Raghuram Rajan: belief

Transcript context

…Many years ago, you wrote an article with your colleague, Luigi Zingales, on the concept of power in industrial organization. Do you feel that piece explains anything worth seeing in the world today? Or what has come of that in your mind? I do think that increasing the notion of corporations as being a variety of fixed-claim holders and the shareholders of the residual claimants, which is what led Friedman to propose shareholder value maximization as a principle — I think that’s being challenged. Increasingly, corporations, agglomerations of a variety of entities that essentially benefit from the corporation and share in the corporation’s rent, so to speak. So essentially, the nature of the corporation is moving more towards partnerships rather than manager-worker. The nature of the corporation has to actually reflect that, and more and more corporations are doing that. What that means is that, increasingly, long-term workers are part of the stakeholders of the corporation. And seeing them as part of the value-maximization process, I think, is both politically reasonable, but also economically the right thing to do. How fragile is a free society with respect to the behavior of its own corporations? Can crony capitalism bring the system down? Or is it just a deadweight loss we’d like to minimize, and as long as we have some economic growth, we can pay off the interest groups and get on with our business and live to fight another day?…

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