Crony capitalism
Crony capitalism, sometimes also called simply cronyism, is a pejorative term used in political discourse to describe a situation in which businesses profit from a close relationship with state power, either through an anti-competitive regulatory environment, direct government largesse, and/or corruption.
[12] For instance, newcomers to a market then need to surmount significant barriers to entry in seeking loans, acquiring shelf space, or receiving official sanction.
Even in high-income democracies with well-established legal systems and freedom of the press in place, a larger state is generally associated with increased political corruption.
[15] The term crony capitalism was initially applied to states involved in the 1997 Asian financial crisis such as Indonesia, South Korea and Thailand.
The Economist benchmarks countries based on a crony-capitalism index calculated via how much economic activity occurs in industries prone to cronyism.
President Grover Cleveland appointed Thomas M. Cooley, a railroad ally, as its first chairman and a permit system was used to deny access to new entrants and legalize price fixing.
Connections with the Pentagon and lobbyists in Washington are described by critics as more important than actual competition due to the political and secretive nature of defense contracts.
[38] Gerald P. O'Driscoll, former vice president at the Federal Reserve Bank of Dallas, stated that Fannie Mae and Freddie Mac became examples of crony capitalism as government backing let Fannie and Freddie dominate mortgage underwriting, saying: "The politicians created the mortgage giants, which then returned some of the profits to the pols—sometimes directly, as campaign funds; sometimes as "contributions" to favored constituents".
[39] In its worst form, crony capitalism can devolve into simple corruption where any pretense of a free market is dispensed with, bribes to government officials are considered de rigueur and tax evasion is common.
Kenyan economist David Ndii has repeatedly brought to light how this system has manifested over time, occasioned by the reign of Uhuru Kenyatta as president.
[citation needed] Raymond Vernon, a specialist in economics and international affairs,[43] wrote that the Industrial Revolution began in Great Britain because they were the first to successfully limit the power of veto groups (typically cronies of those with power in government) to block innovations,[44] writing: "Unlike most other national environments, the British environment of the early 19th century contained relatively few threats to those who improved and applied existing inventions, whether from business competitors, labor, or the government itself.
The socialist position is that crony capitalism is the inevitable result of any strictly capitalist system and thus broadly democratic government must regulate economic, or wealthy, interests to restrict monopoly.
The capitalist position is that natural monopolies are rare, therefore governmental regulations generally abet established wealthy interests by restricting competition.
[50] Ravi Batra argues that "all official economic measures adopted since 1981 ... have devastated the middle class" and that the Occupy Wall Street movement should push for their repeal and thus end the influence of the super wealthy in the political process which he considers a manifestation of crony capitalism.
[51] Socialist economists, such as Robin Hahnel, have criticized the term as an ideologically motivated attempt to cast what is in their view the fundamental problems of capitalism as avoidable irregularities.
[52] Socialist economists dismiss the term as an apologetic for failures of neoliberal policy and more fundamentally their perception of the weaknesses of market allocation.
Further, supporters such as classical liberals, neoliberals and right-libertarians consider it an aberration brought on by governmental favors incompatible with the free market.
"[56] Conservative commentator Ben Shapiro prefers to equate this problem with terms such as corporatocracy or corporatism, considered "a modern form of mercantilism",[57] to emphasize that the only way to run a profitable business in such a system is to have help from corrupt government officials.
Burton W. Folsom Jr. distinguishes those who engage in crony capitalism—designated by him political entrepreneurs—from those who compete in the marketplace without special aid from the government, whom he calls market entrepreneurs.
The market entrepreneurs such as James J. Hill, Cornelius Vanderbilt and John D. Rockefeller succeeded by producing a quality product at a competitive price.
