This is coming from Luigi Zingales who wanted to save capitalism from capitalists!
When I visited Stanford Business School many years ago , I was surprised to see that all of the offices in its new building were identical — a result that had cost money , thanks to the structure of the building . Why should socialism prevail with respect to offices ? I was told that the dean , who had to assign the offices , wanted to avoid the headache of having to decide who would get the best ones.
At the time , I thought these concerns were exaggerated , until Chicago Booth also constructed a new building for itself but decided to differentiate offices . To minimize lobbying , the dean announced that each faculty member would be randomly assigned a number within categories — presumably assistant , associate , full , and chair professor ( though this was not explicit ) , and would choose an office sequentially . But when the selection order was announced , the most famous faculty members were first , suggesting that the process had not in fact been random . The school erupted . Emotions took over . One faculty member shouted “ I hate you ! ” at another who had received a better office , ruining their relationship for quite some time .
We might underestimate the cost of all this commotion because it was not easily measurable . But if you do factor in the time wasted in office – allocation simulations , along with the cost of tense relationships for years to come , you see that Stanford’s choice was the more efficient one. This point has been recognized by a few economists.
Source: Zingales, Luigi. A Capitalism for the People: Recapturing the Lost Genius of American Prosperity (p. 205). Basic Books. Kindle Edition.
I shared this with my friend Gulzar Natarajan. We then had a couple of back and forth on it. He was wondering whether Communism and Socialism were ostracized because they were also tainted by association with totalitarian repression that some of the Communist leaders practiced.
At the same time, he noted that capitalism had adapted by embracing certain aspects of socialism:
“adaptability of capitalism to emergent threats – the welfare state, regulatory institutions, social democracy itself.”
This is what I wrote in response:
Several valid questions and interesting speculations in your email. Who knows the answers? In all these matters, all of us are like the blind men guessing the elephant. We are also influenced by the context and the times in the weights we assign to competing arguments.
I have always believed that a competitive market economy is about as egalitarian as one can get, in terms of opportunities. That is about the best one can hope to achieve in a society. Equality of outcomes, of course, takes away the incentives.
The best a government should aim for is a combination of competitive market economy with social safety and affirmative actions in the early phase of lives for the population – for health and education. Easier said than done.
In the concluding chapters, in ‘Faultlines’, Raghuram Rajan spends some time on these questions. They were practical and useful.
As for the current state of the world, humans are doomed to go through the cycles – swings between extremes with very brief (if lucky) interludes of stable equilibriums. Those of us who are lucky to find ourselves born and grow into adulthood in such stable equilibrium periods think that this steady state of affairs prevails permanently. We fail to grasp and remember our history lessons well.
In fact, that is the other lesson from this office room allocation episode. No matter how much of economics or anthropology or sociology these Professors have learnt, they had to fight for their office rooms with bitter name calling! We have too many flaws to create/achieve anything positive and stable on an enduring basis.
That enduring feature of humanity is what brings out and accentuates the drawbacks in these systems – capitalism or socialism or market economy.
We are capable of bringing out the worst in ourselves and in all things that we touch!
I am re-reading Yuval Harari’s Homo Sapiens. I read it too quickly the first time around. Sapiens are deadly!