In this 18-minute speech, Rupert Murdoch extols the morality of the free markets, decries the supposed virtues of redistribution, explains the differences of pro-free market and pro-business, and discusses the worldwide phenomenon of cronyism:
Reason Magazine, through Reason TV has recently lunched this interview with Max Borders. Borders is the director of content at the Foundation for Economic Education (FEE) and editor of its flagship publication, The Freeman. In this interview with Nick Gillespie, Borders says that focusing on the gap between rich and poor has become a “fetish” in which people are consumed with the idea that America is no longer an economically mobile society.
In the last Crony Capsule we saw the different way cronyism manifests itself at the local level; relationships with state politicians and regional tax exemptions are a few examples of how local states “benefit” local industries. Now we are focusing on the global economic and social consequences of corporate welfare and cronyism.
Cronyism has been growing like a disease inside our competitive capitalist system. Instead of having an economy based on performance, quality and innovation, cronyism has lead to special connections and lobbying.
The following articles provide us with an overview concerning how cronyism undermines our society and our capitalist system:
1. In this comprehensive article, James V. DeLong the author of the book Ending ‘Big SIS’ (The Special Interest State) and renewing the American Republic; summarizes the major subjects concerning his book and stresses the problem we face today in keeping special interest groups away from receiving corporate welfare from the government.
“Some commentators are under the illusion that the current national crisis will sober up the special interests. But that is not how it works, because a crisis makes special interests less, not more, responsible. The situation becomes, in the language of game theorists, a “last-period problem.” As a game approaches an end, the players have no need to cooperate for the sake of protecting long-term relationships. Their incentive is to grab as much as possible before the game ends, or, to translate to the real world, before the society collapses. Do not look for crisis to bring out a sense of responsibility in the advocates for the interests.”
2. The following article focuses strictly on the current identity crisis that American Capitalism is suffering. Our capitalist system that was once primarily based on hard-work, competitive and innovative companies, and entrepreneurship has degraded into clientelism, favoritism and special political connections.
3. In this column, we see the way in which society currently perceive our new form of “crony-capitalism”. It is easy to understand people’s anger against our current system, where political connections often mean more than value creation.
“As we witness the riotous dissolution of corrupted capitalism, we need not wait for the history books to identify the mile markers of self-destruction. If we are to rebuild capitalism, even as it is tearing itself down, then we will need to become street-smart detectives in analyzing the current economic murder-suicide in progress.”
4. The last article deals with the immorality of corporate welfare. This general overview seeks to demonstrate the negative potential that cronyism possess to undermine our system of meritocracy.
“When you think about the thousands and thousands of lobbyists in our nation’s capital who become “cronies” with members of Congress, the insider deals they make, and what it is costing the American taxpayer, you can see the evil of it. To have good government, we must have transparency, often promised but seldom received. As voters, we must hold all those elected to office to a higher standard. “We The People” must take our nation back and vote people out of office when they are guilty of “cronyism,” as this will send a powerful message. It has always been true: “Righteousness exalts a nation but sin is a reproach to any people.”
Lauren Lyster at Yahoo’s Daily Ticker writes about Whole Foods CEO John Mackey’s new push for “conscious capitalism,” and an end to cronyism and corporate welfare:
“What we have in the U.S. today has moved far away from free enterprise capitalism,” Mackey argues. “It’s really a type of crony capitalism, where you have the government and big business frequently collaborating together in ways that may not result in the greatest common good.”
The book cites the government bailouts of “too big to fail” members of the financial sector during the meltdown of 2008 as prime examples of “crony capitalism”.
Re-posted from the Economic Freedom blog.
Surprising as it may seem, “Pro-business” does not necessarily mean “pro-market.” In fact, many who call themselves “pro-business” actually work against the market and restrict the economic freedom upon which our prosperity depends.
Consider the following . . .
Because businesses provide jobs and make other positive contributions to communities, both “sides” agree that government should promote business. Where they differ is over how. Pro-business advocates believe the government should directly assist specific businesses or industries through subsidies, tax breaks, or other advantages. Pro-market supporters reject this. They argue that government should simply ensure a level playing field for competition.
The truth is that intervention in the marketplace harms everyone—except those directly receiving the benefits, of course. When the consumer is no longer the deciding factor in whether a business succeeds or fails, businesses direct more and more of their resources toward securing government favors and less and less on pleasing customers. Corruption and cronyism often result. And it’s always the taxpayers who end up having to pay for it all.
So, now you know—“pro-business” is not “pro-market.”One allows government officials to choose which businesses and industries get an advantage over others; one supports a fair marketplace in which all compete equally.
But in case you’re still not sure about the difference between the two, here are five ways to tell.
You know you’re “pro-business” rather than “pro-market” if you believe . . .
- government should make special tax provisions for specific industries
(pro-market position: equal tax rates for all)
- government should give out grants to individual businesses
(pro-market position: government shows no preference to individual businesses)
- government should use eminent domain to make way for private development
(pro-market position: eminent domain should never be used for private interests)
- government should make loans to businesses that can’t secure them in the private sector
(pro-market position: government should not be making loans to businesses at all)
- government should impose tariffs to protect domestic industries from global competition
(pro-market position: tariffs increase prices for consumers)
When the government supports certain companies or industries over others, the special interests unfairly benefit. Economic freedom is what can bring prosperity and opportunity to all. That’s why we must make sure we are not just “supporting business” but always upholding the virtues of the market.
Dan Schawbel from Forbes Magazine interviewed John Mackey, the CoFounder of Whole Foods Market. Mr. Mackey speaks about the role of entrepreneurship and competition in creating value, innovation and adding prosperity in a capitalist society. He makes a clear stand for “Conscious Capitalism,” which calls for businesses rejecting uncompetitive, disloyal practices related to cronyism, while embracing a conscious responsible way of doing business.
“Free enterprise capitalism has been the most powerful creative system of social cooperation and human progress ever conceived, but its perception and its role in society have been distorted.”
“Operating under the conscious capitalism model will show that businesses are the true value creators that can push all of humanity upward for continuous improvement. Businesses around the globe need to steer capitalism away from today’s growing trend of cronyism, by embracing conscious capitalism.”
The following series of articles are a Q&A written by Robert Bradley, author of Capitalism at Work: Business, Government, and Energy and creator of the website Political Capitalism. Here is the first section defining the terms, the second section addressing political capitalism in American history, the third section about political capitalism today, and the fourth section about the morality of political capitalism.
V. The Free-Market Alternative
Q. What is the ideal that you advocate, in opposition to political capitalism?
A. The ideal is an economy full of producers and wealth creators—not wealth redistributionists.
Q. What is a term for your ideal?
A. Free-market capitalism, under which free-market capitalists work to remove government intervention—and reformers, including government itself, work to reduce regulation, subsidies, and special favors.
Q. Does this ideal have any support in the business community?
A. A number of business leaders talk about the ideal of a free economy and free markets, but precious few practice it.
Q. Can you provide some examples of those who do?
A. Lee Raymond at ExxonMobil was a practicing capitalist during his tenure atop ExxonMobil. John Allison of BT&T. Charles Koch of Koch Industries.
Q. Do you think small businessmen tend to be more pro-capitalist?
I think that there may be a lot of heroic capitalists down in the business trenches, laboring without political favor and just wanting to be left alone. They work hard and meet the consumer demand that comes in the door. They don’t travel to Washington or their state capital—they march to the bank with their daily receipts and wake up each day with a little trepidation that they must cover their costs without a government bailout behind them. They would be “America’s Persecuted Minority” as Ayn Rand put it.
That said, small business can be a fount of interventionism, and the oil industry for much of the 20th century provided a powerful example. They might not have their own government affairs or public relations office, but they form trade associations to do their bidding.
Q. So what happens to business leaders as they rise to the top, running big businesses in major industrial sectors?
A. That is the problem. The bigs get public affairs and government affairs departments. They see intervention as just another variable in the profit equation. This is particularly true in the regulated industries.
The explosion of government affairs offices opened in Washingtonin the 1970s forward is an example of the politicization of business. The more the intervention, the more the political capitalism—a corrosive dynamic. A businessman whose conscience might not allow him to misuse government for private advantage can let himself be persuaded by reformers that his advocacy of government intervention really is in the public interest.
Q. How do you combat this?
A. One way is to remove areas from government intervention, making it harder for private interests to game regulations and lobby for this-or-that. This was done in the 1970s and 1980s by some deregulatory initiatives affecting airlines, petroleum, trucking, and so forth.
Q. Did political capitalism do this?
A. Some deregulation came from business lobbying, or “good” political capitalism. But the other force was from the outside, reformers inside and outside of government who saw the public interest as served by less regulation, not more.
Q. So what is needed today, given the unprecedented bailouts or other interventions being discussed?
A. A new ethic is called for, by which the public interest and business interest are redefined with the best information that the social sciences and humanities can provide.
Q. Do you have a strategy for moving the business community away from political capitalism?
A. I believe that a lot of pressure has to come from without—from the public becoming fed up with bailouts and putting pressure on politicians not to give in to business lobbying and on business leaders themselves to compete or exit. This is a sort of a “leave the taxpayer alone” movement.
I also believe that if business schools and the intellectual class adopt a new ethic of consumer-driven capitalism as the ideal, social pressure will encourage business leaders to think twice about espousing interventionism. Think of the “green” movement today. We need a tough love, pro-free market movement with the same passion.
The following series of articles are a Q&A written by Robert Bradley, author of Capitalism at Work: Business, Government, and Energy and creator of the website Political Capitalism. Here is the first section defining the terms, the second section addressing political capitalism in American history, and the third section about political capitalism today.
IV. The Morality of Political Capitalism
Q. Is political capitalism an evaluative term?
A. It is foremost a descriptive term, an “ideal type,” for the study of complex phenomena. As a value-free term of political-science analysis, political capitalism can neutrally describe individual acts of political capitalism or classify whole socioeconomic systems where business is the most powerful force for government intervention. The historian must see if it applies or not (as I have tried to do).
It is true that political capitalism is criticized from both ends of the ideological spectrum. Free-market proponents do not like the “political” in capitalism, and New Left historians do not like either the “capitalism” or the “political,” which they see as inherently connected.
This explains why the concept political capitalism has drawn such interest from opposite sides of the political spectrum, attracting not only New Left historians but such pro-market economists such as George Stigler of the “ChicagoSchool.”
Q. But the fact of the matter is that you think political-capitalist activity is wrong.
A. To judge an act of political capitalism, one must reintroduce consequences and motives, depending on what type of ethical judgment you are making. If you employ some sort of utilitarianism, and you can show the act of political capitalism has negative consequences for the public, then you can say that it is bad policy.
If you employ some sort of natural rights philosophy, and you can show the act violates somebody’s rights, you can say it is wrong on that account. If you employ a moral code that looks at human motives, and you can show that a businessman knows that what he is doing violates his moral code, then you can say that his act is immoral.
I doubt that government intervention in the economy is a good thing. As a matter of political philosophy, I believe that such interventions tend to violate individual rights, by introducing coercion between consenting adults. So I approach each situation with the burden of proof being on the initiation of force rather than on voluntary outcomes—guilty until proven innocent, in other words.
In addition, political capitalism introduces highly imperfect government. I am cognizant of man’s imperfect operations in the market. But the imperfections of man’s operations in government are at least as great. Perfect government does not exist to cure imperfect markets—outside of the textbooks anyway. I believe there is plenty of theoretical and empirical evidence for this conclusion. So, the consequences of political capitalism are very likely to be unfortunate.
Q. What would be a good motive for business advocacy of government intervention?
A. A sincere belief that some government intervention was within the powers of government and served the general public interest.
Q. What would be a bad motive for being a political capitalist?
A. Using government coercion not just to benefit oneself but positively in order to harm others, such as competitors, consumers, or taxpayers. Such exploitative political capitalism is virtually bound to be morally wrong. And if you don’t know that is wrong, you shouldn’t be in a position powerful enough to influence government.
Q. But why exactly is that wrong?
A. At the most basic level, it violates the concept of equality before the law, which has been a fundamental element of justice since the time of the ancient Greeks. It comes very close to outright corruption.
Q. How does “exploitative” political capitalism differ from outright corruption?
A. The two are actually very close. The main difference is in the packaging for public consumption. The political capitalist has to present his case in terms that at least pretend to serve the public good, although private advantage is his motive. The corrupt business does not even try to make a public case. Therefore, it resorts to secret inducements. Bruce Yandle’s Bootleggers and Baptists analogy comes into play here. (See below for more on this.)
Q. Does anyone advocate political capitalism as a political ideal, akin to Marxism or free-market capitalism?
A. No, and that is an interesting point. You can point to the mercantilists, or Alexander Hamilton, or Henry Clay and his American System, or Herbert Hoover and his associative state, or Lester Thurow and industrial policy as advocating a pro-business mixed economy. But I don’t think that any of them or anyone else championed business lobbying as the simple means to good government.
The following series of articles are a Q&A written by Robert Bradley, author of Capitalism at Work: Business, Government, and Energy and creator of the website Political Capitalism. Here is the first section defining the terms, and the second section addressing political capitalism in American history.
III. Political Capitalism Today
Q. Is the theory of political capitalism more relevant to history than to the present?
A. No. My in-progress trilogy on political capitalism applies the political-capitalism model to recent business scandals and financial implosions with rigor and relevance.
Q. Has political capitalism changed form over the course of the last century?
A. Yes. What I have found in my study of American interventionism is that the raw political capitalism of old has morphed into something that is broader and more pluralistic—special-interest capitalism.
Q. Define “special-interest capitalism,” which you touched upon above.
A. Special-interest capitalism is a political-economic system characterized by a variety of organized special interests pleading for—and gaining—government intervention for their pet areas. Environmentalists became a force after Earth Day 1970, to take one example. Other well organized, politically active constituencies represent minorities, retirees, disabled, veterans, and other groups. No single group dominates, and business interests win some and lose some as never before.
Q. Can a political capitalist be motivated entirely by his view of the public good? Or does the intervention that he seeks have to be one that affects his business in some way?
A. Four criteria must be met for a government intervention to be political capitalism:, First, it has to take place in a mixed economy. Second, it has to be a genuine act of economic interventionism. Third, it has to be advocated by a business or someone within a business (such as a laborer). And fourth, the business advocate must expect it to benefit his business in some way. If the fourth condition does not apply, then the activist is a reformer.
Q. Who might be an example of such a business-side reformer?
A. Perhaps some of the younger Rockefellers. Many of them seem to be ordinary leftists, and their political activities probably damage their investments. But they are rich enough and leftist enough not to care. Of course, another example of a business-side reformer would be a businessman who opposes an intervention, even though the intervention would offer his business a short-term benefit. He would be a free-market reformer.
The following series of articles are a Q&A written by Robert Bradley, author of Capitalism at Work: Business, Government, and Energy and creator of the website Political Capitalism. To read the first section defining the terms, visit here.
II. American History
Q. What is the utility of the concept “political capitalism” for the study of American history?
A. Much of the rise and growth of interventionism in America can be understood in terms of political capitalism. William Graham Sumner’s wise words in 1905 resonate today: “I see no force in modern society which can cope with the power of capital handled by talent, and I cannot doubt that the greatest force will control the other forces.”
In the pre-capitalist colonial and national periods, governments undertook such public-works projects as roads and canals, most of which were then considered traditional and customary functions of government. By 1860, though, that type of government involvement had lessened considerably, and America was probably as near to a free market as any large country has ever been. Then the Civil War came, which changed everything. Government intervened in new and larger ways, and the economy became less free. The concept of “political capitalism” helps us understand why.
Q. You think that post–Civil War interventionism was caused, first and foremost, by political capitalists?
A. Yes. Traditionally, historians said that, after the Civil War, leftist and anti-business ideas took hold via Christian socialism, German idealism, French positivism, and so on, and these ideas, through some unspecified mechanism, created a mixed economy. That was the thesis of reformer-driven capitalism that was made popular by the Progressive historians.
But there was something else happening behind the scenes that put interventionist ideas over the top as real-world intervention. The empirical record offers support for the thesis that businessmen in the Gilded Age (dating roughly from 1870–1900) and the Progressive Era (1900–1920 or so) were less the victims and enemies of interventionism than its instigators, acting through their very great ability to lobby Congress and state legislatures. Thus, the system was primarily, but certainly not exclusively, political capitalism.
Q. Why would businessmen in the late 19th and early 20th centuries have wanted government to regulate them?
A. In the free-market world of “creative destruction,” where firms battle against each other and whole industries are buffeted by shifting consumer demand, an individual firm or group of firms is alert to potential benefits of government favor. And the historical record is replete with examples of business under stress proactively seeking and utilizing government intervention. Tariffs and quotas on imported goods are one example; entry restrictions on would-be firms is another.
Q. Did you invent the term political capitalism?
A. No. “Political capitalism” was coined by the sociologist Max Weber, who used the term to describe certain phenomena in the ancient world, such as tax farming and the operation of state-owned mines, as well as bribery to obtain a legal monopoly.
But the term took on new life when historian Gabriel Kolko applied it to the Gilded Age and the Progressive Era in The Triumph of Conservatism (1963) and Railroads and Regulation (1965). I am very much indebted to him for the basic idea, but I do disagree with him on a number of issues.
Q. Such as what?
A. As a Marx-influenced historian, Kolko equated political capitalism to big business lobbying to defeat competition by small businesses in the same industry. But small business has also been a force in the expansion of government, sometimes even outmaneuvering big business. Kolko missed the critical role of small business—such as shippers and farmers in the passage of the Interstate Commerce Act of 1887.
In my history of U.S.oil and gas interventionism, I found that little business, such as independent drillers and independent service stations, were far more pro-intervention than big business. Integration between industry segments offered a buffer against market conditions that smaller, nonintegrated firms did not have, and the latter often went to government for help.
Mainstream (non-libertarian, non-Marxist) historians have made a strong case that Kolko’s political capitalism model was wrong because of the role of these other parties. So, there has been a tendency to dismiss his work. But Kolko’s Marxian obsession is correctable. The “true” political-capitalism model is even more powerful than Kolko realized. Business, small and large, has directly or indirectly influenced the large majority of U.S.economic intervention.
So a “libertarian” theory of political capitalism—which sees business in all shapes and forms as primary motivators of intervention—is a powerful and still under appreciated way to interpret the history of the U.S. political economy.
More information is available in: Robert Bradley and Roger Donway, “Reconsidering Gabriel Kolko: A Half-Century Perspective,” The Independent Review, v. 17, n. 4, Spring 2013, lead article (draft available on request).
Tomorrow’s segment will address political capitalism today.