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Political Capitalism as a Distinct Economic System

By Randall Holcombe -- March 20, 2015

“While political capitalism as an economic system has barely been recognized, the building blocks that form a theoretical foundation for political capitalism are firmly in place and well-accepted. In political science and sociology, the ideas of elite domination and biased pluralism are mainstream concepts that are a fundamental part of political capitalism.”

Political capitalism is an economic and political system in which the economic and political elite cooperate for their mutual benefit. While the essential idea of political capitalism has a long history, it has not been recognized as a distinct economic system.

In part, this is due to the 20th-century vision of economic systems as capitalist, as socialist, or a mixed economy that contains elements of both capitalism and socialism. It has also been due to the frequent vision of government as an institution that acts in the public interest, corrects market failures, and controls the activities of business.

Political capitalism is an economic system in which business controls government more than government controls business. Political capitalism is a distinct economic system, not an intermediate system lying between capitalism and socialism.

While political capitalism as an economic system has barely been recognized, the building blocks that form a theoretical foundation for political capitalism are firmly in place and well-accepted. In political science and sociology, the ideas of elite domination and biased pluralism are mainstream concepts that are a fundamental part of political capitalism.

In economics and public choice, the concepts of rent seeking, regulatory capture, and special-interest politics are similarly mainstream concepts, although in that literature they have not been linked to the class theories found in political science and sociology.

The theoretical foundation also rests on the literature in constitutional political economy, which economist James Buchanan of the Public Choice school has depicted as studying the choice among constraints. Economic analysis, including the literatures on rent seeking, regulatory capture, and special-interest politics, has tended to view those activities in the context of economic agents maximizing subject to the rules and constraints present in the political system theoretical framework for political capitalism does not have to be developed. The building blocks are already there and just need to be assembled so that the system is recognized.

Critics from throughout the political spectrum have observed and criticized government policies that favor insiders and cronies at the expense of the general public. These observations come from the political left to the political right, from libertarians to proponents of big government. A theory of political capitalism focuses attention on political and economic problems that are widely recognized and command broad agreement.

Despite this agreement on the causes and consequences of political capitalism, there is no widespread agreement on policies to deal with it. On the Left, there are calls for more government oversight, more government programs, and more government spending, while on the Right, critics conclude that government is the problem and that the solution is less government. Rather than delve into those policy differences here, this article focuses on the areas of agreement to describe political capitalism and assemble its theoretical foundation.

If the many ideas that build the foundation of political capitalism are recognized as describing a distinct economic system, that foundation can lead toward more productive policy discussions to address the problems political capitalism presents.

Appendix A: Political Capitalism/Rent-Seeking Posts at MasterResource

Gabriel Kolko and ‘Political Capitalism’
Cronyism on Trial: Introducing Crony Chronicles.org & Study of American Capitalism Project
“THIS AGREEMENT WILL BE GOOD FOR ENRON STOCK!!” (Enron’s Kyoto memo turns 15)
Crony Capitalism in the U.S. Energy Industry: A Brief Review
Crony Capitalism: Practice (Part 2)
Crony Capitalism: Principles (Part I)
Milton Friedman’s 100th: Exploring His Wisdom for the Ages (Part III: Political Capitalism)
Politics and the Nation’s Next Nuclear Plant (Georgia Power’s boondoggle under construction)
“No New Energy Subsidies: Oppose NAT GAS Act!” (free market voices rise up against tax-code politicking)
Energy Subsidies vs. Energy Sense: What Have We Learned in the Past 3 Years?
Rent-Seeker Glee: It Did Not Begin with Solyndra (remembering Enron’s triumphant Kyoto Memo)
William N. Niskanen: Economist, Scholar, and Foe of Political Capitalism 
“Rob Bradley at Enron” (for the record)
U.S. Chamber of Commerce: Free Market Recommendations for Congress & Obama (oil and gas prominent in potential job bonanza)
The ‘Economic Means’ vs. the ‘Political Means’: Franz Oppenheimer Makes a Key Political-Capitalism Distinction
Wisdom from T. Boone against Rent-Seeking Pickens (remember when you said ….?)
German Wind Capacity Revisited: High Cost versus Least Cost
Blowout Prevention Act–or Oil-Production Prevention Act?
Green Jobs: The Last Redoubt (invoking military images of us-versus-them)
Dear U.S. Chamber of Commerce: Why Attempt to Resuscitate a Brain Dead Climate Bill?


Randall G. Holcombe is the DeVoe Moore Professor of Economics at Florida State University; a Research Fellow at The Independent Institute; Senior Fellow and member of the Research Advisory Council at The James Madison Institute, and past president of the Public Choice Society. From 2000 to 2006, he served on Governor Jeb Bush’s Council of Economic Advisors.

This post is taken from his recent essay in the Winter 2015 issue of the Cato Journal, “Political Capitalism.”



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