How Cronyism Is Hurting the Economy

The United States economy suffers from corporatism and cronyism, which occurs when businesses collude with government to obtain special benefits. The Occupy Wall Street movement has decried this rampant cronyism, but what is the best solution? Professor Jason Brennan contends that while it may seem like the solution is to allow government more power to control and police the economy, this “solution” may actually be causing the problem.

He argues that giving government the power to control and regulate the economy benefits the rich and well connected for two reasons:

  1. The power to “regulate the economy” is really the same thing as the power to distribute favors. For example, many of the regulations we have today were influenced by and sometimes even partially written by one or more of the corporations.
  2. Regulations actually hurt small businesses more than big businesses. It costs a lot of time and money to comply with regulations, making it difficult for small businesses to enter heavily regulated markets.

According to Brennan, less government power means corporations have less power to compete for, fewer privileges to seek, fewer subsidies to enjoy, and no agencies to capture.

Read More: Beyond Bailouts: What Is Cronyism?

9 Comments

  1. Matt Wavle

    and the partnership between corrupt politicians and rent seekers ought to disqualify the politicians from ever seeking office again, after being immediately ousted.

  2. Nick Picini

    It is sad that so many people confuse free markets capitalism with crony corporatism; picking winners and losers is by no means the ends of a free and voluntary market.

  3. qazz42

    nuh uh, giving money to select corporations is the free market and we need the government that gives out the money to regulate itself and the big corporations!

  4. Jaysuf

    How is giving money to select corporations a free market? It creates an uneven playing field and decreases the incentives for those businesses to provide an adequate good or service at a fair price. For an example GM and the banks should have failed, and not been bailed. Now that big business in bed with government has a safety net, they can engage in risky behaviors, without actually being subjected to those risks. 

  5. Jaysuf

    If the government is involved, it’s not a free market. This causes a decrease in the quality, and increase in the price of the goods and services available.

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