Walter Donway at the MasterResource blog writes the second piece in a three part series on cronyism. This article talks about how cronyism is practiced in our current system:
Today, a Wall Street firm will contribute millions to the election of Democrats and Republicans, because it dares not risk lacking “access” to the White House and Congress. The firm’s “investment” has nothing to do with innovation, production, or meeting demands of customers. It may be buying protection against political power in exactly the way a restaurant owner in Brooklyn must buy “protection” when the mob comes seeking a cut of his profits. Or it may be buying the political influence to shape regulations and taxes in ways that give it an advantage over competitors.
Walter Donway at the MasterResource blog introduces a three part series on cronyism, and begins with an article on the principles underlying cronyism. The entire piece is well worth reading, here are a few short excerpts:
The reign of cronyism throws into relief two radically different breeds of businessman: the one who profits by innovating, producing, cost-cutting, and serving customers—and the one who prospers by means of “pull” in Washington, the state capital, or the town hall.
Those who insist that the rich and powerful always will exert their influence to extract favors and advantage from politicians and bureaucrats may welcome this advice: Devise a government strictly limited by its constitution (as the Founding Fathers did) so that politicians and bureaucrats simply don’t have the power to help or hinder business.
Ken Connor at Townhall writes about corporate welfare in America and explains why he thinks it never gets cut:
Herein lies the problem: The average voter isn’t exercised about corporate welfare because thousands of subsidies are small enough to fly under the budgetary radar, so the voters don’t put enough pressure on their representatives to stop corporate welfare. Meanwhile, special interests—the benefactors of political incumbents—are constantly cajoling politicians for more money. The result? Spend, spend, spend! And pretty soon we have a $15 trillion dollar deficit.
Nic Horton at the Arkansas Project writes about a potential case of cronyism in his state:
Roughly $6.9 million of the $14.94 million that was given to LM Wind Power came from the governor’s quick action fund–more appropriately labeled a ‘slush fund.’ Here are some breakdowns of how that money was spent, according to the Bureau of Legislative Research (three spreadsheets are linked below):
- $5.08 million categorized as “site prep” and construction services
- $1.52 million spent on “rail and road/streets”
- $223,786 spent on “beautification”
It’s very unclear what the expenditures for “beautification” actually went towards. It is clear that this was an improper use of your money.
Arthur Brooks and Daniel Rothschild at the American Enterprise Institute write a short but compelling piece about the threat of cronyism to our country:
Statism and cronyism are fundamentally about the same things: Letting political power allocate economic resources rather than markets. Both reduce competition and entrench stagnation. They hurt ordinary consumers, squash the process of creative destruction, suffocate honest entrepreneurs, and make America more like Greece. Cronyism is not free enterprise, it’s not fair, and it’s not the American way.
Craig Eyermann at the Independent Institute wrote a post about corporate welfare in America, and displayed this image:
Reprinted with permission from MyGovCost.org Blog. © Copyright 2012, The Independent Institute.
Many people call the collusion between government and business ‘crony capitalism’. We choose to call it ‘cronyism’.
One site, run by scholar Robert Bradley Jr., uses the term ‘political capitalism’. Regardless of what labels we apply, this government favoritism is harmful to our country. Bradley explains this nicely:
There are two avenues to business success under a private-property, profit-and-loss system. When using the economic means, or free-market means, businessmen provide goods or services in an open market and rely on voluntary consumer patronage. When using the political means, businessmen obtain a governmental restriction or favor that provides the margin of success beyond what consumer preference alone would give. Market entrepreneurship is the way of capitalism; political entrepreneurship, or rent-seeking as it is known in the economics literature, is the way of political capitalism.
I urge you to read his whole definition of What is Political Capitalism?, it is a great read.
Matt Mitchell, an economist at the Mercatus Center, writes about just how costly rent-seeking (or cronyism) really is:
In recent years, however, the gains have been meager for all too many. One of the things holding productivity back and, along with it, compensation, is rent-seeking. When governments dispense privileges to particular firms, entrepreneurs spend their time asking politicians for those privileges instead of devising new ways to create value for customers. Economists call this activity rent-seeking, and research suggests that it depresses productivity growth.
Michael D. LaFaive at Michigan Capital Confidential contends that Michigan state law is creating monopoly profits for beer and wine wholesalers.
Beer and wine wholesalers have enjoyed what economists call “monopoly profits” from a state law that actually mandates that most beer and wine makers grant wholesalers exclusive sales territories (monopoly areas) on their products. This almost assuredly results in higher prices for consumers, essentially imposing an invisible tax that goes not for schools, roads or police, but into the pockets of a fortunate few families.
The Buzz at the Tampa Bay Times writes about a company which, when a state agency rejected its contract, turned to the state legislature for support.
That began a bitter feud between Connected Nation and DMS, an agency with a lengthy history of distrust among state budget leaders. In an audacious display of lobbying clout, Connected Nation got the Legislature to force DMS off the contract and steer the second grant to the firm.