A Discussion on Crony Capitalism

“Crony Capitalism” is a politically-charged term that is often tossed around regardless of its meaning; some actions that are decried as “crony capitalist” are not and some that are defended against the charge are.

Let’s begin with a definition of crony capitalism.  Crony capitalism is not more than the merging of business and political interests.  This can be done through regulations (using regs to limit or drive out competition), special tax breaks, subsidies, tariffs, etc etc; essentially whenever government interferes in private business on behalf of a party or special interest group.*

What’s important about the above definition of crony capitalism (which can be obtained via a simple Google search) is that it makes no difference whether the outcome of such crony capitalist interventions are net beneficial or net harmful.  Many people attempt to justify (or defend against the charge of) crony capitalism by arguing such intervention has net-beneficial results, or sometimes just that they have beneficial results.  Planned Parenthood, trade tariffs, green energy subsidies, and HUD subsidies are often justified under this argument.  But, as we discussed in the last post, all things have benefits (and costs).  The fact of their existence does not justify/condemn a particular institution or program.  The interventions are still crony-capitalist, even if they produce a net benefit.

Another important takeaway is that one’s intentions don’t come into play.  Whether these interventions are taken for the “greater good” or for one’s own personal gain is irrelevant.  One may be more despicable than the other, for sure, but that is a moral judgement call.

With the establishment of what crony capitalism is, let’s now talk about what it isn’t.  Crony capitalism is not the use of business practices one may dislike.  For example, a firm selling below cost to gain market share is not crony capitalism.  A firm buying up lots of Resource X to limit its use by competitors is not crony capitalism.  A union negotiating with a firm for a “closed shop” is not crony capitalism.  In order to justify the charge, one must show some form of government involvement (for example, by government license, a firm has exclusive first rights to purchase Resource X).

The distinctions here are important because in the public discourse crony capitalism is often used as a pejorative (and rightfully so, in my opinion).  However, not everyone believes crony capitalism is a pejorative.  In fact, many people support crony capitalism when they’re the ones benefiting from it (quelle surprise).  The charge is often levied against one person in order to discredit him or his policies, without regard for what the term means.  I hope to change that.

*I want to stress that, while the terms are often used interchangeably, this is not the same as socialism or communism where the government nationalizes firms or industries.  Public education in the United States, for example, is not crony capitalism since government owns and operates those schools.  Furthermore, the fact the government is willing to operate at a loss with these enterprises is not crony capitalism.

7 thoughts on “A Discussion on Crony Capitalism

  1. I disagree with you that public schools are not examples of crony capitalism. Government and the teachers unions very much “merge business and political interests”. Unions are provided an economic monopoly in exchange for support and kickbacks to the very people who enforce this monopoly.

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    • There may be crony capitalist elements within the nationalization of the industry, but the nationalization in and of itself is not crony capitalism. That was my point. Does this make it clearer?

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  2. Doesn’t the term ‘Crony Capitalism’ mean fascism? I don’t see a difference; To me the point is to drag down the good term ‘capitalism’ by associating it with fascist methods and outcomes.

    Shouldn’t we just CORRECT THE RECORD and say there is no such thing as “CC”, it is already more aptly called ‘fascism’ (which everyone knows is a left-wing statist ideology!)

    Or am I missing some nuances in the philosophies?

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    • Fascism may have crony capitalist elements to it, but it is more akin to socialism.

      Also, please do not spam comments here. This is your one and only warning. I removed the other post.

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  3. “Public education in the United States, for example, is not crony capitalism since government owns and operates those schools. Furthermore, the fact the government is willing to operate at a loss with these enterprises is not crony capitalism.”

    That is true! Crony capitalism, or better political cronyism, is where success success in business depends on close relationships between business people and government officials. It is political favoritism where some businesses get legal permits denied to other businesses (i.e., taxi cab medallions), government grants (i.e., subsidized loans to Solyndra), special tax breaks (i.e., those that help “green” energy companies compete), or other forms of state interventionism.

    Public education is government intrusion into the educational services market, which crowds out the private sector. That is a bad idea because it reduces competition, which means lower quality and higher costs (though they may be hidden).

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  4. ” . . .this [crony capitalism or political cronyism] is not the same as socialism or communism where the government nationalizes firms or industries.”

    Yep. Socialism is an economic system where the means of production are owned by the government, while communism is an economic and political system where the means of production are owned by the government. Cronyism capitalism or political cronyism is where government, through subsidies, tax breaks, licensing, regulation, and other forms of government intervention determines who are the winners and losers in business. All three are bad.

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