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What is Crony Capitalism?
Crony capitalism refers to an economic system wherein corporations and individuals with political connections, power, and influence receive favorable treatment from government officials. Favorable treatment can come in the form of tax breaks, grants, corporate welfare, etc. Crony capitalism is often viewed as suppressing open competition or ‘rigging the free market.’
In essence, cronyism creates a system where the corrupt and powerful in business and politics rig the economy in order to unethically profit in ways that often harm the public. We will examine what crony capitalism is and how long it’s potentially plagued the U.S. economy. In the interest of full disclosure, the Zero Theft Movement’s mission is to eradicate crony capitalism in order to establish a strong and ethical economy that gives you the returns you deserve.
Cronyism Before Crony Capitalism
Cronyism has long existed. Before capitalism became an established or formal system.
Just think about feudalism, the common political system throughout Europe between the 9th-15th centuries. Feudalism stratified society, endowing the royal and noble classes with disproportionate power. Commoners had little choice but to accept their position in society, lack of upwards mobility. They internalized the imposed ‘inferiority.’ It took Jean Jacque Rousseau’s work on the Social Contract (and General Will) to get commoners to realize that all humans should be treated equally.
Or fast forward to the cronyism of the early 20th-century industrial revolution. Wealthy business owners used ‘traditional family roles’ as the reason for paying women a fraction of men’s salaries (⅓ to ½). This systemized sexism enabled rich factory owners to profit even more by paying their female employees poorly. It wasn’t until the suffrage movement (1919) that women started to receive some of the rights they’d deserved from the beginning, including equal pay.
Is Crony Capitalism really even Capitalism?
For the years up until the end of the Bretton Woods Agreements in the 1970s, real median weekly earnings of full-time workers rose in lockstep with real GDP per capita. That means, American workers steadily received better wages as the country produced more money. Capitalism in the U.S. was producing tremendous improvements in income and living standards for the population at large; and that capitalism must, for that reason, be made sustainable.
But as you can see from the graph above, the red line (real median weekly earnings) plateaued and has not increased for over four decades. The blue line (real GDP per capita), however, has steadily grown in the same period.
Many Americans aren’t getting their fair share of the pie let alone a living wage. We reckon this shift occurred due to crony capitalism taking over.
Crony capitalism is arguably not even capitalism at all. It really comes down to the powerful rigging the economy more than anything else. The bad actors have created the issue, not the system itself.
The Zero Theft community has thoroughly researched potentially rigged areas of the economy and have come up with an accurate estimate of how much is being ripped off from the public. Take part in creating an economy that gives you the value you deserve.
The Establishment of Crony Capitalism
Crony capitalism can infiltrate the corporate-political world in numerous ways.
The oldest form of cronyism (as old as elections actually) does not involve money at all. A political candidate can provide whatever a corporation requests (e.g. drafting legislation that benefits the business), and the corporation returns the favor with public support and votes.
Lobbying, protected under the First Amendment of the Constitution, refers to when the public advocates for or against a position to their elected officials. Some of the lobbyings involve the non-self-interested communication of key information to busy non-specialist legislators and Congressional staffers. Individuals will champion what they deeply believe to be in the public interest. Corporations can also express their perspectives to make sure legislators know their side.
The freedom to communicate your side is a fundamental part of democracy, but crony capitalism has twisted this right.
Over time, corporations have turned to hire a professional lobbyist firm to do the influencing for them. This trend has created a multi-billion dollar industry that has generated trillions for corporations, according to the Sunlight Foundation.
From Open Secrets
Professional lobbyists often get hired due to their extensive political connections and knowledge of how the federal government works. The people who get these jobs are, therefore, ex-government officials, Congressional staffers (who often ‘audition’ for lobbying jobs), policy experts, etc. As opposed to the average American expressing their opinion on a political issue, a lobbyist has the backing of their corporate client. That means better financing and better access due to prior relationships during their time in politics.
This has created what’s known as the ‘revolving door’—where lobbyists essentially switch jobs with legislators/regulators and vice-versa. It’s arguably a kind of elite club, where members exchange favors for each other’s benefit. Except those favors result in vast economic inequality, keeping countless Americans down.
A Mutually Beneficial Relationship
So what’s it all about? Why engage in crony capitalism?
Money. More wealth itself, or what wealth can get you.
How Crony Capitalism Benefits Government Workers
Successful campaigns for all levels of the public office often require some degree of financing. The advertisements, the travel, the events, the fundraisers themselves often create costs. This has made politicians more dependent on raising campaign financing and less focused on solving the nation’s problems.
The Center for Responsive Politics found that, in 2020, candidates who spent the most money won elections 87% of the time for Congress, 71% for Senate. Maplight, a nonprofit, nonpartisan organization dedicated to defending democracy, conducted an analysis discovering that House members, on average, each raised $1,689,580, an average of $2,315 every day during the 2012 cycle. Senators, on average, each raised $10,476,451, an average of $14,351 every day during the 2012 cycle. These figures do not prove that money alone wins elections, but it undoubtedly helps.
What we have is a two-sided Pay to Play system. Pay to Play for individuals/lobbyists because donating money or providing favors to the elected official will increase your chances of getting meeting time and influencing legislative decisions. But it’s also Pay to Play for the elected official who needs funding to compete in elections.
Alternatively, elected officials and Congressional staffers looking to change careers have monetary incentives to engage in crony capitalism. Lobbyists can offer lucrative positions at their firm or their clients in exchange for favorable legislation, tax cuts, etc. Public Citizen has reported that 59% of Congress members from the 2017-2019 classwork for lobbying firms.
How Crony Capitalism Benefits Corporations
The corporate rationale for engaging in crony capitalism can be quite simple. It comes down to one simple question: will we do anything to maximize profits, even if it requires doing something unethical?
Corporations have the man and financial power to make a genuine lobbying campaign. Their side gets disproportionately represented, potentially muting critics or opponents. This can especially become a problem when you have a rent-seeking official.
Institutions that can afford lobbyists too often dominate legislative consideration of issues that affect those that cannot afford lobbying (although businesses most subject to government intervention might need to lobby so that their real-world perspectives will be brought into “the formulation of public policy).
Crony capitalism can lead to massive businesses monopolizing markets, preventing competition, and consequent price reductions. Corrupt and powerful corporations have even allegedly drafted the legislation they want enacted.
Proposed Examples of Crony Capitalism
Several highly debated cases of crony capitalism across the U.S. economy have emerged over the years. It’s important to remember that economic rigging could be happening in many different industries/sectors.
We’ll quickly cover just a few potential examples here.
The Federal Reserve served as the lender of last resort, making major bailouts for the Long Term Capital Management (LTCM) collapse, the savings and loan crisis, and the 2008 financial crisis.
These Fed-funded (i.e. taxpayer-funded) bailouts, in short, reward corporations that take on excessive risk. In some cases, corporate executives received handsome returns for tanking the economy.
For example, in the aftermath of the 2008 financial crisis, the cronies on Wall Street responsible for the economic disaster made killings while many Main street investors (the average American with a retirement fund) have never truly recovered.
In 2019, the pharmaceutical/healthcare industry spent close to $600 million on lobbying, making it the sector with the highest lobbying spend.
Drug prices in the U.S., on average, end up costing citizens four times more than citizens of other similarly developed countries spend for the same medicine. Furthermore, corporations have used pay-for-delay deals to stop competitors from releasing their biosimilar version of a drug.
One particularly contentious debate around crony capitalism in the pharmaceutical industry involves the non-interference clause in Medicare Part D. The clause legally prevents the government from negotiating prices for drugs offered through Medicare Part D. Lobbyists and elected officials allegedly had a major part in not only adding the non-interference clause to Medicare Part D but making sure it remained enacted.
Turns out the saying death and taxes are the only two certainties may not be true.
With tax havens and low capital gains tax rates, wealthy individuals and corporations have many ways to reduce the amount of taxes they pay. According to the White House’s figures, individuals paid about 89% of the government’s revenues (tax) in 2019. Businesses paid around 7%. When you factor in that major corporations have allegedly avoided paying taxes altogether, you would be justified in thinking much of the 7% is being paid by ethically run businesses.
Summarizing the Harmful Effects of Crony Capitalism
While numerous examples of healthy public-private partnerships exist, the effects of crony capitalism cannot go ignored any longer. It has taken a considerable toll on countless hard-working Americans trying to live a good and honest life.
Crony capitalism has arguably:
- Impeded necessary economic and political changes, which could in principle yield equity and efficiency gains for American citizens.
- Reduced market competition by enabling antitrust behavior and has given advantages to established entities over new players
- Resulted in subsidies or tax breaks that benefit economic elites and corporations at the expense of the general public.
- Promoted rent-seeking behavior in politics, shifting the focus away from protecting public interests
If left unchecked, crony capitalism will continue to widen the chasm of economic inequality. If we don’t address it ASAP, injustice and corruption will just continue to grow more entrenched in our financial and political system.
So let’s do something about it. Starting now.
End Crony Capitalism with the Zero Theft Movement
The Zero Theft Movement seeks to end the corporatocracy, rid moneyed interests from politics, and eliminate crony capitalism that has created a rigged economy. Our mission is and will continue to be, on waking up 330 million American citizens to the truth. That we can all profit from an ethical, powerful, and safe economy if we stand up against the cronies who rig the system.
Together we can make the first step by identifying what areas of the economy are rigged through investigations and voting. Citizens author theft proposals and the community decides whether that investigation has convincingly proven (1) theft is or isn’t occurring in a specific area of the economy, and (2) how much is being stolen or possibly saved. Through direct democracy, we can collectively decide where the problem areas are and start working on addressing them systematically.
The public has spoken! See how much the rigged economy is ripping off from you.
Explore the Problem Hierarchy
Before you get in on voting, why not educate yourself on some of the potential problem areas in government contracting:
Alternatively, find problem areas that might interest you more:
Serve your fellow citizens as a citizen investigator
The success of our movement rests in your hands, the leaders willing to dedicate time to conduct investigations into potentially rigged areas of the economy. Lead the movement and help create an ethical economy.
Heroism made easy
Twenty minutes! That’s all the time you need to contribute to our effort. Just review a proposal and vote. Our reports will only gain legitimacy and power with your contributions.
Commitment to nonpartisanship
The rigged layer causes all of us to suffer, regardless of our political allegiances. If we wish to eliminate rigged economy theft, we have to set aside our differences and band together against crony capitalists and corrupt officials.
Beyond Crony Capitalism…
An educated public is an empowered public.
We regularly publish educational articles on ZeroTheft.net, just like this one on crony capitalism. They teach you all about the rigged layer of the economy in short, digestible pieces.
The Zero Theft Movement does not have any interest in partisan politics/competition or attacking/defending one side. We seek to eradicate theft from the U.S economy. In other words, how the wealthy and powerful rig the system to steal money from us, the everyday citizen. We need to collectively fight against crony capitalism in order for us to all profit from an ethical economy.
Terms like ‘steal,’ ‘theft,’ and ‘crime’ will frequently appear throughout the article. Zero Theft will NOT adhere strictly to the legal definitions of these terms (since congress sells out). We have broadly and openly defined terms like ‘steal’ and ‘theft’ to refer to the rigged economy and other debated unethical acts that can cause citizens to lose out on money they deserve to keep.