Many moons ago I wrote a brief critique of “the crony capitalist claim” being promoted by the Acton Institute’s Samuel Gregg. My main point wasn’t that “crony capitalism” (defined either narrowly or broadly) doesn’t exist, but that the concept is often used by pro-capitalist apologists to conveniently dodge criticisms of capitalism per se. Gregg — and others — like to maintain that the problems with our present economic ordo stem from “cronyism” not “capitalism”; if only the government got out of the business of trying to regulate the market directly or indirectly, we’d all be better off. In fact, Gregg is back promoting this line of thought in Crisis this month. Here’s an excerpt:
[C]ronyism involves dislodging the workings of free exchange within a framework of property rights and rule of law—what is generally understood to be a free market. These arrangements are gradually replaced by “political markets.” The focus shifts away from individuals and companies prospering through freely creating, refining, and offering products and services to consumers at competitive prices. Instead, economic success becomes premised on people’s capacity to harness government power to rig the game in their favor. The market economy’s outward form is preserved (hence, the noun “capitalism” in “crony capitalism”), but its basic protocols and institutions are slowly subverted by businesses seeking to secure preferential treatment from regulators, legislators, and governments. This can take the form of bailouts, subsidies, monopolies, access to “no-bid” contracts, price controls, preferential tax treatment, tariff protection, and special access to government-provided credit at below-market interest rates, to name just a few.
Some businesses enter the market for cronyism to protect themselves against those competitors already trying to use government power to limit other people’s access to “their” markets. The temptation, however, to go from defense to offense is hard to resist. The potential profits associated with rent-seeking are considerable. Moreover, lobbying politicians for favors is often easier than trying to out-compete your rivals through constant innovation and reduction of cost margins.
This may all be quite true, but the problem is that Gregg fails to provide an account of how capitalism functions without “cronyism.” In other words, when has capitalism ever existed without government regulation, either through administrative mechanisms or private-law rules which, I should add, are never neutral. A tort system structured around negligence is going to produce different economic outcomes than one centered around strict liability, and then there are larger — and arguably more difficult — questions of justice that may (or may not) be taken into account as well which is going to impact the structure of the marketplace. Gregg speaks glowingly of the “rule of law,” but ignores how the content of that law, and the theories which guide it, have concrete economic effects. Even if a hypothetical state takes an ostensibly hands-off approach to the marketplace, what is to stop large businesses with the means and self-interested motivation to increase their market shares to use the legal system to their advantage to push out rivals or shape common-law doctrine through litigation which is favorable to their specific interests? If left unfettered by public law, sooner or later the capitalists will be the ones making the private law.
Failing to account for the particulars is nothing new to Gregg or the Acton Institute as a whole. What Acton and other neoliberal/libertarian think-tanks like to promote is a utopian idea of the marketplace where individuals and firms will produce positive social gains through self-interested (but never selfish!) behavior. Ah, but what happens when individuals and firms act selfishly? What is there to stop them? And here I am not talking about obvious breaches of criminal or private law; I mean simply the maximization of profit without regard for negative externalities. At what point ought the government to step in to curtail price fixing, predatory behavior, or monopolization — all of which can exist without any special aid from regulators or tilted legislation? I have to wonder whether Gregg’s pro-market vision has any place for antitrust rules or environmental protections. Or does Gregg (naively) believe that once the government is out of the business of overseeing business, everything will fall harmoniously into place, with the lion transacting peacefully with the lamb?
March 28, 2016
Hey, let’s see how far we can take this thing… “But that was crony communism”, “but that was crony feudalism,” “but that was crony slavery”… There is no social system that actually exists, just a series of counterfeits commandeered by cronies.
March 28, 2016
When do societies reach the scale where things are actually taken over by cronies (should such a point even exist), and what is the take-home of the cronyist vision?
March 29, 2016
Fukuyama has a view on this in his discussion of rent-seeking in “The Origins of Political Order” (2011).
March 28, 2016
I need a good introductory book on Economics. Suggestions?
Now, on to the annoying stuff. 😀
Should read, “[…] the content of that law has, and the theories which guide it have, concrete economic effects.”
Also, “I have to wonder if Gregg’s pro-market vision […]” should be “I have to wonder whether Gregg’s pro-market vision […]”, for your act of wondering is not contingent upon whether Gregg’s pro-market vision in fact does have a place for antitrust rules. (This is me being really picky: in practice, no one follows this distinction between the simple conditional of “whether” and the conditional-with-consequence of “if” –always part of an “if-then” statement, even though the “then” is so often implied– and it might be too much energy for some people to fight against the flattening of all subjunctive distinctions. Still, sloppy thinking starts with sloppy speaking.)
Burn this note after you read it. 😀
March 28, 2016
Thanks for the corrections. Want a job as my editor? It pays in IOUs.
There’s no “neutral” book on economics to be found out there. When I first started getting my hands dirty in the field nearly a decade ago, I started with Richard Posner’s seminal treatise, Economic Analysis of Law, which is essentially applied microeconomics to legal phenomena. The bad news is that the latest edition is rather pricey. The good news is that older editions are pretty cheap, and having gone through three editions, I can say that not much changes from edition to edition. The biggest changes I noticed were between the seventh and eighth editions (the ninth is now out) where Posner did some mea culpas at the start concerning the limits of law and economics.
For something more accessible, I’d say start with Israel Kirzner’s Market Theory and the Price System, which was recently reprinted by the Liberty Fund for a mere 12 bucks. Kirzner is a moderate Austrian, and the book does a very good job surveying microeconomic price theory without getting too weighted down in ideological disagreements.
Another book that does a good job surveying the economic terrain is Wilhelm Ropke’s Economics of the Free Society. Ropke was trained as an Austrian, but is better known as one of the intellectual architects of ordoliberalism.
March 28, 2016
May I recommend Heinrich Pesch? Either his complete Lehrbuch (Edwin Mellon Press) or the selections published by University Press of America.
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