All Capitalism is Crony Capitalism

Right-libertarians often argue that the reason our society is horribly unequal, economically speaking, is not because our economy is capitalistic, but because deviations from capitalism—in the form of cronyism—distort the market's wealth-distributing magic. Such deviations include government-granted monopolies, public-private partnerships, tax loopholes, subsidies, and so forth. Without these, our self-proprietary friends assure us, markets would mystically channel wealth to each according to her just deserts. This claim has many problems, not the least of which is the empirical fact that the most economically equal societies feature considerable interaction between public and private sectors. However, a more fundamental problem is the logical contradiction between an impartial state and an economic system in which capital is overwhelmingly in the hands of a ruling class.

You may object that this is not an accurate description of capitalism. After all, the right has persistently promoted the idea that capitalism is identical to the “free market system”. However, rightists did not coin the terms capitalist and capitalism and they are certainly in no position to redefine them. When the early leftists who introduced these terms employed them, they meant by capitalist a member of the class who controls the means of production (in contradistinction to workers) and by capitalism that system in which economic power was in the hands of capitalists. Although I find the whole notion of idealized economic or political systems to be problematic, it is hard to dispute that this early definition of capitalism fits the contemporary US economy quite well. The fact that the US has a public sector as well does not contradict this claim: the state can be a capitalist just as private individuals can. It is also clear that economic inequality is a definitional aspect of capitalism: one could image an economy of unfettered markets where relative economic equality existed, but that economy would not be a capitalist economy.

One claim that has been validated by both experimental and observational studies is that humans tend to act in their (perceived) self interest. One lesson of history has been that capitalists are not immune to this law of human behavior. For example, capitalists consistently attempt to influence government policies in ways that benefit themselves and undermine the interests of competitors (or other groups with who their interests do not align, like labor). These efforts have been consistently effective in the US political system and it is, indeed, hard to imagine a capitalist economy in which they would not be effective. How can political decision-makers be insulated from the influence of the most powerful members of society? One could imagine, as a small step, a rigorous reform of campaign finance, or even publicly financed elections. Of course, this is not the kind of reform that would be acceptable to most right-libertarians. Even if it were, it would not solve the problem. Wealth provides enormous opportunities for influencing public opinion (in a democratic state) and state policy (under any political system).

The power of the capitalist class to maintain “crony capitalism” even in the extremities is illustrated by the history of campaign finance reform in the United States. Despite recognition in the mid 19th century that the absence of limits on campaign contribution gave the very wealth extraordinary influence over policy, it was not until the 1970s that the mass movement aimed at limiting the power of money to purchase government policies and appointments gained critical mass. For good or ill, this movement continued into the 1990s and led to the passage of the landmark (and misnamed) McCain-Feingold Act. What happened then? Capitalists influence the elections of executives who appoint judges, just as they influence the election of legislators. Corporate-sponsored Supreme Court justices eviscerated McCain-Feingold with the Citizens United decision. Now, securing favors from officials by giving them money is still called “bribery,” but securing favors from officials by giving them money for their campaigns is called “speech.” This decision opened floodgates though which all but boundless torrents of corporate money have flowed into the political system, setting the stage for a further expansion of cronyism in American capitalism. Parallel historical developments could be multiplied ad infinitum. They illustrate the following points:

  1. Capitalists will use their power to manipulate the mechanisms of government so that they retain outsized influence over policy.
  2. Capitalists will use this influence over policy to secure economic advantages for themselves, advantages which work to the detriment of other sectors of society.

Therefore, I hold that crony capitalism is always redundant. This fact presents a very thorny problem.

The solution to this problem is not simply to abolish cronyism, but to abolish capitalism. By this I do not mean placing the means of production in the hands of the state (that would simply be capitalism in a different guise), nor am I suggesting the abolition of markets and the free exchange of goods and services (experience suggests that these are valuable—if limited—aspects of human social interaction). Instead, I am suggesting that we should support legal frameworks and policy prescriptions that make it easier for working people throughout society to gain and maintain control over the things that make their lives and work possible. We should tear down the laws and institutions that protect arbitrary hierarchies and replace them with empirically tested policies that promote social mobility and equality. In other words, we should do those things that right-libertarians most oppose.

David R. Mortensen

Pittsburgh, Pennsylvania, USA

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