Crony capitalism, sometimes called cronyism, is an
economic system
An economic system, or economic order, is a system of Production (economics), production, resource allocation and Distribution (economics), distribution of goods and services within a society or a given geographic area. It includes the combinati ...
in which
businesses
Business is the practice of making one's living or making money by producing or buying and selling products (such as goods and services). It is also "any activity or enterprise entered into for profit."
Having a business name does not separat ...
thrive not as a result of
free enterprise
In economics, a free market is an economic system in which the prices of goods and services are determined by supply and demand expressed by sellers and buyers. Such markets, as modeled, operate without the intervention of government or any ...
, but rather as a return on
money
Money is any item or verifiable record that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular country or socio-economic context. The primary functions which distinguish money are as ...
amassed through collusion between a business class and the
political class Political class, or political elite is a concept in comparative political science, originally developed by Italian political theorist Gaetano Mosca (1858–1941). It refers to the relatively small group of activists that is highly aware and active i ...
. This is often achieved by the manipulation of relationships with state power by business interests rather than unfettered competition in obtaining permits, government grants,
tax break
Tax break also known as tax preferences, tax concession, and tax relief, are a method of reduction to the tax liability of taxpayers. Government usually applies them to stimulate the economy and increase the solvency of the population. By this fi ...
s, or other forms of
state intervention over resources where business interests exercise undue influence over the state's deployment of public goods, for example, mining concessions for primary commodities or contracts for public works. Money is then made not merely by making a profit in the market, but through profiteering by
rent seeking
Rent-seeking is the act of growing one's existing wealth without creating new wealth by manipulating the social or political environment.
Rent-seeking activities have negative effects on the rest of society. They result in reduced economic effi ...
using this
monopoly
A monopoly (from Greek language, Greek el, μόνος, mónos, single, alone, label=none and el, πωλεῖν, pōleîn, to sell, label=none), as described by Irving Fisher, is a market with the "absence of competition", creating a situati ...
or
oligopoly
An oligopoly (from Greek ὀλίγος, ''oligos'' "few" and πωλεῖν, ''polein'' "to sell") is a market structure in which a market or industry is dominated by a small number of large sellers or producers. Oligopolies often result from ...
.
Entrepreneurship
Entrepreneurship is the creation or extraction of economic value. With this definition, entrepreneurship is viewed as change, generally entailing risk beyond what is normally encountered in starting a business, which may include other values th ...
and innovative practices which seek to reward risk are stifled since the value-added is little by crony businesses, as hardly anything of significant value is created by them, with transactions taking the form of trading. Crony capitalism spills over into the government, the politics, and the media,
[''The Discovery that Business Corrupts Politics: A Reappraisal of the Origins of Progressivism'', by McCormick, Richard. 1981. The American Historical Review, Vol. 86, No. 2 (Apr. 1981), pp. 247–74.] when this nexus distorts the economy and affects society to an extent it corrupts
public-serving economic, political, and social ideals.
Historical usage
The first extensive use of the term "crony capitalism" came about in the 1980s, to characterize the
Philippine economy under the dictatorship of
Ferdinand Marcos
Ferdinand Emmanuel Edralin Marcos Sr. ( , , ; September 11, 1917 – September 28, 1989) was a Filipino politician, lawyer, dictator, and kleptocrat who was the 10th president of the Philippines from 1965 to 1986. He ruled under martial ...
.
Early uses of this term to describe the economic practices of the Marcos regime included that of
Ricardo Manapat
Jose Ricardo L. Manapat (May 24, 1953 – December 24, 2008) was an activist, scholar, writer, researcher, and educator who was the Director of the Records Management and Archives Office of the Philippines (The National Archives) from 1996 to 199 ...
, who introduced it in his 1979 pamphlet "Some are Smarter than Others", which was later published in 1991;
[ former ''Time'' magazine business editor George M. Taber, who used the term in a ''Time'' magazine article in 1980,][ and activist (and later Finance Minister) ]Jaime Ongpin
Jaime Velayo Ongpin (June 15, 1938 – December 7, 1987) was Minister of Finance of the Philippines under President Cory Aquino, appointed in 1986 after having played an instrumental role in her campaign. Ongpin was the younger brother of Roberto ...
, who used the term extensively in his writing and is sometimes credited for having coined it.
The term crony capitalism made a significant impact in the public as an explanation of the Asian financial crisis
The Asian financial crisis was a period of financial crisis that gripped much of East Asia and Southeast Asia beginning in July 1997 and raised fears of a worldwide economic meltdown due to financial contagion. However, the recovery in 1998– ...
.
It is also used to describe governmental decisions favoring cronies of governmental officials. In this context, the term is often used comparatively with corporate welfare
Corporate welfare is a phrase used to describe a government's bestowal of money grants, tax breaks, or other special favorable treatment for corporations.
The definition of corporate welfare is sometimes restricted to direct government subsidie ...
, a technical term often used to assess government bailouts and favoritistic monetary policy as opposed to the economic theory described by crony capitalism. The extent of difference between these terms is whether a government action can be said to benefit the individual (crony capitalism) rather than the industry (corporate welfare).
In practice
Crony capitalism exists along a continuum. In its lightest form, crony capitalism consists of collusion among market players which is officially tolerated or encouraged by the government. While perhaps lightly competing against each other, they will present a unified front (sometimes called a trade association or industry trade group
A trade association, also known as an industry trade group, business association, sector association or industry body, is an organization founded and funded by businesses that operate in a specific industry. An industry trade association partici ...
) to the government in requesting subsidies or aid or regulation. For instance, newcomers to a market then need to surmount significant barriers to entry in seeking loans, acquiring shelf space, or receiving official sanction. Some such systems are very formalized, such as sports leagues and the Medallion System of the taxicabs of New York City
In New York City, taxicabs come in two varieties: yellow and green; they are widely recognizable symbols of the city. Taxis painted yellow (medallion taxis) are able to pick up passengers anywhere in the five boroughs. Those painted apple green ...
, but often the process is more subtle, such as expanding training and certification exams to make it more expensive for new entrants to enter a market and thereby limiting potential competition. In technological fields, there may evolve a system whereby new entrants may be accused of infringing on patents that the established competitors never assert against each other. In spite of this, some competitors may succeed when the legal barriers are light. The term crony capitalism is generally used when these practices either come to dominate the economy as a whole, or come to dominate the most valuable industries in an economy. Intentionally ambiguous laws and regulations are common in such systems. Taken strictly, such laws would greatly impede practically all business activity, but in practice they are only erratically enforced. The specter of having such laws suddenly brought down upon a business provides an incentive to stay in the good graces of political officials. Troublesome rivals who have overstepped their bounds can have these laws suddenly enforced against them, leading to fines or even jail time. Even in high-income democracies with well-established legal systems and freedom of the press in place, a larger state is generally associated with increased political corruption.
The term crony capitalism was initially applied to states involved in the 1997 Asian financial crisis
The Asian financial crisis was a period of financial crisis that gripped much of East Asia and Southeast Asia beginning in July 1997 and raised fears of a worldwide economic meltdown due to financial contagion. However, the recovery in 1998–1 ...
such as Indonesia, South Korea and Thailand. In these cases, the term was used to point out how family members of the ruling leaders become extremely wealthy with no non-political justification. Southeast Asian nations, such as Hong Kong and Malaysia, still score very poorly in rankings measuring this. The term has also been applied to the system of oligarchs
Oligarch may refer to:
Authority
* Oligarch, a member of an oligarchy, a power structure where control resides in a small number of people
* Oligarch (Kingdom of Hungary), late 13th–14th centuries
* Business oligarch, wealthy and influential bu ...
in Russia. Other states to which the term has been applied include India, in particular the system after the 1990s liberalization, whereby land and other resources were given at throwaway prices in the name of public private partnerships, the more recent coal-gate
The Coal allocation scam, dubbed in media as Coalgate, is a major political scandal concerning the Indian government's allocation of the nation's coal deposits to public sector enterprise (PSEs) and private companies. In a draft report issued i ...
scam and cheap allocation of land and resources to Adani SEZ under the Congress
A congress is a formal meeting of the representatives of different countries, constituent states, organizations, trade unions, political parties, or other groups. The term originated in Late Middle English to denote an encounter (meeting of a ...
and BJP
The Bharatiya Janata Party (BJP; ; ) is a political party in India, and one of the two major Indian political parties alongside the Indian National Congress. Since 2014, it has been the ruling political party in India under Narendra Modi ...
governments.
Similar references to crony capitalism have been made to other countries such as Argentina and Greece. Wu Jinglian
Wu Jinglian (; born January 24, 1930) is one of the preeminent economists of the People's Republic of China (PRC), primarily specializing in economic policy as it applies to China's ongoing series of economic reforms.
Renowned for his resolute ...
, one of China's leading economists and a longtime advocate of its transition to free markets, says that it faces two starkly contrasting futures, namely a market economy under the rule of law
The rule of law is the political philosophy that all citizens and institutions within a country, state, or community are accountable to the same laws, including lawmakers and leaders. The rule of law is defined in the ''Encyclopedia Britannica ...
or crony capitalism. A dozen years later, prominent political scientist Pei Minxin had concluded that the latter course had become deeply embedded in China. The anti-corruption campaign under Xi Jinping
A far-reaching anti-corruption campaign began in China following the conclusion of the 18th National Congress of the Chinese Communist Party (CCP) in 2012. The campaign, carried out under the aegis of Xi Jinping, General Secretary of the Chinese ...
(2012–) has seen more than 100,000 high- and low-ranking Chinese officials indicted and jailed.
Many prosperous nations have also had varying amounts of cronyism throughout their history, including the United Kingdom especially in the 1600s and 1700s, the United States and Japan.
Crony capitalism index
''The Economist
''The Economist'' is a British weekly newspaper printed in demitab format and published digitally. It focuses on current affairs, international business, politics, technology, and culture. Based in London, the newspaper is owned by The Econo ...
'' benchmarks countries based on a crony-capitalism index calculated via how much economic activity occurs in industries prone to cronyism. Its 2014 Crony Capitalism Index ranking listed Hong Kong, Russia and Malaysia in the top three spots.
In finance
Crony capitalism in finance was found in the Second Bank of the United States
The Second Bank of the United States was the second federally authorized Hamiltonian national bank in the United States. Located in Philadelphia, Pennsylvania, the bank was chartered from February 1816 to January 1836.. The Bank's formal name, ac ...
. It was a private company, but its largest stockholder was the federal government which owned 20%. It was an early bank regulator and grew to be one being the most powerful organizations in the country due largely to being the depository of the government's revenue.
The Gramm–Leach–Bliley Act
The Gramm–Leach–Bliley Act (GLBA), also known as the Financial Services Modernization Act of 1999, () is an act of the 106th United States Congress (1999–2001). It repealed part of the Glass–Steagall Act of 1933, removing barriers in ...
in 1999 completely removed Glass–Steagall’s separation between commercial banks and investment banks. After this repeal, commercial banks, investment banks and insurance companies combined their lobbying
In politics, lobbying, persuasion or interest representation is the act of lawfully attempting to influence the actions, policies, or decisions of government officials, most often legislators or members of regulatory agency, regulatory agencie ...
efforts. Critics claim this was instrumental in the passage of the .
In sections of an economy
More direct government involvement in a specific sector can also lead to specific areas of crony capitalism, even if the economy as a whole may be competitive. This is most common in natural resource sectors through the granting of mining or drilling concessions, but it is also possible through a process known as regulatory capture
In politics, regulatory capture (also agency capture and client politics) is a form of corruption of authority that occurs when a political entity, policymaker, or regulator is co-opted to serve the commercial, ideological, or political interests ...
where the government agencies in charge of regulating an industry come to be controlled by that industry. Governments will often establish in good faith government agencies to regulate an industry. However, the members of an industry have a very strong interest in the actions of that regulatory body while the rest of the citizenry are only lightly affected. As a result, it is not uncommon for current industry players to gain control of the watchdog and to use it against competitors. This typically takes the form of making it very expensive for a new entrant to enter the market. An 1824 landmark United States Supreme Court ruling overturned a New York State-granted monopoly ("a veritable model of state munificence" facilitated by Robert R. Livingston
Robert Robert Livingston (November 27, 1746 (Old Style November 16) – February 26, 1813) was an American lawyer, politician, and diplomat from New York, as well as a Founding Father of the United States. He was known as "The Chancellor", afte ...
, one of the Founding Fathers) for the then-revolutionary technology of steamboats. Leveraging the Supreme Court's establishment of Congressional supremacy over commerce, the Interstate Commerce Commission was established in 1887 with the intent of regulating railroad robber barons. President Grover Cleveland
Stephen Grover Cleveland (March 18, 1837June 24, 1908) was an American lawyer and politician who served as the 22nd and 24th president of the United States from 1885 to 1889 and from 1893 to 1897. Cleveland is the only president in American ...
appointed Thomas M. Cooley, a railroad ally, as its first chairman and a permit system was used to deny access to new entrants and legalize price fixing
Price fixing is an anticompetitive agreement between participants on the same side in a market to buy or sell a product, service, or commodity only at a fixed price, or maintain the market conditions such that the price is maintained at a given ...
.
The defense industry in the United States is often described as an example of crony capitalism in an industry. Connections with the Pentagon
The Pentagon is the headquarters building of the United States Department of Defense. It was constructed on an accelerated schedule during World War II. As a symbol of the U.S. military, the phrase ''The Pentagon'' is often used as a metony ...
and lobbyists in Washington are described by critics as more important than actual competition due to the political and secretive nature of defense contracts. In the Airbus-Boeing WTO dispute, Airbus (which receives outright subsidies
A subsidy or government incentive is a form of financial aid or support extended to an economic sector (business, or individual) generally with the aim of promoting economic and social policy. Although commonly extended from the government, the ter ...
from European governments) has stated Boeing receives similar subsidies which are hidden as inefficient defense contracts. Other American defense companies were put under scrutiny for no-bid contracts for Iraq War
{{Infobox military conflict
, conflict = Iraq War {{Nobold, {{lang, ar, حرب العراق (Arabic) {{Nobold, {{lang, ku, شەڕی عێراق (Kurdish languages, Kurdish)
, partof = the Iraq conflict (2003–present), I ...
and Hurricane Katrina
Hurricane Katrina was a destructive Category 5 Atlantic hurricane that caused over 1,800 fatalities and $125 billion in damage in late August 2005, especially in the city of New Orleans and the surrounding areas. It was at the time the cost ...
related contracts purportedly due to having cronies in the Bush administration.
Gerald P. O'Driscoll, former vice president at the Federal Reserve Bank of Dallas
The Federal Reserve Bank of Dallas covers the Eleventh Federal Reserve District, which includes Texas, northern Louisiana and southern New Mexico, a district sometimes referred to as the Oil Patch.
The Federal Reserve Bank of Dallas is one of 12 ...
, stated that Fannie Mae
The Federal National Mortgage Association (FNMA), commonly known as Fannie Mae, is a United States government-sponsored enterprise (GSE) and, since 1968, a publicly traded company. Founded in 1938 during the Great Depression as part of the N ...
and Freddie Mac
The Federal Home Loan Mortgage Corporation (FHLMC), commonly known as Freddie Mac, is a publicly traded, government-sponsored enterprise (GSE), headquartered in Tysons Corner, Virginia.[mortgage underwriting
Mortgage underwriting is the process a lender uses to determine if the risk (especially the risk that the borrower will default
) of offering a mortgage loan to a particular borrower is acceptable and is a part of the larger mortgage origination ...]
, saying. "The politicians created the mortgage giants, which then returned some of the profits to the pols—sometimes directly, as campaign funds; sometimes as "contributions" to favored constituents".
In developing economies
In its worst form, crony capitalism can devolve into simple corruption where any pretense of a free market is dispensed with, bribes to government officials are considered ''de rigueur'' and tax evasion
Tax evasion is an illegal attempt to defeat the imposition of taxes by individuals, corporations, trusts, and others. Tax evasion often entails the deliberate misrepresentation of the taxpayer's affairs to the tax authorities to reduce the tax ...
is common. This is seen in many parts of Africa and is sometimes called plutocracy
A plutocracy () or plutarchy is a society that is ruled or controlled by people of great wealth or income. The first known use of the term in English dates from 1631. Unlike most political systems, plutocracy is not rooted in any established ...
(rule by wealth) or kleptocracy
Kleptocracy (from Greek κλέπτης ''kléptēs'', "thief", κλέπτω ''kléptō'', "I steal", and -κρατία -''kratía'' from κράτος ''krátos'', "power, rule") is a government whose corrupt leaders (kleptocrats) use political ...
(rule by theft). Kenyan economist David Ndii has repeatedly brought to light how this system has manifested over time, occasioned by the reign of Uhuru Kenyatta
Uhuru Muigai Kenyatta (born 26 October 1961) is a Kenyan politician who served as the fourth president of Kenya from 2013 to 2022.
Kenyatta was chosen by Daniel Arap Moi as his preferred successor, but Kenyatta was defeated by opposition le ...
as president.
Corrupt governments may favor one set of business owners who have close ties to the government over others. This may also be done with, religious, or ethnic favoritism. For instance, Alawites
The Alawis, Alawites ( ar, علوية ''Alawīyah''), or pejoratively Nusayris ( ar, نصيرية ''Nuṣayrīyah'') are an ethnoreligious group that lives primarily in Levant and follows Alawism, a sect of Islam that originated from Shia Isl ...
in Syria have a disproportionate share of power in the government and business there ( President Assad himself is an Alawite). This can be explained by considering personal relationships as a social network
A social network is a social structure made up of a set of social actors (such as individuals or organizations), sets of dyadic ties, and other social interactions between actors. The social network perspective provides a set of methods for an ...
. As government and business leaders try to accomplish various things, they naturally turn to other powerful people for support in their endeavors. These people form hubs in the network. In a developing country those hubs may be very few, thus concentrating economic and political power in a small interlocking group.
Normally, this will be untenable to maintain in business as new entrants will affect the market. However, if business and government are entwined, then the government can maintain the small-hub network.
Raymond Vernon, specialist in economics and international affairs, wrote that the Industrial Revolution
The Industrial Revolution was the transition to new manufacturing processes in Great Britain, continental Europe, and the United States, that occurred during the period from around 1760 to about 1820–1840. This transition included going f ...
began in Great Britain because they were the first to successfully limit the power of veto groups (typically cronies of those with power in government) to block innovations, writing: "Unlike most other national environments, the British environment of the early 19th century contained relatively few threats to those who improved and applied existing inventions, whether from business competitors, labor, or the government itself. In other European countries, by contrast, the merchant guilds ... were a pervasive source of veto for many centuries. This power was typically bestowed upon them by government". For example, a Russian inventor produced a steam engine in 1766 and disappeared without a trace. Vermon further stated that "a steam powered horseless carriage produced in France in 1769 was officially suppressed". James Watt
James Watt (; 30 January 1736 (19 January 1736 OS) – 25 August 1819) was a Scottish inventor, mechanical engineer, and chemist who improved on Thomas Newcomen's 1712 Newcomen steam engine with his Watt steam engine in 1776, which was fun ...
began experimenting with steam in 1763, got a patent in 1769 and began commercial production in 1775.
Raghuram Rajan
Raghuram Govind Rajan (born 3 February 1963) is an Indian economist and the Katherine Dusak Miller Distinguished Service Professor of Finance at the University of Chicago Booth School of Business. Quote: "I am an Indian citizen. I have always b ...
, former governor of the Reserve Bank of India
The Reserve Bank of India, chiefly known as RBI, is India's central bank and regulatory body responsible for regulation of the Indian banking system. It is under the ownership of Ministry of Finance, Government of India. It is responsible for ...
, has said: "One of the greatest dangers to the growth of developing countries is the middle income trap
The middle income trap is an economic development situation in which a country that attains a certain income (due to given advantages) gets stuck at that level. The term was introduced by the World Bank in 2006 and is defined by them as the 'middl ...
, where crony capitalism creates oligarchies that slow down growth. If the debate during the elections is any pointer, this is a very real concern of the public in India today". Tavleen Singh
Tavleen Singh (born 1950) is an Indian columnist, political reporter and writer.
Biography
Singh was born in Mussoorie in 1950 in a Jat Sikh family. She studied at the Welham Girls School. She did a short-term Journalism course from the New D ...
, columnist for ''The Indian Express
''The Indian Express'' is an English-language Indian daily newspaper founded in 1932. It is published in Mumbai by the Indian Express Group. In 1999, eight years after the group's founder Ramnath Goenka's death in 1991, the group was split betw ...
'', has disagreed. According to Singh, India's corporate success is not a product of crony capitalism, but because India is no longer under the influence of crony socialism.
Political viewpoints
While the problem is generally accepted across the political spectrum, ideology shades the view of the problem's causes and therefore its solutions. Political views mostly fall into two camps which might be called the socialist and capitalist critique. The socialist position is that crony capitalism is the inevitable result of any strictly capitalist system and thus broadly democratic government must regulate economic, or wealthy, interests to restrict monopoly. The capitalist position is that natural monopolies
A natural monopoly is a monopoly in an industry in which high infrastructural costs and other barriers to entry relative to the size of the market give the largest supplier in an industry, often the first supplier in a market, an overwhelming adv ...
are rare, therefore governmental regulations generally abet established wealthy interests by restricting competition.
Socialist critique
Critics of crony capitalism including socialists
Socialism is a left-wing economic philosophy and movement encompassing a range of economic systems characterized by the dominance of social ownership of the means of production as opposed to private ownership. As a term, it describes the eco ...
and anti-capitalists
Anti-capitalism is a political ideology and Political movement, movement encompassing a variety of attitudes and ideas that oppose capitalism. In this sense, anti-capitalists are those who wish to replace capitalism with another type of economi ...
often assert that crony capitalism is the inevitable result of any strictly capitalist system. Jane Jacobs
Jane Jacobs (''née'' Butzner; 4 May 1916 – 25 April 2006) was an American-Canadian journalist, author, theorist, and activist who influenced urban studies, sociology, and economics. Her book '' The Death and Life of Great American Cities ...
described it as a natural consequence of collusion between those managing power
Power most often refers to:
* Power (physics), meaning "rate of doing work"
** Engine power, the power put out by an engine
** Electric power
* Power (social and political), the ability to influence people or events
** Abusive power
Power may a ...
and trade while Noam Chomsky
Avram Noam Chomsky (born December 7, 1928) is an American public intellectual: a linguist, philosopher, cognitive scientist, historian, social critic, and political activist. Sometimes called "the father of modern linguistics", Chomsky is ...
has argued that the word crony is superfluous when describing capitalism. Since businesses make money and money leads to political power, business will inevitably use their power to influence governments. Much of the impetus behind campaign finance reform in the United States and in other countries is an attempt to prevent economic power being used to take political power.
Ravi Batra
Raveendra Nath "Ravi" Batra (born June 27, 1943) is an Indian-American economist, author, and professor at Southern Methodist University. Batra is the author of six bestselling books, two of which appeared on The New York Times Best Seller list, ...
argues that "all official economic measures adopted since 1981 ... have devastated the middle class" and that the Occupy Wall Street
Occupy Wall Street (OWS) was a protest Social movement, movement against economic inequality and the Campaign finance, influence of money in politics that began in Zuccotti Park, located in New York City's Financial District, Manhattan, Wall S ...
movement should push for their repeal and thus end the influence of the super wealthy in the political process which he considers a manifestation of crony capitalism.
Socialist economists, such as Robin Hahnel
Robin Eric Hahnel (born March 25, 1946) is an American economist and professor emeritus of economics at American University. He was a professor at American University for many years and traveled extensively advising on economic matters all over t ...
, have criticized the term as an ideologically motivated attempt to cast what is in their view the fundamental problems of capitalism as avoidable irregularities. Socialist economists dismiss the term as an apologetic
Apologetics (from Greek , "speaking in defense") is the religious discipline of defending religious doctrines through systematic argumentation and discourse. Early Christian writers (c. 120–220) who defended their beliefs against critics and ...
for failures of neoliberal policy and more fundamentally their perception of the weaknesses of market allocation.
Capitalist critique
Supporters of capitalism also generally oppose crony capitalism. Further, supporters such as classical liberals
Classical liberalism is a political tradition and a branch of liberalism that advocates free market and laissez-faire economics; civil liberties under the rule of law with especial emphasis on individual autonomy, limited government, econo ...
, neoliberals
Neoliberalism (also neo-liberalism) is a term used to signify the late 20th century political reappearance of 19th-century ideas associated with free-market capitalism after it fell into decline following the Second World War. A prominent fa ...
and right-libertarians
Right-libertarianism,Rothbard, Murray (1 March 1971)"The Left and Right Within Libertarianism" ''WIN: Peace and Freedom Through Nonviolent Action''. 7 (4): 6–10. Retrieved 14 January 2020.Goodway, David (2006). '' Anarchist Seeds Beneath the ...
consider it an aberration brought on by governmental favors incompatible with free market
In economics, a free market is an economic system in which the prices of goods and services are determined by supply and demand expressed by sellers and buyers. Such markets, as modeled, operate without the intervention of government or any o ...
. Such proponents of capitalism tend to regard the term as an oxymoron, arguing that crony capitalism is not capitalism at all. In the capitalist view, cronyism is the result of an excess of interference in the market which inevitably will result in a toxic combination of corporations and government officials running sectors of the economy. For instance, the ''Financial Times'' observed that, in Vietnam during the 2010s, the primary beneficiaries of cronyism were Communist party officials, noting also the "common practice of employing only party members and their family members and associates to government jobs or to jobs in state-owned enterprises."
Conservative commentator Ben Shapiro
Benjamin Aaron Shapiro (born January 15, 1984) is an American attorney, businessman, columnist, conservative political commentator, and media personality. At age 17, he became the youngest nationally syndicated columnist in the United States. ...
prefers to equate this problem with terms such as corporatocracy
Corporatocracy (, from corporate and el, -κρατία, translit=-kratía, lit=domination by; short form corpocracy) is an economic, political and judicial system controlled by corporations or corporate interests.
The concept has been used ...
or corporatism
Corporatism is a collectivist political ideology which advocates the organization of society by corporate groups, such as agricultural, labour, military, business, scientific, or guild associations, on the basis of their common interests. The ...
, considered "a modern form of mercantilism
Mercantilism is an economic policy that is designed to maximize the exports and minimize the imports for an economy. It promotes imperialism, colonialism, tariffs and subsidies on traded goods to achieve that goal. The policy aims to reduce a ...
", to emphasize that the only way to run a profitable business in such a system is to have help from corrupt government officials. Likewise, Hernando de Soto
Hernando de Soto (; ; 1500 – 21 May, 1542) was a Spanish explorer and '' conquistador'' who was involved in expeditions in Nicaragua and the Yucatan Peninsula. He played an important role in Francisco Pizarro's conquest of the Inca Empire ...
said that mercantilism "is also known as 'crony' or 'noninclusive' capitalism".
Even if the initial regulation was well-intentioned (to curb actual abuses) and even if the initial lobbying by corporations was well-intentioned (to reduce illogical regulations), the mixture of business and government stifles competition, a collusive result called regulatory capture
In politics, regulatory capture (also agency capture and client politics) is a form of corruption of authority that occurs when a political entity, policymaker, or regulator is co-opted to serve the commercial, ideological, or political interests ...
. Burton W. Folsom Jr. distinguishes those that engage in crony capitalism—designated by him political entrepreneurs—from those who compete in the marketplace without special aid from government, whom he calls market entrepreneurs. The market entrepreneurs such as James J. Hill
James Jerome Hill (September 16, 1838 – May 29, 1916) was a Canadian-American railroad director. He was the chief executive officer of a family of lines headed by the Great Northern Railway, which served a substantial area of the Upper Midwes ...
, Cornelius Vanderbilt
Cornelius Vanderbilt (May 27, 1794 – January 4, 1877), nicknamed "the Commodore", was an American business magnate who built his wealth in railroads and shipping. After working with his father's business, Vanderbilt worked his way into lead ...
and John D. Rockefeller
John Davison Rockefeller Sr. (July 8, 1839 – May 23, 1937) was an American business magnate and philanthropist. He has been widely considered the wealthiest American of all time and the richest person in modern history. Rockefeller was ...
succeeded by producing a quality product at a competitive price. For example, the political entrepreneurs such as Edward Collins in steamships and the leaders of the Union Pacific Railroad
The Union Pacific Railroad , legally Union Pacific Railroad Company and often called simply Union Pacific, is a freight-hauling railroad that operates 8,300 locomotives over routes in 23 U.S. states west of Chicago and New Orleans. Union Paci ...
in railroads were men who used the power of government to succeed. They tried to gain subsidies or in some way use government to stop competitors.
See also
* Corporatocracy
Corporatocracy (, from corporate and el, -κρατία, translit=-kratía, lit=domination by; short form corpocracy) is an economic, political and judicial system controlled by corporations or corporate interests.
The concept has been used ...
* Cronies of Ferdinand Marcos Certain associates of former Philippine President Ferdinand Marcos, historically referred to using the catchphrase "Marcos cronies", benefited from their friendship with Marcos – whether in terms of legal assistance, political favors, or facilita ...
* Economic History of the Philippines under Ferdinand Marcos
An economy is an area of the production, distribution and trade, as well as consumption of goods and services. In general, it is defined as a social domain that emphasize the practices, discourses, and material expressions associated with the ...
* Government failure
Government failure, in the context of public economics, is an economic inefficiency caused by a government intervention, if the inefficiency would not exist in a true free market. The costs of the government intervention are greater than the bene ...
* Government-owned corporation
A state-owned enterprise (SOE) is a government entity which is established or nationalised by the ''national government'' or ''provincial government'' by an executive order or an act of legislation in order to earn profit for the governmen ...
* Inverted totalitarianism
The political philosopher Sheldon Wolin coined the term inverted totalitarianism in 2003 to describe what he saw as the emerging form of government of the United States. Wolin analysed the United States as increasingly turning into a managed dem ...
* Iron triangle (US politics)
In United States politics, the "iron triangle" comprises the policy-making relationship among the congressional committees, the bureaucracy, and interest groups, as described in 1981 by Gordon Adams. Earlier mentions of this ‘iron triangle’ ...
* Licence Raj
The Licence Raj or Permit Raj (''rāj'', meaning "rule" in Hindi) was the system of licences, regulations, and accompanying red tape, that hindered the set up and running of businesses in India between 1947 and 1990. Up to 80 government agenci ...
(concept in Indian political-economics)
* Mercantilism
Mercantilism is an economic policy that is designed to maximize the exports and minimize the imports for an economy. It promotes imperialism, colonialism, tariffs and subsidies on traded goods to achieve that goal. The policy aims to reduce a ...
* Patrimonialism
Patrimonialism is a form of governance in which all power flows directly from the ruler. There is no distinction between the public and private domains. These regimes are autocratic or oligarchic and exclude the lower, middle and upper classes f ...
* Political family
A political family (also referred to as political dynasty) is a family in which multiple members are involved in politics — particularly electoral politics. Members may be related by blood or marriage; often several generations or multiple sibli ...
* Political machine
In the politics of Representative democracy, representative democracies, a political machine is a party organization that recruits its members by the use of tangible incentives (such as money or political jobs) and that is characterized by a hig ...
* Regulatory capture
In politics, regulatory capture (also agency capture and client politics) is a form of corruption of authority that occurs when a political entity, policymaker, or regulator is co-opted to serve the commercial, ideological, or political interests ...
* Rent-seeking
Rent-seeking is the act of growing one's existing wealth without creating new wealth by manipulating the social or political environment.
Rent-seeking activities have negative effects on the rest of society. They result in reduced economic effi ...
* Stamocap
* State capture
State capture is a type of systemic political corruption in which private interests significantly influence a state's decision-making processes to their own advantage.
The term was first used by the World Bank, around the year 2000, to describe ...
* Supercapitalism
Supercapitalism was a concept introduced by Benito Mussolini in a speech given in November 1933 to the National Council of Corporations of the Kingdom of Italy.Falasca-Zamponi, Simonetta. ''Fascist Spectacle: The Aesthetics of Power in Mussolini ...
* Zhao family
Notes
References
*
Further reading
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
* Khatri, Naresh (2013). Anatomy of Indian Brand of Crony Capitalism. https://ssrn.com/abstract=2335201.
* http://mpra.ub.uni-muenchen.de/19626/1/WP0802.pdf
{{DEFAULTSORT:Crony Capitalism
Bribery
Capitalism
Political corruption
Political terminology
Public choice theory