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"Crony Capitalism" Isn’t Capitalism And Has Nothing To Do With Free Markets
Posted by: McQ on Saturday, November 15, 2008

When you hear either party denouncing "crony captialism" as an evil and something that government must not engage in, take it with a grain of salt. You remember this from Nancy Pelosi, parroting Barack Obama, I'm sure:
She denounced AIG as “a ripoff situation” and unleashed a scathing attack on Wall Street financiers.

“All these sophisticated financial instruments that these ‘geniuses’ on Wall Street have come up with brought instability to our economy,” she said with disdain.

She denounced what she called “crony capitalism” — a phrase also used by Democratic presidential candidate Sen. Barack Obama in his statement on the AIG rescue.
But when it comes to the auto industry, now there's a crony worth saving according to both Pelosi and Obama. It appears that there is "crony capitalism" and then there is "too big to fail (and unionized too)" crony capitalism.

David Brooks seems to have finally awakened to that fact although he only has a grasp on half the equation as usual:
It is all a reminder that the biggest threat to a healthy economy is not the socialists of campaign lore. It’s C.E.O.’s. It’s politically powerful crony capitalists who use their influence to create a stagnant corporate welfare state.
Brooks may want to refresh his memory about the meaning of "crony". It takes more than a CEO to establish "crony capitalism". As you might imagine, it takes a crony to complete the deal.

That crony, in the cases cited, is government. I've talked about special interest democracy in the past. Well "crony capitalism" is simply a variation on that theme and both sides of the isle, to our free market detriment, play the crony capitialist game.

Recent crony capitalists of note are Sen. Chris Dodd and Rep. Barney Frank. Their relationship with Freddie Mac and Fannie Mae reek of crony capitalism. And it shouldn't surprise anyone that the military procurement system is rife with such relationships as well.

The bailout, obviously, will only expand and intensify such relationships.

Brooks seems to have caught on, at least as it concerns some of those being bailed out or being proposed for a bailout, that doing so is a moral hazard and, in the end, most likely won't accomplish anything positive. In fact, he realizes, as I said the other day, that in reality, it just postpones the inevitable:
In short, a bailout will not solve anything — just postpone things. If this goes through, Big Three executives will make decisions knowing that whatever happens, Uncle Sam will bail them out — just like Fannie Mae and Freddie Mac. In the meantime, capital that could have gone to successful companies and programs will be directed toward companies with a history of using it badly.
While Brooks seems to understand the moral hazard of the particular bailouts he condemns, notice he then claims that the capital aimed at the losers he cites, "could have gone to successful companies and programs"? Say what?

Why in the world would, other than crony capitalism, would government be throwing money at "successful companies?"

Brooks then discusses the second problem this sort of a bailout brings. Increased government intrusion to a level not seen before in recent history:
The second part of Obama’s plan is the creation of an auto czar with vague duties. Other smart people have called for such a czar to reorganize the companies and force the companies to fully embrace green technology and other good things.

That would be great, but if Obama was such a fervent believer in the Chinese model of all-powerful technocrats, he should have mentioned it during the campaign. Are we really to believe there exists a czar omniscient, omnipotent and beneficent enough to know how to fix the Big Three? Who is this deity? Are we to believe that political influence will miraculously disappear, that the czar would have absolute power over unions, management, Congress and the White House? Please.
The "Chinese model" is a nice way of saying socialistic central planning. Decisions, instead of being driven by the market, will be made by technocrats who have the job of pushing the industry toward a desired social goal, not a market goal.

No chance of failure there. And of course, such an arrangement is driven by the fact that government has taken our money (or borrowed against it), called it their own, given it to an industry and then demanded ownership rights.

However, unlike any capitalist owner, there is no profit motive driven by market demand to be found in this new owner. Instead government has a social engineering agenda based on some political goals it wants to fulfill. I don't think it takes an economic genius to figure out the probable end-state of that scenario.

Two things, however, are as certain as the sunrise. Both George W Bush and the "free market" will be blamed for the forthcoming market turmoil and economic problems. And the answer advanced, with a compliant media at their beck and call, will be more Democratic control and more economic intrusion in order to "fix" both problems.

All this to point out a few things - crony capitalism is alive and well in both parties, we're about to enter an unprecedented era of deep government intrusion in our economy and things aren't going to turn out well.
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Previous Comments to this Post 

This is more criminal than crony.

It’s not just a matter of cutting friends deals - or even of allowing a lobbyist group undue influence (you know, something about those unions helping Democratic campaigns...)

No, it’s that the labor unions of Detroit are known to be corrupt - a la Tony Soprano. Everyone in Michigan knows it. A supervisor in an auto plant can’t even reprimand you without a union representative present.

What the leftist illuminati are proposing isn’t just a huge, wasteful bailout; it’s not just a thank-you fruit basket of billions of dollars to friends who helped win a campaign; it’s a payoff to the mob. The federal government, subsidizing organized crime.
Written By: Palinpal
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I like it! Let’s all start calling ’crony capitalism’ what it actually is: another term for "government-protected greed," or otherwise, "semi-socialism."
Written By: a Duoist
Well, look, it doesn’t take much in the way of thought process to see what the cause of this is; Unions. Let me be clear, here:

Pelosi, along with many of the Congressional Democrats, is in the pocket of the UAW, being bought and paid for. As we have been saying for weeks now, this is not a bailout of the Big three... Democrats after all usually don’t care about American industry. Why should it be different now? Simple; If the Big Three fail, the UAW... a huge source of votes and money for Democrats, fails with it.

Pelosi will tell you, of course, that the difference in treatment is because she’s trying to help the average workers, and not Wall Street millionaires. Of course, she ignores that the working people she’s supposedly helping are going to be hit harder by a Wall Street failure than those millionaires are. Clearly, Pelosi and the Democrats figure UAW votes and money are by far more important than is your 401k and mine.
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Written By: lublutebyayanka
McQ - ... such an arrangement is driven by the fact that government has taken our money (or borrowed against it), called it their own, given it to an industry and then demanded ownership rights.

No, no, no! See, since the government is US, then WE will own the means of production. How can an arrangement by which the people own everything possibly be bad?

/ sarc

I see a viscious cycle ahead: crisis begets government intervention, which begets more crises which require even more intervention. By the time it’s all over, there will be a "czar" (apt that we’re using Russian terminology, don’t you think?) for EVERYTHING. Anybody remember the Congress holding all those hearings on steroids in baseball? How about a Baseball Czar? The sky’s the limit when you’ve got a bunch of pseudo-socialists in charge of everything.

As for companies (and unions) being too big to fail... I’m reminded of Ayn Rand’s novel "Anthem", and especially the protagonist’s (re)discovery of electric lighting. He was told in no uncertain terms that using such a discovery was absolutely out of the question as it would put the candle makers out of business; didn’t he remember the trouble when candles finally replaced torches??? Men had a right to continue in the work they knew; it’s not fair to ask them to do something else.

If the (social) goal is merely to keep people in jobs, then there is ABSOLUTELY no impetus for technological innovation. And do we really want the Congress to have ultimate charge of what kind of cars are built in our country? What will this mean for foreign companies building cars here? As American companies become even less competitive, won’t Congress have to mandate some sort of tariff system to keep Honda and Toyota and Hyundai and Kia and VW from totally dominating the market?

The question is whether the American people will put up with this. There are quite a few people who didn’t like the last bailout and are going to be even less inclined to support others. Will enough people refuse to drink the "it’s Bush’s fault" koolaid and throw the dems out of power in the next mid-terms? And even if they do, then what? How do we get our money back?
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