promise of opportunity based on effort and merit.

Professor Luigi Zingales of the University of Chicago Booth School of Business, who also hosts the Capitalisn’t podcast, provides a nuanced view of these issues. Zingales argues this frustration is not rooted in true capitalism, but rather in a distorted version that has allowed incumbents to rig the system in their favor.  

Reflecting on his transition from Italy to the U.S. in his book A Capitalism for the People: Recapturing the Lost Genius of American Prosperity (Basic Books, 2012), Zingales noted the intense responsibility that accompanies freedom in the U.S. system.  

“Living in a corrupt system, I could always blame the system for my own failures, even the ones that were my responsibility. Now lacking any scapegoat, I could only blame myself,” he wrote in the book. With this realization, underscoring the dual nature of freedom and accountability inherent in capitalism, Zingales calls on business leaders to consider capitalism’s future and their role in restoring trust in the marketplace.

As artificial intelligence and data reshape industries, the stakes are even higher for those hoping to reinforce democracy, meritocracy, and market freedom. For leaders, understanding and addressing these challenges is critical to creating environments that foster innovation, accountability, and fairness—key pillars of a truly competitive economy.

Anger Wrongfully Directed at Capitalism

Zingales argues that the dissatisfaction among young people isn’t with capitalism but with an adulteration of that system that has failed to deliver on its promises.  

“They are mad at the fact that the system is not what is promised to be. A true capitalist system is promised to be more meritocratic, with equality of opportunities and more of a correlation between the effort you put in and the outcome you get,” he says. “That's not what we observe in the United States today. And that’s what makes a lot of the young people really mad.”

Zingales believes this disconnect between effort and outcome fuels resentment, especially as incumbents manipulate the rules to their advantage, undermining true meritocracy. 

Zingales also emphasizes the inherent tension between democracy and meritocracy. Whereas a pure democracy tends to redistribute income, a meritocracy exclusively rewards effort and innovation.  

“You do need to reward people to elicit higher effort. Maybe investment in human capital and so on, so forth.” he says. “There is, of course, a tension between the two, but I think that keeping them in balance, keeping one to check the other, is a bit like the yin and the yang.”  

Unfortunately, we often go too far in one direction or the other, Zingales argues. The consequences of not striking the correct balance are significant, allowing some companies to take over unfairly through regulatory capture. In his book, Zingales predicted significant meritocratic and free-market resistance from industries such as law, health care, and accounting as artificial intelligence and other technologies disrupt traditional practices. “The legal industry will fight to hell because they are the masters at fighting this,” he warns.  

Ideology vs. Data Analysis  

Zingales has also written about how, whereas the 20th century was characterized by ideology, the 21st century will be characterized by data analysis. But will incumbents allow that to happen? He says access to data, especially in academia, is a comparative advantage, but there will be challenges.

“Companies are smart, and they grant that access to data under some conditions that sometimes are explicit, sometimes are implicit,” he says. In giving of this data, there are certain implied rules. “You don’t write anything against me. But if you have that implicit condition, that's not research. That’s PR.”  

Those who provide data already have significant influence over academic findings, Zingales says. “It is becoming dangerous for academics and journalists, actually, to write against some entrenched powers, because they’re very fast to sue,” he says. “If you are a large company, paying a lawyer to sue you is not a big deal. But for you, [it] can ruin your life, even if eventually you’re vindicated.”  

AI tools will give us access to incredible computational and analytical power, but we must all be cognizant of who provides the data and their motivation for sharing it.

Educational Inequities and Systemic Rigging

Meritocracy has also lost ground in education, argues Zingales, who is quick to criticize the disproportionate emphasis on legacy admissions. He points out Harvard’s policy of dividing admissions between legacy, affirmative action, athletes, and merit-based candidates.  

“The one who enter[s] out of merit is a minority. I think that’s [when] you feel the system is rigged,” he argues. “If you go to Harvard, you’re much more likely to have a number of advantages that you don’t have if you go to Ohio State.”  

These practices, regardless of how well intentioned they may have been, contribute to the perception of a rigged system. This imbalance extends beyond education, affecting various industries where incumbents entrench themselves, limiting opportunities for genuine competition.

The meritocracy challenge is also a challenge in secondary education, but has seen significant change with the introduction of vouchers. A proponent of voucher programs, Zingales suggests a slight departure from a purely meritocratic approach. He suggests that children from disadvantaged backgrounds should receive more valuable vouchers to incentivize schools to admit and educate them. “The value of the vouchers should be differentiated” to create a more balanced educational landscape, he says.

Leaders should strive to create an environment that is fair and meritocratic within their walls to encourage competition, but Zingales says even that is difficult. 

“If you start to go in a queue and you play by the rules and you wait, you see everybody cutting the line,” he says.  

Regulators and lawmakers must return to their role as referees, not play callers. Otherwise, there may be no rules left to follow.  

Zingales says: “At some point, you say enough is enough. You start to cut a line yourself, because you cannot do otherwise.”