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Corruption of Crony Capitalism

Updated on October 12, 2016

Introduction

Capitalism has come under attack in recent years especially after the recession of 2008. The causes are many but Capitalism is not one of them. One contributing cause is crony capitalism. I will detail some of what mean and will propose some solutions.

-June 2015

What Is Crony Capitalism?

Crony capitalism is a term describing an economy in which success in business depends on close relationships between business people and government officials. It may be exhibited by favoritism in the distribution of legal permits, government grants, special tax breaks, or other forms of state interventionism.

Some Prominent Examples

Here are some recent high profile companies and people that participate in crony capitalism. In some respect, I agree with the Occupy Movement's complaint but disagree totally with their tactics.

  • TESLA - Elon Musk is a smart businessman and an innovator. He has started many companies including SpaceX, Tesla Motors and SolarCity. However, he has used government subsidies to advance some of his business. It is not his fault that the government provided these subsidies in an attempt to advance renewable energy and reduce carbon emissions. However, it is not the mission of government to choose winners and losers in the market place. If a technology is ripe, it should stand or fall on its own merit. That is capitalism.
  • GE - A national corporation that uses its influence in government to avoid paying Corp. taxes while gaining special privileges in foreign contracts.
  • GOLDMAN SACHS - CEO of Goldman endorses crony capitalism. See the long list of people who have worked at Goldman and later joined the Administration of both Republicans and Democrats.
  • WARREN BUFFETT - Recently, in the debate on building the Keystone pipeline, Warren Buffett came out against it. His business of transporting oil would be affected if the pipeline was completed. After years of debate and environmental studies, all the stake holders have signed off and it came the the President's desk. He was influenced by his close friend Warren Buffett and decided against the pipeline. Even knowing it would create numerous jobs.
  • GEORGE SOROS - The hedge fund manager has spent millions funding 527 groups to help progressive Democrats. He has visited the Obama White House over 5 times in four years.

There are many others who are part of this corruption.

Lobbying Is Not Necessarily Crony Capitalism

Lobbyists have gotten a bad name of late. It is not fair. There is a case to be made for legitimate lobbying. It is guaranteed by our Constitution. Where it crosses the line is the pay to play and quid pro quo.

Why Crony Capitalism Hurts All

In case it is not self evident, the reason crony capitalism is bad for society is that it is undermining the capitalist system. The reason capitalism works so well is because it let's the free market decide winners and losers. The open competition in a fair environment is what makes it work. Any effort to tamper with that causes a distortion and leads to bad outcome. The role of government should be limited to keeping the arena free and punish the violators. Just as in the past when monopolies caused damage to the economic system, crony capitalism should be outlawed.

Proposal to Fix Crony Capitalism

Here are some of my ideas to end crony capitalism. It is really all about money.

  • Stop all government subsidies. The government has no business picking winners and losers.
  • Restrict lobbyist's activities. Current law is too lax and not enforced. Government employees must wait 5 years before joining a lobby group.
  • No special tax breaks. Tax rates for Corp. should apply equally to all businesses.
  • Reform campaign finance to remove 527 groups.
  • Charitable Foundations must be audited to insure tax exempt funds are not misused.

Conclusion

I am a conservative who believes that the free market system is the best path for prosperity. Capitalism is the economic system that has proven to work. It is by no means perfect. There is no utopia. There is no guarantee of outcome, just equal opportunity. Crony capitalism on the other hand is an attempt by some to bypass the system. It gives capitalism a bad name and should be stopped.The solutions I propose is sweeping but necessary. Corruption is the abuse of power.

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