Crony capitalism is a pejorative term describing an allegedly capitalist economy in which success in business depends on an extremely close relationship between the businessman and the state institutions of politics and government, rather than by the espoused "equitable" concepts of the free market, open competition, and economic liberalism. It may be exhibited by favoritism in the distribution of legal permits, government grants, special tax breaks, and so forth. A word or phrase is pejorative if it implies contempt or disapproval. ... In economics, a capitalist is someone who owns capital, presumably within the economic system of capitalism. ... Wall Street, Manhattan is the location of the New York Stock Exchange and is often used as a symbol for the world of business. ... Politics is the process by which groups make decisions. ... A free market is an idealized market, where all economic decisions and actions by individuals regarding transfer of money, goods, and services are voluntary, and are therefore devoid of coercion and theft (some definitions of coercion are inclusive of theft). Colloquially and loosely, a free market economy is an economy... Competition is the act of striving against another force for the purpose of achieving dominance or attaining a reward or goal, or out of a biological imperative such as survival. ... The liberal theory of economics is the theory of economics described by classical liberal authors such as Adam Smith or the French Physiocrats. ... A tax exemption is an exemption to the tax law of a state or nation in which part of the taxes that would normally be collected from an individual or an organization are instead forgone. ...

Crony capitalism arises when political cronyism spills over into the world of business, and the relationships between powerful businessmen and powerful politicians form a kind of aristocratic social hierarchy, influenced by self-serving friendships and family ties, to the extent that it corrupts public-serving economic and political ideals. Cronyism is partiality to long-standing friends, especially by appointing them to public office without regard for their qualifications. ... -1... For the various types of hierarchy, see hierarchy (disambiguation) A hierarchy (in Greek: , it is derived from -hieros, sacred, and -arkho, rule) is a system of ranking and organizing things or people, where each element of the system (except for the top element) is subordinate to a single other element. ... This article or section is in need of attention from an expert on the subject. ... A family of Ouagadougou, Burkina Faso in 1997 A family consists of a domestic group of people (or a number of domestic groups), typically affiliated by birth or marriage, or by analogous or comparable relationships — including domestic partnership, cohabitation, adoption, surname and (in some cases) ownership (as occurred in the... In economics, a public good is a good that is hard or even impossible to produce for private profit, because the market fails to account for its large beneficial externalities. ...

Crony capitalism in practice

Transparency International's overview of the index of perception of corruption, 2005

In its lightest form, crony capitalism consists of collusion among market players. While perhaps lightly competing against each other, they will present a unified front to the government in requesting subsidies or aid (sometimed called a trade association or industry trade group). Newcomers to a market may find it difficult to find loans or acquire shelf space to sell their product; in technological fields, they may be accused of infringing on patents that the established competitors never invoke against each other. Distribution networks will refuse to aid the entrant. That said, there will still be competitors who "crack" the system when the legal barriers are light, especially where the old guard has become inefficient and is failing to meet the needs of the market. Of course, some of these upstarts may then join with the established networks to help deter any other new competitors. The keiretsu of post-war Japan may be an example of such an arrangement, as would the powerful families who control much of the investment in Latin America. Image File history File links Download high resolution version (1357x628, 23 KB) Beschreibung Beschreibung: Übersicht des Korruptionswahrnehmungsindexes, nach Ländern (Stand: 2005) Description: Overview of the index of perception of corruption (last update: 2005) Description: Carte du monde de lindice de perception de la corruption (année 2005) Quelle... Image File history File links Download high resolution version (1357x628, 23 KB) Beschreibung Beschreibung: Übersicht des Korruptionswahrnehmungsindexes, nach Ländern (Stand: 2005) Description: Overview of the index of perception of corruption (last update: 2005) Description: Carte du monde de lindice de perception de la corruption (année 2005) Quelle... Transparency International (TI) is an international organisation addressing corruption, including, but not limited to, political corruption. ... In the study of economics, collusion takes place within an industry when rival companies cooperate for their mutual benefit. ... An industry trade group is generally a public relations organization founded and funded by corporations that operate in a specific industry. ... A patent is a set of exclusive rights granted by a state to a person for a fixed period of time in exchange for the regulated, public disclosure of certain details of a device, method, process or composition of matter (substance) (known as an invention) which is new, inventive, and... A keiretsu lit. ... Latin America consists of the countries of South America and some of North America (including Central America and some the islands of the Caribbean) whose inhabitants mostly speak Romance languages, although Native American languages are also spoken. ...

Crony capitalism is generally associated with more virulent government intervention, however. Intentionally ambiguous laws and regulations are common in such systems. Taken strictly, such laws would greatly impede practically all business; in practice, they are only erratically enforced. The specter of having such laws suddenly brought down upon a business provides incentive to stay in the good graces of political officials. Troublesome rivals who have overstepped their bounds can have the laws suddenly enforced against them, leading to fines or even jail time.

States often said to exhibit crony capitalism are the People's Republic of China, Indonesia, Mexico, Brazil, Russia^[1], and most other ex-Soviet states. Critics claim that government connections are almost indispensable to business success in these countries. Wu Jinglian, one of China's leading economists^[2] and a longtime champion of its transition to free markets, says that it faces two starkly contrasting futures: a market economy under the rule of law or crony capitalism.^[3] Soviet redirects here. ... Wu Jinglian (吴敬琏; born January 24, 1930) is one of the preeminent economists of the Peoples Republic of China (PRC), primarily specializing in economic policy as it applies to Chinas ongoing series of economic reforms. ...

Cronyism in sections of an economy

More direct government involvement can lead to specific areas of crony capitalism. 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 phenomenom is known as regulatory capture. A famous early example in the United States would be the Interstate Commerce Commission, which was established in 1887 to regulate the railroad "robber barons;" instead, it quickly became controlled by the railroads, who set up a permit system that was used to deny access to new entrants and functionally legalized price fixing. A more modern example would be the case of Creekstone Farms. After the mad cow scare, Creekstone decided to test all its cows for mad cow disease. This would enable them to sell again to Japan, which had blocked import of all American beef that had not been completely tested. After the proper facilities had been built and the personnel hired to make such a change, the U.S. Department of Agriculture issued an injunction and refused to allow Creekstone to buy the kits necessary to test.^[4] This allowed the larger beef producers to keep costs low and not be out-competed by a smaller rival. Creekstone sued the USDA in response for abrogating free competition in the market. Regulatory capture is an economic phenomenon in which a government regulatory agency becomes dominated by the interests of the industry that it oversees. ... The Interstate Commerce Commission (ICC; 1887 - 1995) was a regulatory body in the United States created by the Interstate Commerce Act of 1887, which was signed into law by President Grover Cleveland. ... John D. Rockefeller Sr. ... The examples and perspective in this article do not represent a worldwide view. ... Creekstone Farms Premium Beef, LLC is a 10 year old organic beef producer, based in Arkansas City, Arkansas. ... Bovine spongiform encephalopathy (BSE) commonly known as mad cow disease, is a fatal, neurodegenerative disease of cattle, which infects by a mechanism that surprised biologists on its discovery in the late 20th century. ... The U.S. Department of Agriculture, also called the Agriculture Department, or USDA, is a Cabinet department of the United States Federal Government. ...

The so-called "military-industrial complex" in the United States is often accused to be a case of crony capitalism in an industry. Connections with The Pentagon and lobbyists in Washington are decried 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 receieves subsidies from European governments) alleges that Boeing receives similar subsidies hidden as inefficient defense contracts. President Dwight Eisenhower coined the term military-industrial complex The term military-industrial complex (MIC) refers to a close and symbiotic relationship between a nations armed forces, its arms industry, and associated political and commercial interests. ... The Pentagon is the headquarters of the United States Department of Defense, located at 48 N. Rotary Road, Arlington, Virginia 22211 (Map). ... Atlantic derives from Ancient Greek mythology: Altas as one of the Titans at the Rockefeller Center in New York City Transatlantic relations refers to the historic, cultural, political, economic and social relations between countries on both side of the Atlantic Ocean, specifically between the United States, Canada and the countries... In economics, a subsidy is generally a monetary grant given by government to lower the price faced by producers or consumers of a good, generally because it is considered to be in the public interest. ...

Creation of crony capitalism in developing economies

In its worst form, crony capitalism can devolve into simple corruption, where any pretense of a free market is dispensed with. Bribes to government officials are considered de rigeur and tax evasion is common; this is seen in many parts of Africa, for instance. This is sometimes called plutocracy (rule by wealth) or kleptocracy (rule by theft). This article contrasts tax evasion, tax avoidance, tax resistance and tax mitigation. ... This article or section does not cite its references or sources. ... Kleptocracy (sometimes Cleptocracy) (root: Klepto+cracy = rule by thieves) is a pejorative, informal term for a government so corrupt that no pretense of honesty remains. ...

Corrupt governments may favor one set of business owners who have close ties to the government over others, as under Ferdinand Marcos under his dictatorship. This may also be done with racial, religious, or ethnic favoritsm; for instance, Alawites in Syria have a disproportionate share of power in the government and business there. (President Assad is an Alawite.) Theoretically, this can be explained by considering personal relationships as a social network. As government and business leaders try to accomplish various things, they naturally turn to other powerful people for support in their endeavors. These people form hubs in the network. In a developing country those hubs may be very few, thus concentrating economic and political power in a small interlocking group. In a fully developed country, the processes of capitalism have already concentrated wealth into the possession of a small group, with the same result: reduction of the number of hubs. Ferdinand Emmanuel Edralín Marcos (September 11, 1917 – September 28, 1989) was the tenth president of the Philippines, serving from 1965 to 1986. ... Alawite is a Middle Eastern Syria. ... Bashar al-Assad (Arabic: ‎, ) (born September 11, 1965) is the President of the Syrian Arab Republic, Regional Secretary of the Baath Party, and the son of former President Hafez al-Assad. ... A social network is a social structure made of nodes which are generally individuals or organizations. ...

Normally, this will be untenable to maintain in business; new entrants will affect the market. However, if business and government are entwined, then the government can maintain the small-hub network.

Political viewpoints

Socialists and other anti-capitalists often assert that crony capitalism is the inevitable result of any capitalist system. Jane Jacobs calls it a natural consequence of collusion between those managing power and trade. Since businesses make money and money leads to political power, business will ineveitably use their power to influence governments. Much of the impetus behind campaign finance reform in the United States and other countries is an attempt to prevent the leveraging of economic power into political power. Socialism is a class of ideologies favouring a socio-economic system in which property and the distribution of wealth are subject to social control. ... An anti-capitalist poster printed by the Industrial Workers of the World in 1911. ... Jane Jacobs Jane Jacobs, OC , O.Ont (May 4, 1916 – April 25, 2006) was an American-born Canadian writer and activist. ... Sociologists usually define power as the ability to impose ones will on others, even if those others resist in some way. ... A fruit stand at a market. ... Campaign finance reform is the common term for the political effort in the United States to change the involvement of money in politics, primarily in political campaigns. ...

Capitalists generally oppose crony capitalism as well, but consider it an abberation brought on by governmental favours incompatible with true capitalism. In this view, crony capitalism is the result of an excess of socialist-style interference in the market, which requires active corporate lobbying to reduce red tape. They point to the relatively higher levels of interaction between corporations and governments that are considered more socialist, taken to its maximum in the form of nationalization of industries. Even if the initial regulation was well-intentioned (to curb actual abuses), and even if the initial lobbying by corporations was well-intentioned (to reduce illogical regulations), the mixture of business and government eventually proves poisonous. Burton W. Folsom, Jr., in his book The Myth of the Robber Barons, distinguished those that engage in crony capitalism – designated by him "political entrepreneurs" – from those who compete in the marketplace without special aid from government, whom he calls "market entrepreneurs". Economists of the Austrian School are severe in attacking crony capitalism, although in more formal contexts the term "state corporatism" is usually used. Please wikify (format) this article or section as suggested in the Guide to layout and the Manual of Style. ... o_o ... The Austrian School is a school of economic thought that rejects economists overreliance on methods used in natural science for the study of human action, and instead bases its formalism on a logic of action known as praxeology. ... This box:  • • Historically, corporatism or corporativism (Italian corporativismo) is a political system in which legislative power is given to civic assemblies that represent economic, industrial, agrarian, and professional groups. ...

Finally, some critics question whether the concept is meaningful at all, pointing out that personal factors influence business decisions in all economic systems that involve a government and that the existence of these factors is an insufficient explanation for why certain economic systems work better than others.

See also

• Anarcho-capitalism
• Cronyism
• Corporate welfare
• Oligarchy
• Plutocracy
• Political families
• Mercantilism

Anarcho-capitalism refers to an anti-statist philosophy that embraces capitalism as one of its foundational principles. ... Cronyism is partiality to long-standing friends, especially by appointing them to public office without regard for their qualifications. ... Corporate welfare is a pejorative term, first coined by Ralph Nader in 1956, describing a governments bestowal of grants and/or tax breaks on corporations or other special favorable treatment from the government. ... Oligarchy is a form of government where most or all political power effectively rests with a small segment of society (typically the most powerful, whether by wealth, family, military strength, ruthlessness, or political influence). ... This article or section does not cite its references or sources. ... This is a partial listing of prominent political families around the world. ... A painting of a French seaport from 1638, at the height of dookie mercantilism. ...

References

External links

• New York Times, "The Global Cost of Crony Capitalism"
• New York Times, "Vladivostok Journal: Out of Russia's Gangland, and Into Cafe Society."
• Joseph Stiglitz, "Crony capitalism American-style".
• Google Video, "Capitalism & Other Kids' Stuff".
• William Anderson, The Mises Institute, "Myths About Enron"
• The Occult Technology of Power Finance politics unmasked