How capitalists instigate inefficient intervention and spoil integrity

 
Analysts discussing crony capitalism are more likely to focus on the particular individuals involved (the “cronies”) than are analysts discussing special interest legislation in general. Normal analysis of such legislation is impersonal and bloodless, dealing with faceless “interest groups.” Analysts of crony capitalism are more personal, often naming the particular cronies involved. However, in either case there are individuals involved, whether named or not, so this difference is more stylistic than substantive. Nonetheless, by forcing us to see the particular cronies involved in shady deals, an emphasis on crony capitalism may be politically more useful than the more standard analysis. Bangladesh was a severe victim of the evil consequences of crony capitalism from 2009 to 2024 when integrity was spoiled.

Government regulation is ubiquitous. However, some regulations are more efficient (or less inefficient) than others. Firms may lobby to remove particularly harmful regulations or taxes. They may also lobby to counteract lobbying by a rival. But to a relatively uninformed outsider, or to a populist observer, all lobbying may look the same and may appear to be cronyism. Thus, paying attention to individuals involved in seeking favors from the government may turn out to be harmful.

Consider the example of the Koch brothers. Charles and David Koch contribute significant sums of money to pro-market institutions. In 2012, Charles Koch wrote an op-ed piece for the Wall Street Journal criticizing crony capitalism. One result was a large number of writings criticizing Mr. Koch for hypocrisy. Similarly, George Soros is a financer of liberal causes. A Google search for “Soros crony” also finds many references. I am not claiming that either of these people are crony capitalists. (Of course, I personally greatly prefer the policies of the Kochs.) Rather, my point is that the term itself may not be useful for analysis since it appears to be ambiguous and flexible. The Koch brothers and George Soros can only be doing the same thing if the definition of what they are doing is highly ambiguous.

Moreover, in some circumstances even pure crony capitalism may not be totally inefficient. Economics has a formal “theory of the second best” that argues that if a government intervention leads to inefficiencies in markets but cannot be eliminated; an additional intervention may be the next best alternative to constrain the inefficiencies caused by the first. It is not an optimal solution, but may be the best attainable. This situation may apply to some of what is called “crony capitalism.” The U.S. economy is rife with inefficient interventions—laws, regulations, taxes and subsidies that lead to inefficient markets.