I am not sure that many politicians are good on this score, but Hillary Clinton and Donald Trump are likely as bad as it gets on crony capitalism. Forget their policy positions, which are steeped in government interventionism in the economy, but just look at their personal careers. Each have a long history of taking advantage of political power to enrich themselves and their business associates. I am not sure what Cruz meant when he said "New York values", but both Trump and Clinton are steeped in the New York political economy, where one builds a fortune through political connections rather than entrepreneurial vigor. Want to build a new parking lot next to your casino or start up a new energy firm -- you don't bother with private investors or arms length transactions, you go to the government.
With that in mind, I particularly liked Don Buudreaux's quote of the day:
First, we labor under a ubiquitous threat of being shackled by crony capitalists. [Adam] Smith wondered how internally stable a free market could be in the face of a tendency for its political infrastructure to decay into crony capitalism. (The phrase “crony capitalism” is not Smith’s. I use it to refer to various of Smith’s targets: mercantilists who lobby for tariffs and other trade barriers, monopolists who pay kings for a license to be free from competition altogether, and so on.) Partnerships between big business and big government lead to big subsidies, monopolistic licensing practices, and tariffs. These ways of compromising freedom have been and always will be touted as protecting the middle class, but their true purpose is (and almost always will be) to transfer wealth and power from ordinary citizens to well-connected elites
General Electric (GE) has complained for years about Connecticut's (its current corporate home) taxation and regulatory policies. Recently, it said it was moving for greener pastures, and was leaving for... Massachusetts?
Seriously? This is like moving from North Korea to China to get more freedom of speech. Boston's top state income tax bracket is perhaps a point lower than CT's but Florida or Texas have rates of zero, and a much lower cost of living and real estate.
Granted that Boston has its attractions for a company trying to change its public perception to being a technology company. But I can't shake the suspicion this has something to do with a relocation giveaway to GE from the city and state. GE has become one of the biggest supporters and beneficiaries of crony capitalism in the country. I have to believe they cut some sweetheart deal that will eventually funnel a bunch of Massachusetts taxpayer money into GE coffers. After all, if cities will throw away a half billion dollars in taxpayer money to attract an NFL team that does business for just 24 hours a year in the city (8 games x 3 hours per game), how much will politicians pay of their citizens' money to be able to list "attracting GE" as a lead bullet in their re-election talking points?
You gotta love crony capitalism. Bowing to the demands of taxi companies, Uber is banned in Las Vegas. As a result, this is me and many others standing in a taxi line waiting for a non-existent taxi.
My son** tells me that it was way worse when the club shows ended at 4AM. Never since I was in pre-Uber Paris have I had so much trouble finding a damn cab. Fortunately the weather was under 100F so walking was a fairly nice option.
Tesla Motors and Elon Musk, the folks who seem to perennially have their hands out for special government favors and taxpayer money, may have actually struck a small blow against the corporate state:
Tesla Motors Inc. says it’s won another round in its fight with established car dealers who want to stop the company from selling its electric luxury cars directly to consumers.
Tesla CEO Elon Musk says, via Twitter, that a New York judge has tossed out a suit brought by New York auto dealers who challenged Tesla’s direct sales model as a violation of the state’s franchise laws.
Mr. Musk spent Wednesday in Texas making the case for a legislative proposal to change the law to allow direct sales of electric vehicles by U.S.-based manufacturers. Texas car dealers have opposed the measure, saying it would open the door for other car makers to sell electric cars direct to customers – which could undermine the value of their franchises.
Government protections of middle men in the auto business (states generally do the same in the liquor business) are a classic example of crony capitalism. Car dealers tend to have a lot of sway with politicians, not to mention with local media for who they are generally the largest advertisers, so they are able to engineer special privileges for themselves. Congrats to Tesla for taking this on.
I decided today to volunteer for Gary Johnson's independent libertarian run for President. I have always been a Johnson supporter, and was disappointed that he did not get more attention in the debates and nomination process.
Yes, I know folks will be saying that if Gary Johnson does well, it will just be guaranteeing an Obama victory. You know what? Given the choices, I don't care. My other choices seem to be the guy who pilot-tested Obamacare and Rick Santorum, perhaps the only person the Republicans could have found with a deeper authoritarian streak than Obama. You know those 2x2 matrices where one leg is "government intervention in social issues" and the other is "government intervention in economic issues?" Where libertarians are low-low and Republicans and Democrats are each in one of the low-high boxes? Did you ever wonder who was in the high-high box? Well, Obama has moved pretty strongly into that space. But Santorum staked it out years ago. He is right out of the John McCain, I-am-nominally-for-small-governemnt-but-support-authoritarian-solutions-for-a-range-of-random-issues school.
In fact, I might argue that freedom and small government would be better served by an Obama second term that the yahoos likely to gain the Republic nomination. First, there is nothing worse than having statism and crony capitalism sold by someone who is nominally pro-market (see either of the Bushes as an example). Second, Republicans are much feistier about limiting spending and regulation in Congress when in opposition. They tend to roll over for expansions of state power when they have a fellow Republican in the White House -- just compare spending of the Republican Congress under Clinton vs. Bush. Medicare Part D, anyone?
As I heard Ayn Rand say in a public speech in 1981, there is only so far I can go choosing the lesser of two evils. I am now all in for Gary Johnson.
Food activists on the Left often point to the use of High Fructose Corn Syrup (HFCS) as one of those failures of capitalism, where rapacious capitalists make money serving an inferior product. But HFCS resulted from a scramble by food and beverage companies to find some reasonable alternative to sugar as the government has driven up sugar prices through a crazy tariff system that benefits just a tiny handful of Americans, and costs everyone else money
For the last 10 years or so, HFCS-42 has actually traded at a price higher than the world market price for sugur, but lower than the US price for sugar. There is a lot complexity to prices, but this seems to imply that HFCS would not be nearly as attractive a substitute for sugar if US sugar tariffs did not exist (not to mention subsidies of corn which support HFCS). This can also be seen in the fact that HFCS has not been used nearly so often as a sugar substitute in markets outside of the US, even by the same manufacturers (like Coke) that pioneered its use in the US.
President Obama used a lot of his state of the union address again teeing up what sounded to me like a new round of protectionism. Protectionism is the worst form of crony capitalism, generally benefiting a handful of producers and their employee to the detriment of 300 million US consumers and any number of companies that use the protected product as an input.
That is the purposely inflammatory title of my article this week at Forbes.com, finding the roots of crony capitalism not in capitalism itself, but in progressive legislation. An excerpt:
The core of capitalism has nothing to do with, and is in fact inherently corrupted by, the exercise of state power. At its heart, capitalism is one simple proposition -- free exchange between individuals based on mutual self-interest. There is no room in this definition for subsidies or special government preferences or bailouts. The meat and potatoes activities of crony capitalism are corruptions rather than features of free markets. Where state power to intervene in economic activity does not exist, neither does cronyism.
Believe it or not, the Occupy movement reminds me of nothing so much as 1832. Flash back to that year, and you will find Federal officials with almost no power to help or hinder commerce... with one exception: the Second Bank of the United States, a powerful quasi-public institution that used its monopoly on government deposits as a source of funds for private lending. The bank was accused of using its immense reserves of government cash to influence elections, enrich the favored, and lend based on political rather than economic formulae (any of this sound familiar?). Andrew Jackson and his supporters, the raucous occupiers of their day, came into office campaigning against the fraud and cronyism at the Bank.
Jackson, much like the current OWS folks, was a strange blend of sometimes frontier anarchist and sometimes tyrannical authoritarian. But in the case of the Second Bank, the OWS movement could well learn from Jackson. He didn't propose new and greater powers for government officials to help check abuses of the existing powers -- he proposed to kill the Bank entirely. Eliminate the source of power, and men can no longer tap it for their own enrichment.
Unfortunately, the progressive Left which makes up most of the OWS movement has taken exactly the opposite approach over the last century or so, expanding government powers and economic institutions (such that today the scope of the second bank seems quaintly limited) and thus the opportunity for cronyism. In fact, most of the interventions that make crony capitalism possible are facilitated and enabled by the very progressive legislation that the progressive Left and the OWS protesters tend to favor. Consider some examples...