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Luigi Zingales on Italy, Google and Conglomeration, and Donald Trump (Ep. 3 — Live at Mason)

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Mercatus Center
Sep 16, 2015 · 47 min read

On Italy and its economy

COWEN: I think of a lot of your work as bringing the ideas of culture and governance into economics. There’re a few major strands in your thought, and I want to explore a few of them. Since you’re Italian, let’s start with the question of Italy.

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I understand that Apple is an American product, but when I arrived in this country 27 years ago, you were not really drinking coffee. You were drinking a dark thing that tastes like I don’t say what because we’re online. The culture of coffee did not exist here.

You come here to the United States, you first go to the cashier. You have to repeat five times what you want, then another repeat five times to the one producing it, and then five times to the one delivering it. How can Starbucks compete? The answer is very simple. The bar, the Italian café, is one shop, one establishment thing.

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On US politics

COWEN: Let’s try the United States for a while. A lot of us have been very struck by a piece you wrote in 2011. I think it was for City Journal. This was a piece about Donald Trump. You basically said in this piece, “Donald Trump is for real or could be for real. We should be very grateful that he has decided not to run for president.” This is 2011, not 2015.

[Trump and Berlusconi] are both extremely good salesmen. They’re both extremely wealthy and not afraid to show off their wealth. They’re both obsessed with women. They’re both obsessed with hair, or lack of hair for Berlusconi.

They’re both extremely good, and this is the success of Berlusconi and the success of Trump, in portraying themselves as a friend of the people. In part, it’s because they speak at a very low level, so people identify with them. They are happy to identify, because even somebody that is so crass like Berlusconi can become rich. Maybe I can make it, too.

I don’t understand why in the United States the only thing that is really noncompetitive is sports. In Europe, the only thing that is really competitive is sports. You don’t buy your way into the NFL or the Major League. Here, you buy the franchise, and once you’re in, no matter how incompetent you are, you stay there, which is completely un‑American.

COWEN: I’m very struck by your early work on business firms and hierarchy. Some of this is written with Raghu Rajan. The idea of introducing or reintroducing ideas of culture and governance and hierarchy into the business firm. I wonder sometimes, is this an Italian perspective?

[In Italy] there is a tradition of spending some time around the dinner table. That’s a place where you socialize, you learn, you transfer human capital from the older generation to the younger generation. I think that this is one thing that is lacking in the United States that they can learn from Italy.

On Google and conglomeration

COWEN: You’ve written on conglomerates. One of the recent business stories is that Google will turn itself into a kind of conglomerate. The parent firm will be called Alphabet. Google will be one division. Will this matter, and if so, how?

On the essential Zingales

COWEN: I’m going to try an exercise here. I know I’m the interviewer, but I have a somewhat speculative bent, as well.

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If you are in the military and you are challenged to a duel, if you did it, you were punished. If you did not do it, you were demoted. Which is the right way to do it. You don’t want to encourage something like this, but you don’t want to encourage people to be cowards.

I thought it was a brilliant system.

COWEN: Another Gramscian question, also an Italian question. In Europe, you’re European, it seems to many of us there’s some kind of line. Gramsci asked what’s the difference between East and West, and where in Europe would you draw that line? What from culture, what from governance, all the different areas of your research, what determines that line?

On things under- and overrated

COWEN: I’m going to try an exercise I did with Jeff Sachs. I’m going to toss out a few terms, people’s names, whatever, and just ask you overrated or underrated. First one, campaign finance regulation. Overrated or underrated?

I’ve been anticlerical because I really thought that the problem of Italy was that the Church was there. Once, I actually was discussing with a cardinal in Chicago. They said, “No, no, the problem is the other way around. The problem with the Vatican is the Vatican is in Italy.”

Because they end up being sued in here in the States and losing money in the States for responsibilities of the Vatican, and the Vatican did not chip in one dime. Not only that, it was wasting money with this IOR, Istituto per le Opere di Religione, that was a money‑laundering organization. Something that should be dedicated to charity was a money‑laundering organization.

On monetary policy

COWEN: Around here, we’ll grant you that. How would you say your opinions have changed in the last 7 to 10 years? An awful lot has happened in the world. The EU has not turned out the way a lot of people thought. There’s a lot more opposition to migration. We’ve had a financial crisis. We may be on the verge, possibly, of another global recession because of China. Italy possibly or probably hasn’t turned things around.

On behavioral economics

COWEN: I’m also struck by some of your work on behavioral economics. I like very much the paper where you take some investors, and instead of showing them Visconti’s The Leopard, you show them a horror movie and you see what happens to the risk premium.

These guys really give up receiving $30 over two weeks to get the check in the mail that day. However, this is not the only clever thing we’ve done in that particular study — we follow when they cash that check. On average it was two weeks, but 10 percent never cash it. They lost it.

ZINGALES: They are so eager to get the stuff. I think if I had to give a sense, it’s the salience of this. Honestly, these people, everybody should have accepted delayed payment because we checked, 90 percent of them were not maxed out on their credit cards.

On the future of the EU

COWEN: Speaking of procrastination and impatience, what’s your view on the future of the European Union? It seems to me it cannot fully integrate, because unlike with North and South Italy, there you actually have a fully integrated electorate. Right? You have a single set of elections where you choose a national leader, and everyone more or less accepts it. It’s really hard for me to see that for Europe.

On running a successful organization

COWEN: Last question before we open up to the crowd. You’re now director of the Stigler Center in Chicago, and you’ve studied organizations for your whole career. Given what you’ve learned — we’re here, of course, at the Mercatus Center hosting this event — but how will this shape what you will do with the Stigler Center, as an economist?

Q&A

AUDIENCE MEMBER: Thank you very much for coming. My name’s David Wille. I’m a research assistant with the Mercatus Center. Part of our research is looking at the connection between the financial services industry and small business creation. As you know, on a number of measures, small business creation is down, innovation seems to be down in the US.

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I think that inevitably the Northern countries are trying to do with Greece what Northern Italy did with Southern Italy. They’re trying not to fix Greece but to minimize the problem for Europe. Nobody really in Brussels, except maybe the Greek representative, cares about Greece and the Greek people.

They care about stability in the EU and getting that problem off their agenda, exactly like in Turin people did not care about people in Sicily. They care that the revolt will be sedated. They did whatever it takes to sedate the revolt — including, by the way, aligning with the Mafia.


Conversations with Tyler

A podcast in which esteemed economist Tyler Cowen engages…

Mercatus Center

Written by

The Mercatus Center at George Mason University is the world’s premier university source for market-oriented ideas.

Conversations with Tyler

A podcast in which esteemed economist Tyler Cowen engages with today's most underrated thinkers in wide-ranging explorations of their work, the world, and everything in between.

Mercatus Center

Written by

The Mercatus Center at George Mason University is the world’s premier university source for market-oriented ideas.

Conversations with Tyler

A podcast in which esteemed economist Tyler Cowen engages with today's most underrated thinkers in wide-ranging explorations of their work, the world, and everything in between.

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