Economic Progress

Markets for the people

Eric Parrado
Chief Economist; General Manager, Research Department, Inter-American Development Bank
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Economic Progress

There is no doubt that policy-makers, entrepreneurs, and thinkers around the world are trying to find the Holy Grail to restore economic dynamism in every country. This is especially true in Europe and in the United States, but there are many other countries seeking that treasure. The problem is that recovery from sharp economic downturns resulting from financial crisis has been very protracted historically. And this has raised many questions regarding the role of capitalism and globalization.

We know that both, so far, are not guided by compassion, cooperation or solidarity. Thus, it is our responsibility to make them right, to make them just, and not to blame them for our tribulations. This will help to restore not only the productivity of our economies but also the quality of life of millions of people.

The diagnosis is rather clear about the need for greater productivity to generate economic dynamism. There are several fronts to attack. And these are obviously related to educational and income inequalities, low entrepreneurship and innovation, weak diversification, lack of competition in some markets and big sectoral challenges, such as energy.

A bad distribution of opportunities determines a bad distribution of income, wealth and low levels of entrepreneurship and innovation in our societies. The lack of competition in some markets also contributes to the static behaviour of productivity. All of them point to the idea that markets only work for some.

Citizen movements around the world have reminded us that markets are for the benefit of the people and not the other way round. This includes not only goods but also markets as complex as education or health. The disaffection with free markets is even more justifiable when it is a product of extreme income inequality. The Chilean case is a clear example. That’s why tools are needed to level the playing field with opportunities and real competition in every market. We are constantly losing talent – it is time to recover it. Talent is equally distributed, but not opportunities. This is my own version of what Professor Schwab, the World Economic Forum’s founder, called “talentism”.

We have the obligation to support the most vulnerable segments of society, providing the same opportunities to all from birth. This includes a quality education. This is the main ingredient to sustain good economic growth rates while reducing poverty and closing the income gap. Capitalism must be redesigned, making it fairer and more empathetic to people, and reducing the sense of injustice of the capitalist system. We also have to introduce better regulation to have more competitive and transparent markets. The regulation should help to promote entrepreneurship, innovation and the creation of new firms, levelling the playing field with large and consolidated companies.

The beauty of true capitalism with a touch of talentism is based on competition for the benefit of the people. Thus, it is necessary and urgent to raise a political agenda in support of free markets without regulatory capture. We always have to remember when developing public policy that markets are for the people. We demand a true pro-market agenda, to ensure the interests of the majority and not just a few. Without doubt, this will help to restore our economies and, at the same time, to recover our trust in our talents.

Author: Eric Parrado is a Professor of Economics and Finance at Universidad Adolfo Ibáñez in Chile. He is also a consultant with the International Monetary Fund, World Bank and Inter-American Development Bank.  He was named as a Young Global Leader by the World Economic Forum in 2011 and is a member of the Long Term Investing Global Agenda Council.  @eric_parrado

Photo Credit: Reuters Images

 

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