Posts tagged with: Cronyism

The nation of Spain is prosecuting 37 people – including former officials in the ruling center-Right party – for steering government contracts to their politically connected friends. It will not help the defense that the suspects gave themselves audacious, Godfather-inspired nicknames like Don Vito and “The Little Meatball.” While a disturbing example in itself, a series of studies show that corruption is becoming a growing threat in the EU – and the larger the government, the greater the level of perfidy.

The number of single-bid contracts in the European Union nearly doubled between 2006 and 2015, and the number of bidders per contract fell by 40 percent during the same period. The penchant for cronyism in such arrangements is obvious.

As government officials award contracts based on favoritism, citizens must resort to bribery in order to procure the services their taxes already funded. Transparency International found that, “[o]n average, one in six households” in Europe and Central Asia “paid a bribe when they accessed public services.” EU bribery rates – which range from zero percent in the UK to 42 percent in Moldova – generally track with the Heritage Foundation’s Index of Economic Freedom, where the UK ranks only behind Switzerland, and Moldova ranks a dismal 117.

Interestingly, in Western EU nations, the most likely bribe recipients were part of the government-run healthcare systems. (more…)

President-elect Donald Trump

President-elect Donald Trump

Sen. Lindsey Graham, Republican from South Carolina, wants to change the rules of one of the biggest crony capitalist organizations in Washington.  He wants to make it easier for the Export Import Bank to dish out large amounts of corporate welfare to companies such as Boeing, which already brings in revenues upward of $95 billion per year.

USA Today reported in a recent article that “Graham, as chairman of the Senate Appropriations subcommittee that funds foreign operations, has added a provision to the 2017 spending bill that would allow the Export-Import Bank to consider projects of more than $10 million.”

Many supporters of free trade have long opposed the cronyism and corporate welfare of the Export-Import Bank, all while only celebrating minor victories.  In the summer of 2015, the Export-Import Bank’s charter expired forcing it to close its doors until five months later when Congress reauthorized the bank for another five years.

Another minor victory for those who oppose the Export-Import Bank might be the election of Donald Trump.  Although evidence from Trump’s past portrays him as a mercantilist, the president-elect is on record of making critical remarks toward the Export-Import Bank:

I don’t like it because I don’t think it’s necessary. It’s a one-way street also. It’s sort of a featherbedding for politicians and others, and a few companies. And these are companies that can do very well without it. So I don’t like it. I think it’s a lot of excess baggage. I think it’s unnecessary. And when you think about free enterprise it’s really not free enterprise. I’d be against it.

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Mike Rowe was recently criticized for his new partnership with Charles Koch, CEO of Koch Industries, whose philanthropy for conservative and libertarian causes routinely garners controversy, despite its tremendous fruits.

Rowe, himself an increasingly provocative figure, recently interviewed Koch on their core areas of collaboration, including work, the trades, cronyism, higher education, and criminal justice reform. 

Koch on the politicization of “work ethic”: (more…)

Photo courtesy of Wikimedia.

Photo courtesy of Wikimedia.

What is the biggest economic problem that the U.S. is currently facing? Depends who you ask.  Some social justice warriors would tell you that capitalism is ruining our economy, yet many who have studied and understand economics would argue the opposite. Capitalism is not to blame, but rather cronyism and protectionist policies are the ones wreaking havoc on the economy.

In a previous post, I discussed how occupational licensing as a form of cronyism is trapping people in poverty. However, cronyism is a much bigger problem than just occupational licensing. The U.S. struggles with other forms of cronyism too, such as protectionism through quotas, tariffs, and corporate welfare.

Quotas and tariffs make it extremely difficult for international firms to sell their product in the U.S., thus protecting U.S. firms from international competitors.  Corporate welfare is government support of a private business usually through direct money transfers (subsidies) or tax breaks, often protecting big firms from the competition of smaller firms.

This form of cronyism typically occurs for two reasons:  First, in an attempt to create new domestic jobs or prevent jobs from being sent overseas and second, because politicians promise “goodies” to corporations and individuals that help them get elected. (more…)

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The Bosses of the Senate, a cartoon by Joseph Keppler. First published in Puck 1889.

Cronyism is ugly. It hurts the economy, it’s unjust, and corrupts the core of democracy.  “The damage that cronyism has inflicted on the economy is considerable,” Samuel Gregg writes in a new piece for Public Discourse. “[C]ronyism also creates significant political challenges that, thus far, Western democracies are struggling to overcome.”

The crony capitalism seen from the Trump presidential campaign and many others is not something that’s new to America or Western civilization. As long as there have been governments, there have been powerful people seeking special favors from them. From the 17th to 18th centuries, mercantilism “dominated the West,” which involved powerful guilds working closely with their government officials to limit trade and stifle innovation. Gregg explains the cronyism that’s common today:

Today’s crony capitalism is not outright corruption, though it often verges on or morphs into illegal activity. The expression itself first emerged in 1980 to describe how the Philippines’ economy functioned under the Marcos regime. It became prominent in explanations of the 1997–1998 Asian financial crisis, especially the role played in that crisis by government decisions that favored business “cronies” (many of whom were relatives) of political leaders, such as Indonesia’s then-President Suharto.

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Blog author: sstanley
Monday, February 15, 2016
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“Donald Trump” Greg Allen/ Invision/ AP

Being “pro business” doesn’t necessarily mean “pro free markets.” Reality TV star and wannabe Republican presidential nominee, Donald Trump reminds us of this. Writing for The Stream, Acton’s Director of Research, Samuel Gregg, argues that not only does Trump seem to be a mercantilist, but, if implemented, this medieval economic system would weaken the United States.

What exactly is mercantilism? This system was popular between the 1500s and 1700s and was particularly good to government officials and their allies in the business world. Gregg explains:

At the core of mercantilism were two things. The first was cozy relationships between certain business leaders and the government. The second was the extensive use of tariffs, quotas and even bans on certain imports to protect domestic manufacturers. Mercantilists wanted to limit competition (particularly from foreigners) rather than embrace competition as a discipline that helped companies and countries discover and develop what they did best in terms of low-costs and high-returns relative to everyone else.

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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…)