Tag Archives: cronyism

Crony Capitalism Protects Wrongdoers, Harms Consumers, and Disrupts Markets

Kenn Connor writes about Tim Carney’s recent cronyism piece, noting that cronyism makes it harder to create products that consumers actually want.

Basically, the special interests invest in political campaigns as a cost of doing business, and they expect a handsome return on their investments. As Mr. Carney explains, that usually comes in the form of pet legislation, subsidies, tax breaks, limitations on liability, preferential treatment . . . the list goes on and on. Of course, politicians are only too happy to accommodate these special interests in exchange for political contributions that help cement and perpetuate their power. As a result, the free market is stymied; it can’t do what it’s designed by nature to do, which is to sift good companies from bad ones, reward efficiency and innovation, and empower consumers with authentic choice in the marketplace.

Crony capitalism, Dodd-Frank style

In a cronyism twist, new regulations from 2010′s Dodd-Frank legislation will set aside certain businesses for special government oversight because they are too big to fail. (The official term is Systemically Important Financial Institution). This arrangement may devolve into a special benefit for the designated businesses because it will tell the public that the corporation has the government’s backing.  From the American Enterprise Institute blog:

Now think about that when you hear the great hew and cry of the folks who purport to be worried that the big banks are too-big-to-fail (TBTF). They denounce the funding advantages these banks get because of the markets’ belief that the government will not allow them to fail… Who could resist buying insurance from a firm the government will not allow to fail?

Taxpayer Supports for Corn Ethanol in Federal Legislation

Tax Payers for Common Sense has published the following Fact Sheet, emphasizing the problem with Corn Ethanol subsidies. The study analyzes the history of Ethanol subsidies and the current support of these subsidies on current legislation like the 2008 Farm Bill. The study also determines the Taxpayer’s cost and the Environmental cost of this form of corporate welfare and the conclusions of this form of cronyism.

“It’s time the mature corn ethanol industry survived on its own two feet without taxpayer support. After more than 30 years of federal backing, corn ethanol subsidies scattered throughout the federal tax code and farm bill energy title should be eliminated once and for all. Economic, environmental, and public health costs would also decline if unintended consequences of ethanol production were ended, benefiting drivers, consumers, and the general public.”

Five Accused of Diverting Stimulus Money From Tribe

The Washington Free Beacon Staff recently posted this article, concerning the latest case of corruption related to stimulus funds. This time the case concerns a former tribe leader of a Chippewa Cree tribe and a former state lawmaker, who appropriated hundreds of thousands of dollars in federal stimulus money which was supposed to ‘stimulate the economy of the Montana tribe.’ More details here.

The Chippewa Cree Tribe received $33 million in federal funding between 2009 and 2010 for construction of a $361 million pipeline to supply fresh drinking water for the Rocky Boy’s Indian Reservation and surrounding counties in northern Montana. Most of that $33 million came from the 2009 American Recovery and Reinvestment act, also known as the stimulus.

The CEO of the tribal company that headed the pipeline project, Chippewa Cree Construction Corp., awarded contracts and authorized cash transfers in a complex web of transactions to embezzle and launder the money, according to the indictment unsealed Tuesday.

Richest Man Slim Cited for Profiting From Phones for Poor

Todd Shields from Bloomberg.com has written the following article, stressing how the program that was supposed to help people to find jobs has actually helped the richest man in the world to become richer. The government ‘Lifeline program’ was intended to help people to find jobs quicker; the results are a big subsidy of $2.2 billion last year alone; a quarter of which went to Mr. Slim’s TracFone Wireless Inc.

Started in 1985, Lifeline pays companies $9.25 per customer per month. It disbursed $772 million in 2008 and $2.2 billion last year, according to the Universal Service Administrative Co., a Washington-based nonprofit that oversees the subsidies.

Largest U.S. telephone company AT&T Inc. (T) took in $274.9 million and third-largest wireless provider Sprint Nextel Corp. (S), based in Overland Park, Kansas, received $273.5 million, according to the FCC. AT&T’s share includes aid for wired phone customers.

Why the China Dream Might Be a Mirage

In a reminder that cronyism is not a uniquely American phenomenon, this Bloomberg piece highlights the ubiquity of cronyism, government intervention, and corruption in China.

Above all, the government needs to reduce the state’s outsized role in banking, finance and industry…

Average Chinese who call for leaders to disclose their assets are detained. Journalists who do lifestyle checks on key politicians to find out how their families amassed hundreds of millions of dollars are regarded as subversive.

Questioning Cronies

The Washington Free Beacon reports on an interesting shareholder meeting where the CEO was asked about its relationship with the White House.

A representative for the National Center for Public Policy Research (NCPPR), a Washington-based think tank that holds stock in utilities company Exelon Corp., attended Exelon’s shareholder meeting and asked CEO Chris Crane about the company’s relationship to the Obama administration and the wisdom in taking government money.

Exelon officials used their connections to the White House to shape environmental policies in order to hurt their competitors, according to a New York Times article cited by NCPPR representative Cherylyn Harley LeBon at the meeting.

Strassel: Nearly Sideswiped by Another Green Car

A WSJ column by Kimberley A. Strassel delves into the cronyism involved in the government loan process for automakers, showing an example of a company that was almost given loans despite clear signs they were not qualified:

For an excellent study in how green-energy cronyism works, look instead to the near miss (for taxpayers) of Next AutoWorks. That startup applied for a $320 million federal loan guarantee in 2009, promising a Louisiana factory that would produce cheap and fuel-efficient cars. Next didn’t, ultimately, get its loans.

It wasn’t from a lack of political lobbying. Emails referenced in a House Oversight subcommittee hearing this week confirm every suspicion about the degree to which powerful moneymen worked the system on behalf of their investments, pushing their political contacts to roll over Energy’s credit department.

Reason: You Can’t Just Sell an Electric Car to Someone, This is America!

Ed Krayewski at Reason’s Hit & Run blog writes about a case of cronyism in the auto dealer industry:

Ever since Tesla announced its plans to sell cars directly, with factory-owned Tesla Stores and Tesla Galleries acting only as display showroms, car dealers and their associations have denounced the plan.

They’ve also sued Tesla for violating franchise laws in several states–Massachusetts, most notably–and gotten laws changed in others to make Tesla’s model flatly illegal…