What Is Crony Capitalism

Crony capitalism and genuine capitalism, if not opposites, are fundamentally opposed. Unfortunately the broader public, to date, is largely unaware of this.

Crony capitalism is the marriage of the state and private special interests. Some people have called it corporatism, mercantilism, fascism, or even Communism.

We will call it crony capitalism.

By whatever name, it is phony capitalism.

Over the years the public has been taught that many of the problems it faces on a day to day basis such as the lack of jobs, rising prices, corruption in Congress, and so on are a result of capitalism.

If so, it is a perverted capitalism.

These unsavory realities are largely the result of government/private “partnerships.” Whether in banking, agriculture, housing, energy, transportation, manufacturing, or nearly any other facet of the economy, the “unsavory” parts are often the result of public/private collusion.

Why can’t you get any kind of return on your money in a CD, the traditional vehicle for retirees? Crony capitalism.

Why can Goldman Sachs, the largest investment bank, speculate in markets using newly printed government money that has been borrowed virtually for free? Crony Capitalism.

Why is Detroit a shadow, barely a shadow, of what it once was? Crony capitalism.

Why are there more farm regulators than farmers? Crony capitalism.

Why does Congress write laws that are longer than the Old Testament with obscure, impossible to understand language? Crony capitalism.

When the state and powerful private interests collude the result is a cocktail of market distortion.

Genuine capitalism in comparison, is quite simple. Capital is invested by individuals to further ideas and enterprises that the investor thinks will create a return on the money invested. If the enterprise in question is a good one, both investor and business owner win. If not- better luck next time.

It’s clear. It’s simple. It’s moral.

However, invariably once the state gets involved as investor, or “regulator”, things start to morph and twist. As sure as the sun rises, coercion and corruption rear their heads.

Crony capitalism can take many forms including regulatory capture ( regulated interests actually using government power to squelch competition), zoning, licensing, in some cases even copyright, and hundreds of other ways. The one thing all of these “tools” have in common, however, is that they are used by the politically connected few to extract money and power from the unconnected many.

Government gives a veil of legitimacy to actions taken by individuals and groups that would be considered unethical (at best) without government “permission.” More often government also uses its power to make everyone play along. If you break a law, you can go to jail.