Crony capitalism

From Academic Kids


"Crony capitalism" or capitalist cronyism is a pejorative term that asserts that a particular capitalist economy may depend on an extremely close relationship between private business and the state institutions of politics and government, rather than by the espoused "equitable" concepts such as the free market, open competition, and economic liberty. The term "cronyism" refers to the relationships between these entities as forming a kind artistocratic social heirarchy — influenced by self-serving friendships and family ties, to the extent that it corrupts public-serving economic and political ideals.

"Crony capitalism" has been used to describe the economic systems of Japan, Indonesia and the United States. Like fascism, "crony capitalism" often describes an incestuously close relationship between government and business, in a secretive or less obvious manner. Instead of the government directly controlling businesses and giving it orders (as is the case with fascism), the government gives legislative favors to certain businesses or types of businesses - ease of permits, government grants, specially created tax benefits, etc.

Many capitalists argue that such favours are not "true capitalism", but socialists generally argue that such actions are. Furthermore, many opponents of capitalism argue that the emergence of crony capitalism is the inevitable result of any capitalist system. Jane Jacobs, for instance, calls it a natural consequence of collusion between those managing power and trade. Capitalists counter that that which is described as "crony capitalism" is more often the result of an excess of socialist interference in the market that requires active corporate lobbying to minimize excessive infringements on the costs of doing business. This assertion is supported by the relatively higher levels of interaction between corporations and those that are considered more socialist governments (for those who consider nationalization a form of very high level interaction).

Crony capitalism is partially explainable by using the principles which govern any network. As government and business leaders try to accomplish things they naturally turn to other hubs (powerful people) for support in their endeavors. In a developing country those hubs may be very few, thus concentrating economic and political power in a small interlocking group. In a fully developed country, wealth may have become concentrated in a small group, with the same result: reduction of the number of hubs or influential persons and institutions.

Critics question the meaningfulness of the concept by pointing out that personal factors influence business decisions in all economic systems and that the existence of these factors, per se, is insufficient as an explanation for why certain economic systems work better than others. Other critics point to the newness of the term, by noting its absence from many dictionaries.

According to opponents, in Poland, China, and successor states to the former Soviet Union (such as Russia), government connections are almost indispensable to business success. Some theorize that the same is true for certain industries with a connection or dependence on the "military-industrial complex" in the United States.

Burton W. Folsom, Jr. in his book, The Myth of the Robber Barons, coined the term "political entrepreneur" to distinguish those that engage in crony capitalism, from those who compete in the marketplace without special aid from government, whom he calls "market entrepreneurs".

The sponsorship scandal that has been affecting recent Canadian politics is an example of the same principle.

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