Why Cronyism Is Antithetical to Capitalism and Free Enterprise

COMMENTARY Conservatism

Why Cronyism Is Antithetical to Capitalism and Free Enterprise

Oct 12th, 2021 3 min read
COMMENTARY BY
Daren Bakst

Senior Research Fellow in Regulatory Policy Studies

Bakst analyzes and writes about regulatory policy, trade, environmental policy and related issues.
U.S. President Joe Biden answers questions from reporters before boarding Air Force One at Capital Region International Airport in Lansing, Michigan, on October 5, 2021. NICHOLAS KAMM / AFP / Getty Images

Key Takeaways

Cronyism is the antithesis of capitalism and free enterprise.

Solving the problem of cronyism won’t be easy. Special interests will resist any attacks on their goodies.

Policymakers need to reduce government intervention, not just because of economic reasons, but because more government intervention invites more cronyism. 

It makes no sense to say “crony capitalism.”

Yet, it has become common jargon, often used when policymakers load up legislation such as the Democrats’ $3.5 trillion tax-and-spend bill with crony policies.

Capitalism and our free enterprise system are concerned with individuals and businesses having the opportunity to compete on their own merits to achieve economic success and realize their own personal American dreams.

By contrast, cronyism places favoritism ahead of merit, giving special treatment to some individuals and businesses over others to give them an advantage over their competitors.

Simply put, cronyism is the antithesis of capitalism and free enterprise.

Cronyism takes many forms, but ultimately the effect is the government picking winners and losers, such as through subsidies to prop up a government-favored industry (e.g., for electric vehicles) or regulations that create barriers to entry for new competitors in an industry (such as state occupational licensing laws).

Those actions are taken at the expense of competition and innovation. Even worse, by their very nature, they don’t account for the overall public interest.  Instead, they benefit a small, favored interest at the expense of everyone else, from taxpayers and consumers to other businesses.

So, why should we care?

A free enterprise system, which is based on the principles of equal opportunity and economic freedom, is undermined when government officials and their favored interests are constantly taking political actions that reject those principles.

But regardless of whether one believes in free enterprise or not, a political system that is gamed for the well-connected should be viewed with contempt.

Cronyism creates a political system that is skewed against those without the “right” political contacts or who aren’t part of the “right” special-interest group.  There should be common ground across the ideological spectrum that such a system is intolerable.

Of course, solving the problem of cronyism won’t be easy. Special interests will resist any attacks on their goodies. And the politicians and bureaucrats who enjoy the influence and power of channeling favors for cronies will be just as resistant.

Cronyism is usually easy to spot, but that doesn’t mean that those advocating crony policies won’t try to articulate some excuse for why favoring a special interest in a certain instance is actually good for everyone. 

Those excuses are usually easily dismissed from a policy perspective, but that doesn’t mean they are easily defeated in practice.

For example, there’s the issue of concentrated benefits and dispersed costs. That simply means the benefits of cronyism, such as a hypothetical subsidy program of $20 billion a year, from the perspective of the favored special interest are critical.

That price tag, when apportioned across all taxpayers, will appear to be small. Therefore, the special interest will fight hard for its $20 billion in corporate welfare, whereas everyone else won’t have an incentive to object because of the low cost per person. 

So, fighting cronyism on an ad hoc basis becomes an especially difficult battle. Therefore, the best approach to combat cronyism will likely need to be major across-the-board process changes.

For example, Congress needs to create more checks within the political system so that there are counters to help push back against the cronyism. That would include ensuring that federal agencies are not given too much power and discretion in the first place, combined with proper congressional oversight.

Further, Congress itself should create checks and balances throughout the legislative process, such as by requiring certain legislative proposals to be run by more than one committee.

Policymakers should be improving transparency and ensuring the use of sound science in rule-making and in the legislative process. Better transparency will help to promote more thoughtful debate and analysis. Requiring the use of sound science will help reject policies that are grounded in the junk science that policymakers and special interests often use to justify their crony policies.

Then there’s the bigger picture of government intervention in general. Policymakers need to reduce government intervention, not just because of economic reasons, but because more government intervention invites more cronyism. 

The willingness of policymakers to use the power and force of government in ever-expanding ways beckons special interests to come to the policymakers and take advantage of the intervention.

The fight against cronyism and corporate welfare is a critical and worthy fight.

Conservatives and others who believe in free enterprise should be leading this fight and making it central to their economic vision. And, as has been explained, this isn’t just an economic issue, but a central issue in preserving the integrity of our political system and representative form of government.

At a minimum, let’s stop the misleading practice of lumping cronyism in with capitalism.

This piece originally appeared in The Daily Signal