“How is any American going to feel good about reforming Medicare, Medicaid and Social Security when … businessmen are making off with so many tax dollars?”
– Richard Fink (Koch Industries), quoted in Bill Wilson and Roy Wenzl, “The Kochs’ Quest to Save America,” Wichita Eagle, October 13, 2012.
A major political-economy theme at MasterResource is how government intervention stifles value-creating entrepreneurship, or, in the case of mineral resources, resourceship.
MasterResource has chronicled the sorry history of government trying to turn energy losers into winners. Last year alone, this site published 60 blog-posts on the history, operation, and current politics of (government-enabled) industrial wind power. And who can forget Solyndra on the solar side, a name that might enter the textbooks as the Teapot Dome of our time.
Special government favor to wind, solar, ethanol, and battery/electric vehicle companies is a leading area of cronyism today. Coming on top of the major bailouts of 2008/2009, exposing and understanding cronyism has become a major initiative.
Enter Crony Chronicles, which describes its mission as follows:
This site exists to be the leading online resource for everything related to cronyism.
Cronyism occurs when an individual or organization colludes with government officials to get forced benefits they could not have otherwise obtained voluntarily. Those benefits come at the expense of consumers, taxpayers, and everyone working hard to compete in the marketplace.
The perils of Cronyism are described:
In an economically free society, the role of business is to create value for society by producing products and services that their customers consider beneficial. If they do this while using resources wisely, they make a profit, and societal wellbeing is enhanced.
Cronyism diverts resources away from the wants and needs of consumers and toward political purposes. Cronyism occurs when an individual or organization colludes with government officials to create unfair legislation and/or regulations which give them forced benefits they could not have otherwise obtained voluntarily. Those benefits come at the expense of consumers, taxpayers, and everyone working hard to compete in the marketplace.
Cronyism harms society and threatens economic freedom, which is the key to greater opportunity and an improved quality of life. To learn more about economic freedom, visit this site.
To understand why cronyism is such a threat, read this article.
Crony Chronicles has published a variety of posts, including a Q&A series by yours truly on political capitalism (or cronyism, as the site defines it):
Part III: Political Capitalism Today
Part IV: The Morality of Political Capitalism
Study of American Capitalism (Mercatus Center)
Much study is now going on to better understand business in government and government in business–versus fairness and the common good. Keep you eye, in particular, on the Study of American Capitalism (SAC) initiative at the Mercatus Center at George Mason University.
“Free-market capitalism is an indelible part of the American identity, but is the U.S. economy completely—or even mostly—free?,” the SAC founding document states, continuing:
No economy is completely free. Like other countries, the United States is a mixed system, a hybrid of capitalism and government involvement. As such, can Americans legitimately claim to have a mostly free economy?
In a free market, businesses compete on a level playing field. Those who earn success do so by providing the best goods or services for the best price. The government’s role is limited to that of a neutral umpire who establishes the rule of law and then polices against theft and fraud.
Increasingly, American businesses compete on an uneven playing field. They court policymakers who in turn sway the umpire to call shots in favor of some companies and against their competitors. Under this system, success no longer hinges on providing the highest-quality goods at the lowest price; it depends on political favoritism.
What are the implications of this emerging character of the American economy? Does it make any difference to average Americans whether ours is a more or less free market? What is at stake for the standard of living in the United States? What about public perceptions of the legitimacy of government and business? What can policymakers do to ensure competition and to credibly commit to equality of opportunity?
The Mercatus Center at George Mason University will address these and related questions through our Project for the Study of American Capitalism. Drawing on hundreds of academics from around the world, this project aims to help scholars and policymakers investigate the nature of these problems and identify real and sustainable solutions.
SAC studies to date are:
Economic Freedom and Economic Privilege by Matthew Mitchell| January 10, 2013
A Trillion Little Subsidies: The Economic Impact of Tax Expenditures in the Federal Income Tax Code by Jeremy Horpedahl, Brandon Pizzola | October 25, 2012
Crony Capitalism: By-Product of Big Government by Randall G. Holcombe | October 24, 2012
Gauging the Perception of Cronyism in the United States by Daniel J. Smith, Daniel Sutter | October 17, 2012
Government Cronyism and the Erosion of the Public’s Trust by John Garen | October 11, 2012
The Economics and History of Cronyism by David R. Henderson | July 26, 2012
A major intellectual challenge and catalyst for positive social change is to meticulously examine the origins of , current demand for, and consequences of business in government and government in business.
If a free-market “truce” could be called between businesses, many corporations could close their Washington DC office. Government Affairs offices could be reduced and lobbyists freed for more productive employments. And critics of cronyism on both the Left and the Right could have more good things to say about American Capitalism.
Other resources on political capitalism:
The Bastiat Society (various chapters)
“Political Capitalism: Warnings and Reality” (Video speech: 2012 Atlas Summit)
My question (worry?) is whether cronyism is by now essentially endemic, and an integral part of our culture, much less our politics. No matter how far back you trace it at the federal level (1920s or 30s, for one example), cronyism has thrived for many generations. And to one degree or another, it existed at lower levels before that. As long as there are pools of tax dollars to be distributed, and as long as voters continue to reward those who promise to use elected power to fix this and remedy that, it’s a huge uphill climb to eliminate it. You are asking the power hungry to give up some power. Control obsessed people to give up some control.
With respect to energy and power, my hope – perhaps foolish – is that we can at least shift more towards goal oriented twiddling and away from crony finagling. That could mean something as simple as rewarding (in terms of reducing taxes, regulation and permitting, etc.) those who provide solutions to meet measurable goals of cost, security, and perhaps some aspects of the more controversial environmental neutrality. It may even be fair to help the risk takers to alleviate a portion of their risk, but only at the earliest stages of development. Instead, the federal government now underwrites risk at stages as late as power production. And it arrogantly and often incorrectly decides who can best meet goals that are deliberately complex and ambiguously defined. Good/better solutions are at times impeded, and market forces are often shrouded by unnatural economic forces (subsidy for products and behavior versus meeting a goal, e.g.).
Although it’s also controversial, mileage standards offers a picture of how setting a goal and leaving the market alone has potential. Yes, I know that there is still a tremendous amount of behind the scenes cronyism and ‘stimulus’ (e.g. subsidy for specific EVs), but that activity has not become so overbearing that it has killed other creative activities and stopped progress. There are a good number of potential solutions for internal combustion efficiency in various stages of development and testing, some from big corporations (cronies) and much from entrepreneurial risk takers. While far from perfect, at least there are more market forces at play.
Maybe I’m just willing to see small steps taken in the right direction to ween the obese business/government complex from it’s teat……
Rent seeking has probably been around since prehistoric times. Dr. ross has an interesting article or rent seeking.
The “political means” to economic ends in place of the “economic means” is discussed in Franz Oppenheimer’s classic, The State: Its History and Development Viewed Sociologically (1919).
He chronicled plunder (the exploitation of man by man) as key to the development of the state. The voluntary roots of human society is sumarized in Tom Palmer’s “The Origins of the State and Government.”
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