Schumpeter Redux: A Review of Raghuram G. Rajan and Luigi Zingales's Saving Capitalism from the Capitalists

Abstract

Saving Capitalism from the Capitalists is an ambitious probe into capitalism's past, present, and future. Whereas Joseph A. Schumpeter viewed capitalism as doomed because it was losing its political and social supports, Rajan and Zingales see it more as threatened from within by established or “incumbent” industrialists and financiers who become enemies of free markets. The authors contend that free financial markets foster economic progress while undermining the ability of incumbents to have their way. Rajan and Zingales may overstate the significance of “the great reversal” of financial development in the middle decades of the twentieth century, and their evidence and interpretations are sometimes flawed. Nonetheless, they make a strong case for the fundamental importance of financial development for economic modernization and their warnings about the antimarket tendencies of incumbents are well worth pondering.