During her packed June 20 lecture at Acton University, Anne Rathbone Bradley wrestled with the complicated topic of crony capitalism. The audience was hushed as she laid out why this economic disease destroys the long-term incentive for companies and governments to exercise good-stewardship. Her lecture sparked a lively debate about economic intervention and crony capitalism’s implications on regulatory policy. Bradley began her talk by rejecting the phrase because she asserted “cronyism” is really a distortion of capitalism; in many ways, cronyism is the opposite of open markets. It produces preferential regulation and favorable government intervention for a few special individuals who have personal government connections.
In an economically free society, everyone is a value-maximizer. By that we mean individuals judge which action is most valuable to them and act upon that judgement. Bradley, who currently serves as the vice president of economic initiatives at the Institute for Faith, Work, and Economics in Washington D.C., contended that capitalism is premised on this idea. Voluntary exchange is a transaction between independent parties who agree to work together because it increases value for them.
Yet because value maximization does not extend from the markets to bureaucracy, market signals are often overpowered by special-interest groups. James M. Buchman, a Nobel Prize winner in economics, states, “There is no political counterpart to Adam Smith’s invisible hand.”
With this in mind, Bradley talked about the “Bootleggers and Baptists” problem. In the early 20th century, Baptists and other evangelical Christians saw alcohol as a societal ill, so they advocated for laws restricting the sale of alcohol on moral grounds. Meanwhile, bootleggers sold alcohol illegally, profiting from the status quo and privately supporting the “Baptist” regulations.
The results are countless regulatory policies that are tailor to “bootlegger” special interests while cloaked in well-intentioned “Baptist” ideology. Such policies distort the markets away from open and fair competition.
Bradley pointed to the Energy Independence and Security Act of 2007, a classic example of “Bootlegger and Baptist” cronyism. General Electric, Sylvania, and Philips were eager to sell consumers longer-lasting but more expensive halogen, fluorescent, and LED light bulbs. When customers balked at the price increase, these corporations turned to the government for regulation. Under the guise of “Baptist” environmental conservation, these three “bootleggers” rigged the market in their favor when they lobbied the government to set mandatory efficiency standards for light bulbs, effectively banning the sale of incandescent bulbs. With their patents on fluorescent bulbs, General Electric, Sylvania, and Philips functionally institutionalized a monopoly on light bulb sales in the United States.
In Bradley’s opinion, cronyism increases “the worst kind of wealth inequality” by redistributing wealth to protect the rich. Government regulation created by cronyism erects artificial barriers to entry in the market, which slows innovation and protects businesses from competition. Bootlegger and Baptist cronyism uses the government to produce economic results which are bad for the public interest.
In the long run, cronyism is a game where everyone loses. It might appear as legal protections, sanctions, licensing restrictions, or subsidies, but when the government protects some businesses at the expense of others, the government hurts businesses, consumers, and future entrepreneurs.
In Federalist Paper 51, James Madison addressed the nature of power and hints at a possible solution. “In framing a government which is to be administered by men over men, the great difficulty lies in this: you must first enable the government to control the governed; and in the next place oblige it to control itself,” he wrote. Bradley argued that the government needs self-control. It cannot continue to benefit a few corporations at the expense of other businesses and customers. As Bradley put it, the government is “institutionalizing greed and theft through laws and regulations.” Cronyism is fundamentally unfair because it protects the rich at the expense of the poor and unconnected, which is the antithesis of the capitalist spirit.
Bradley acknowledged the wide-spread problems caused by cronyism, but she remained hopeful for a solution when peppered with questions after her lecture. She reminded her audience that the first step towards a solution is recognizing cronyism for what it represents: a system designed to protect the wealthy at the expense of the unconnected and poor. As Christians, she charged her audience to not only reject but also vigorously oppose the injustice, theft, and regulations cronyism spawns.
(Photo credit: Wikimedia Commons)