Tackling the “rent-seeking,” “corporate welfare,” and other forms of cronyism that divert business’s attention away from the customer and toward government.
Cronyism is when government gives friendly or cooperative companies favorable rules or taxpayer subsidies that others don’t enjoy. When government provides these unfair advantages to politically connected businesses, it undermines the competition that is the heart of economic freedom.
Picking winners and losers in the economy, government disrupts free markets, creates a “corporate welfare” dole, and incentivizes politicians and businesspeople to engage in corruption and kickbacks.
“Cronyism” is a form of official corruption. The term is often used to describe an economy in which success in business depends on close relationships with government officials, through such things as favoritism in the distribution of legal permits, government grants, or special tax breaks.
Cronyism can also be a function of pervasive government regulation. Governments may begin by establishing agencies to regulate a particular industry, but in time industry forces gain control of this government “watchdog” and use it as a weapon against competitors.
This so-called “regulatory capture” has a long history, dating back to the early 1800s in the United States and the then-revolutionary technology of steamboats. The “spoils” system of rewarding political supporters with special governmental favors is equally ancient. Marbury v. Madison (1803), one of the most important Supreme Court cases in history, involved political patronage appointments.
However, the re-emergence of cronyism as a force in the economy is a relatively recent phenomenon, as huge amounts of governmental largesse, particularly in areas such as “green technology” funding and other multi-billion-dollar government payments, flooded markets as part of “stimulus” spending. Unfortunately, this form of “picking winners and losers” usually results in the government picking losers.
This was famously demonstrated in the case of Solyndra. A recipient of massive government subsidies, this solar energy manufacturer was being promoted by top administration officials, at the same time it was going bankrupt.
Forms of Cronyism in Brief:
- subsidies – government funds given to companies or industries in order to correct for what the government perceives to be a market failure, thus allowing the company or industry to yield a profit or increase profitability.
- bailouts – when government spends money to prop up failing business in an attempt to prevent the consequences of failure.
- government loans – offered on favorable terms, such as below-market interest rates or special in-kind payments that cannot be obtained from private lenders.
- corporate welfare – federal payments, such as subsidies, loans, or other benefits, made to specific companies or industries.
- tariffs – a tax on imports or exports, or a list of government-defined prices for commercial services, creating a market barrier that protects specific industries or businesses.
- special-interests – abuse of legislation in order to endorse and preserve business interests.
- revolving door – the unhealthy relationship between legislators or regulators and the industries they regulate, typically involves individuals moving from employment within regulatory agencies to employment within the businesses they once regulated, or vice versa.
- occupational licensing – an authorization from a governing body required to pursue a particular line of work.