IS CRONY CAPITALISM = BOTSWANA? CRONY CAPITALISM Crony capitalism is a term describing an economy in which success in business depends on close relationships between business people and government officials. It may be exhibited by favoritism in the distribution of legal permits, government grants, special tax breaks, or other forms of state interventionism. Crony capitalism is believed to arise when business cronyism and related self-serving behavior by businesses or business people spills over into politics and government, or when self-serving friendships and family ties between businessmen and the government influence the economy and society to the extent that it corrupts public-serving economic and political ideals. The term crony capitalism made a significant impact in the public arena as an explanation of the Asian financial crisis. It is also used world wide to describe virtually any governmental decisions favoring cronies of governmental officials. In many cases, the term is used interchangeably with corporate welfare; to the extent that there is a difference, the latter might be restricted only to direct government subsidies of major corporations, excluding tax loopholes and all manner of regulatory and trade decisions, which in practice could be much larger than any direct subsidies. More direct government involvement can lead to specific areas of crony capitalism, even if the economy as a whole may be healthy. Governments will, often in good faith, establish government agencies to regulate an industry. However, the members of an industry have a very strong interest in the actions of a regulatory body, while the rest of the citizenry are only lightly affected. As a result, it is not uncommon for current industry players to gain control of the watchdog and use it against competitors. This phenomenon, known as regulatory capture, has a long history. A 1824 landmark U.S. Supreme Court ruling overturned a New York State-granted monopoly (a veritable model of state munificence facilitated by one of the Founding Fathers, Robert R. Livingston) for the then-revolutionary technology of steamboats.Leveraging the Supreme Courts establishment of Congressional supremacy over commerce, the Interstate Commerce Commission was established in 1887 with the intent of regulating railroad robber barons. President Grover Cleveland appointed Thomas M. Cooley, a railroad ally, as its first chairman and a permit system was used to deny access to new entrants and legalize price fixing. The military-industrial complex in the United States is often described as an example of crony capitalism in an industry. Connections with the Pentagon and lobbyists in Washington are described by critics as more important than actual competition, due to the political and secretive nature of defense contracts. In the Airbus-Boeing WTO dispute, Airbus (which receives outright subsidies from European governments) has stated Boeing receives similar subsidies, which are hidden as inefficient defense contracts. Several companies received expedited no-bid contracts for Hurricane Katrina and Iraq war reconstruction purportedly due to having cronies in the Bush administration. Gerald P. ODriscoll, former vice president at the Federal Reserve Bank of Dallas, stated that Fannie Mae and Freddie Mac became examples of crony capitalism. Government backing let Fannie and Freddie dominate mortgage underwriting. The politicians created the mortgage giants, which then returned some of the profits to the pols - sometimes directly, as campaign funds; sometimes as contributions to favored constituents.
Posted on: Sat, 22 Mar 2014 10:22:21 +0000
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