Category: Crony Capitalism

Photography by Larry D. Moore

Today marks the 20th birthday of the Nintendo 64 (N64) gaming console. Don Reisinger offered a great tribute at Fortune:

On this day in Japan 20 years ago, Nintendo introduced the gaming system, among the first consoles to create realistic-looking 3D worlds filled with monsters, soldiers, and blood. It’s standard game design today, but at that point, it was new and exciting.

Before the Nintendo 64’s launch, gamers were largely forced into games with pixelated graphics and basic gameplay that required scrolling around a screen and solving basic puzzles. The Nintendo 64, which notched more than 30 million units sold over its lifetime, was a sign of bigger and better things to come.

Yet he notes that it wasn’t the most successful console at the time:

If sales are the sole guide of success, the Nintendo 64 was a middling performer. The nearly 33 million units it sold is notably lower than the 62 million Nintendo Entertainment Systems sold and the 49 million Super Nintendo Entertainment Systems the company sold.

While the Nintendo 64’s sales were more than the Sega Saturn, which could only muster 9 million unit sales over its lifetime, Sony sold 102.5 million PlayStation units while competing with the Nintendo 64.

There are a lot of things that Nintendo tried with the N64 that didn’t really work in their favor. But Nintendo’s willingness to take such risks, and their general product differentiation (for example, their massively successful Pokémon series debuted just one year earlier for Nintendo’s Game Boy handheld console, spawning a cartoon and a card game) make it an outstanding example in the long run … not only economically, but (metaphorically) spiritually as well. (more…)

There are numerous forms of crony capitalism, but one of the most subtle and damaging to the economically vulnerable are occupational licensing laws. For millions of Americans, occupational licensing continues to serve as a barrier to work and self-sufficiency. Take, for example, Melony Armstrong.

When Armstrong began her hair braiding business, she was required to have a cosmetology license, which required 1,500 hours of training and $10,000 in tuition. What makes this state occupational licensing requirement so unreasonable? None of the training had anything to do with braiding hair.

In this AEI Vision Talk, Armstrong shares her story and tells how she filed a lawsuit in Mississippi to change the law and create more opportunity for herself and others.

Is the dominant economic system we have today, the market economy or capitalism, compatible with Christianity? Orthodox Christian theologian David Bentley Hart in a June 2016 First Things article titled,”Mammon Ascendant: Why global capitalism is inimical to Christianity,” is skeptical. As you might gather from the title of his article. On Public Discourse, Acton Research Director Samuel Gregg takes a closer look at Hart’s curious economic postulates such as the one about the “purely financial market” and his rather overbroad claim that wealth is intrinsically evil. Then there’s the one about the investments that wealthy people and institutions make, with homicidal malice, in new businesses and the like. Gregg:

Even more contestable is Hart’s suggestion that the venture capital that, he concedes, built places like Manhattan and provided millions with jobs is somehow responsible for particular evils. Notable among these is what he calls “the carboniferous tectonic collision zones of West Virginia and eastern Kentucky” in which “a once poor but propertied people were reduced to helotry on land they used to own” and “forced into dangerous and badly remunerated labor that destroyed their health, and then kept generation upon generation in servile dependency.” This is an example of how, to use Hart’s words, “the market murders.”

To murder is to intentionally kill an innocent person. Is Hart really suggesting that the workings of “the market”—which is simply an economy in which there is a free creation and exchange of goods and services by individuals and communities in a particular institutional setting—involves the intentional killing of innocent people?

Did people on Wall Street, for instance, directly will the alleged enslavement of people in West Virginia and eastern Kentucky? Who, one might ask, “forced” people into these jobs in West Virginia? Could it be possible that some of these crypto-peasants weren’t so content with their three acres and a cow and actually regarded working in a mine as a better economic option, given their available choices at the time? It’s likely that the vast majority of their descendants live far more comfortable material existences, enjoy longer life-spans, and are better educated than their small-landowning forebears. Some are probably working on Wall Street.

Read “Global Capitalism versus Christianity? A Response to David Bentley Hart” on Public Discourse by Samuel Gregg.

redistribution[Note: This is the second in an occasional series evaluating the remaining presidential candidates and their views on economics and liberty. You can find the first article here.]

In the previous article in this series I explained that the key to understanding Donald Trump’s economic policies is the recognition that, for him, policy and principle are secondary to process. The overriding concern for Trump is not money or wealth but deal-making.

“I don’t do it for the money . . . I do it to do it,” wrote Trump in The Art of the Deal. “I like making deals, preferably big deals. That’s how I get my kicks.”

This flippant disregard for money is the type of thing that is only said by saints and trust fund kids. And Trump is no saint.

Trump started out in business with a loan from his father worth almost $7 million in 2016 dollars. He also inherited between $40 and $200 million when his father died in 1999. As a rich kid, he’d be fabulously wealthy even if he never worked a day in his life.

Because he has never had to be concerned about earning money, he has always treated it as a measuring stick. For Trump, dollars are the main way that “deals” are measured. The more dollars you can extract from someone else, the more you “win.”

This may sound like the normal process of capitalism, but it’s not. In a free enterprise system (at least in an ideal one) “deals” are mutually beneficial to both parties. The deal may not be equally beneficial to both parties or even beneficial in the same way, but each side must believe they are better off for having entered into an economic exchange. If they did not, they would not have agreed to the deal.

There is a way, however, to “win” at a deal without everyone involved agreeing that it was mutually beneficial: get the government to redistribute someone else’s property to you.
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cronyIt’s never easy becoming a billionaire, but the path to achieving a 10-figure level of wealth is smoother when you have the government as a business partner.

Crony capitalism is a general term for the range of activities in which particular individuals or businesses in a market economy receive government-granted privileges over their customers or competitors. Certain industries (like casinos and real estate) and some nations (Russia, the Philippines) are more prone to cronyism than others. So if you want to become get ultra-rich it helps to be an business and country (e.g., an energy company in Mexico) where the government will you gain an advantage in the market.

The Economist has put together an interesting interactive infographic showing where crony capitalist billionaires live around the world. As they explain:
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We welcome guest writer Stephen Schmalhofer to the PowerBlog with this review of Good Profit: How Creating Value for Others Built One of the World’s Most Successful Companies by Charles Koch (Crown Business, 2015). Schmalhofer writes from New York City, where he works in technology and venture capital. He is a graduate of Yale University.

Charles Koch’s Metaphysics of Business

By Stephen Schmalhofer

Adam Smith, that venerable a supporter of free enterprise, held businessmen in low regard, alleging that their every meeting “ends in a conspiracy against the public, or in some contrivance to raise prices.” While deference is due to the Scottish master’s lasting insights into the sources of the values of men in The Theory of Moral Sentiments and their success in The Wealth of Nations, I observe that many executives tout their “core values” but not all of these companies are successful. Businessman and philanthropist Charles Koch is successful by any financial measure and his unique approach to the creation of value and values at Koch Industries in Wichita, Kansas, where he is chief executive officer, positions him against Smith’s caricature of scheming backroom businessmen.

Charles Koch

Charles Koch

Since 1967, Koch has overseen operations at Koch Industries where he developed and implemented “Market-Based Management.” Following a large acquisition by Koch Industries in 2004, he urgently systematized the method and continues to share it with the fervor of an evangelist. Koch’s first book on the method was grandiosely titled The Science of Success: How Market Based Management Built the World’s Largest Private Company but in 2015 he re-entered the marketplace of ideas with a more accessible version — Good Profit: How Creating Value for Others Built One of the World’s Most Successful Companies.

Removing the pretense of science from the title better reflects the method’s foundation in the ideas of spontaneous order and the price system articulated by Austrian economist F.A. Hayek rather than in the pseudo-scientific central planning opposed by the Nobel laureate. Koch Industries’ business model is based on acquiring complementary companies that either enhance, or can be improved by, the performance of existing Koch business units. Koch managers seek to integrate these new acquisitions into the company’s operations to realize the expected gains from economies of scale and knowledge sharing. But this integration can blunt the information signals provided by external networks as well as create wasteful internal political battles, especially over budgets and other signs of corporate status unrelated to “good profit.” (more…)

bernie-sanders-photo1In last Tuesday’s Democratic debate, Senator Bernie Sanders stayed true to his famed aversion to capitalism, proclaiming the fanciful virtues of “democratic socialism.” Yet when prodded by Anderson Cooper — who asked, “you don’t consider yourself a capitalist?” — Sanders responded not by attacking free markets, but by targeting a more popular target of discontent: Wall Street and the banks.

“Do I consider myself part of the casino capitalist process by which so few have so much and so many have so little, by which Wall Street’s greed and recklessness wrecked this economy?” Sanders asked. “No, I don’t.”

One could be forgiven for not understanding what Sanders means by “casino capitalism.” Is it crony capitalism, in which legislative favors are secured by the rich and powerful (which conservatives also disdain)? Is it bailouts for the big banks (which, again, conservatives also disdain)? Is it basic trade and exchange on a large, complex scale, and if so, at what size does it become problematic? Does he despise the stock exchange itself? Too loud with all its blinky lights and bells? (more…)