Zingales on how uncompetitiveness in education, health care, and corporate governance fuels inequality

by Ryan Streeter on June 2, 2012. Follow Ryan on Twitter.

Luigi Zingales has a very good new book out, Capitalism for the People. In this excerpt at Bloomberg, he makes a case that the uncompetitive nature of health care and education fuels inequality. He also points out that bad corporate governance practices, which are skewed against shareholders, are also a big part of the problem.

On the higher education front, he writes:

Comparing a reputational study of universities in 1906 with the influential U.S. News & World Report school rankings for 2011, two education professors found that only one private university, Cornell, had dropped from the top 13. (By comparison, only one of the 12 top companies on the Dow Jones Industrial Average at the beginning of the same period was still there at the end: General Electric Co. (GE).

This stasis over time, he notes, is reinforced by massive government subsidies:

In 2010, universities received $2 billion in congressional earmarks. Student loans are subsidized as well. According to the Congressional Budget Office, the federal direct-loan program costs taxpayers 12 percent of the amount lent. With student loans reaching $107 billion in 2010-2011, the total cost for taxpayers that year was $13 billion. In addition, 8 million students received Pell Grants in 2010, for a total of $28 billion. Including earmarks, the total amount of subsidies to university education was $43 billion a year, even before we start counting tax subsidies (for college funds); tax breaks (for university endowments, for example); and subsidies dedicated to research.

Education is just one example of how one of the fastest-growing sectors of the economy happens to be shielded from market forces. Health care, of course, is the other behemoth in this regard.

Historians may look back at us and talk about the Era of Health and Education Agglomeration – when, analogous to the rise of the industrial era, the captains of the services industry dominated the economic landscape by amassing capital and influence through a distorted and undemocratic relationship with government.