...Is laissez-faire simply the first step on a kind of road to serfdom, where giant corporate syndicates achieve a parallel kind of economic planning every bit as pernicious as that feared by Hayek? Of course, the planning takes the form of cartelized industry, protection from competition, and restrictions on innovation, but it is planning nonetheless. Thus, it is at least possible that cronyism is intrinsic to and not separable from capitalism.
...In his book The Rise and Decline of Nations (1982), Mancur Olson claims that “pure” capitalism, if it even exists, will become politically “sclerotic” by the slow accretion of protection arrangements organized by narrow, specific groups. Worse, the political stability that parallels successful free-market economies provides fertile ground for the emergence of distributional coalitions and interest groups. These groups—including coalitions of business owners—use political influence and exchanges to obtain special privileges, in the process often creating economic inefficiencies and distortions....
If Olson’s theory of political sclerosis is correct, it brings into high relief the claim that Milton Friedman made about categories of “freedom” (2002, 7–8). Friedman argued that economic freedoms make growth possible, and at some point citizens come to value political freedoms as their consumption and other basic needs are increasingly met. But if political freedoms cannot be constrained, the result will be the corruption of capitalism into cronyism.
Of course, that means that we have simply independently arrived at the conclusion that Karl Marx advanced in the nineteenth century: capitalism creates conditions that inevitably lead to its own destruction. If prosperity enables democracy and the access to coercive powers of democracy allows businesses to concentrate their power and obtain state protection from competition, the result is cronyism.
...In a sense, this is simply the Hobbesian dilemma: each economic agent would be better if she could give up the ability to seek rents and competitive protection from the state, provided that everyone else gives up the same rights and abilities. So the gains to such an agreement, aggressively enforced, are clear. The question is whether such an agreement can be enforced in a democracy. To put it differently, in the terms used by Barry Weingast (1995), can the state make a credible commitment to quell cronyist impulses among capitalist agents and among the state’s own enforcement agents?
Ultimately, then, we are left with something analogous to Hayek’s famous thesis....that a reliance on central plans creates a tendency toward increased collectivization, a tendency that can be resisted but that should be worrisome to the analyst, who is obliged to point out where that road leads. We would argue that successful capitalism leads to an impulse on the part of economic powers and political agents to restrict and control the destructive power of entrepreneurship. This unholy partnership is “rational” in the sense that the participants benefit, in some cases creating wealth and privilege far beyond any other mechanism that is available to them.