To hear many center-right people tell it, crony capitalism is a plague that needs to end. We agree, and yet a large number of center-right people are demanding that Washington expand one of the most pernicious forms of crony capitalism: trade protectionism.
Business Dictionary describes crony capitalism as: “An economy that is nominally free-market, but allows for preferential regulation and other favorable government intervention based on personal relationships."
Thus specific companies, but also industry representatives, persuade elected officials to move laws or regulations that favor the “rent seekers”—an economic term that refers to people and companies seeking economic gain without providing any additional economic benefits—over their competitors.
Left out in that definition is the fact that the beneficiaries of crony capitalism often become, or already were, big donors to those helpful elected officials. Can you say “the Clinton Foundation”?
Conservatives and libertarians have rightly railed against President Obama’s massive crony capitalism. His administration has poured billions of taxpayer dollars into green energy projects, projects that would never have survived competing against fossil fuels—and even other clean energy companies—without Washington’s largess. And many didn’t survive even with it!
With protectionism, companies or industries go to elected officials or agency bureaucrats and complain that they can’t compete against another company or industry, either here or abroad, because the other isn’t playing fair. They then ask the legislators to impose legislation or regulations that will (1) make it easier for the complainer to compete or (2) make it harder for the competitor to compete.
When companies or industries go to the government seeking special concessions or privileges against their competitors, that’s crony capitalism.
And even though both major political parties are complaining about crony capitalism, their proposals for massive trade protectionism would be one of the largest expansions of crony capitalism we’ve ever seen.
Crony capitalism relies on the government to pick winners and losers, and it won’t end well. But the real losers will almost always be consumers.
July 19, 2016