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Thread: The Road to Crony Capitalism

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    The Road to Crony Capitalism

    Randall G. Holcombe (2013): "Crony capitalism is a by-product of big government because the more government is involved in an economy, the more the profitability of business depends on government policy. Even entrepreneurs who prefer to avoid cronyism are pushed into it because they must become politically active to maintain their profitability."

    In short, there's not only a profit in economic exchange but also a profit in political rent-seeking.

    The Road to Crony Capitalism

    ...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.
    Tradition is not the worship of ashes, but the preservation of fire. ― Gustav Mahler

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    Marx was right! Capitalism creates conditions that inevitably lead to its own destruction. Period.

    Now we have devolved into a kakistoctacy. with Trump presiding as the head;



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    Quote Originally Posted by Dr. Strangelove View Post
    Marx was right! Capitalism creates conditions that inevitably lead to its own destruction. Period.

    Now we have devolved into a kakistoctacy. with Trump presiding as the head;



    There's a Grand Canyon gap between Marx's prediction and your kakistoctacy and even more so the gratuitous mention of progressives.
    Tradition is not the worship of ashes, but the preservation of fire. ― Gustav Mahler

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    Quote Originally Posted by Chris View Post
    There's a Grand Canyon gap between Marx's prediction and your kakistoctacy and even more so the gratuitous mention of progressives.
    You are flying blind over the Grand Canyon without a parachute and no net.
    We all know you would never give progressives any credit for anything.




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    I credit progressives ever since TR with pushing the government to intervene in the economy top-down to the benefit of a few.
    Tradition is not the worship of ashes, but the preservation of fire. ― Gustav Mahler

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    Teddy, the Trust Buster? You are wrong!

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    Quote Originally Posted by Dr. Strangelove View Post
    Teddy, the Trust Buster? You are wrong!
    Hate to bust your myth but Roosevelt and the Trusts:

    Theodore Roosevelt promoted a public relations image of being a trust buster. He faced political pressure to act against the trusts. In fact, TR was not a trust buster. Roosevelt held a consistent position: there was a power larger than the power of even the biggest, wealthiest business organization. That superior power was the power of the people, and of the public interest, as represented in the presidency in particular and the executive branch of the federal government in general.
    Roosevelt believed there was a "public interest" that skilled leaders, such as himself, with the aid of expert advice, could ascertain and apply to the affairs of business. In applying the "public interest" to "the trusts," TR was surprisingly consistent for a politician.

    Roosevelt believed that when a business grew big it was not necessarily bad. Bigness might mean simply that a firm had bested its rivals through superior efficiencies, prices, and service. Having superior efficiencies, prices, and service might well require bigness, as in the case of a railroad providing service through an extensive system across a wide territory.

    The point for Roosevelt was that the government should enforce a "rule of reason" on business. If a firm grew through reasonable means, then the government should not attack it. However, if a firm grew through unfair practices, then government should enforce its power in order to protect the innocent. The Democrats accused Roosevelt of sparing the trusts to win campaign funds from big business. These attitudes came to play during Roosevelt's administration, first in establishing the Bureau of Corporations and then in the Northern Securities case.
    Your trust buster was the beginning of progressive crony capitalism.

    And now we're back to the topic.
    Tradition is not the worship of ashes, but the preservation of fire. ― Gustav Mahler

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