Crony Capitalism

The term “crony capitalism” first appears in an August 24, 1981 Time magazine article by John DeMott and edited by George M. Taber. In a 1998 “On Language” article in the New York (NY) Times written by William Safire, Taber said: ‘‘Everyone was talking about Marcos and his ‘cronies,’ and I probably came up with it for alliterative reasons.’’  The term “crony capitalism” quickly spread from its early 1980s Philippines usage to apply to many other countries.
 
“Crony capitalism” occurs when government develops friendly relationships with particular private sector business people, often resulting in government grants and special tax breaks. “Crony capitalism” (or “cronyism”) often results in corruption, with favored entities receiving special deals. Critics of U.S. President Barack Obama’s 2009 bailouts and “green jobs” programs have charged “cronyism” or “crony capitalism”—the opposite of “free-market” capitalism.
 
 
Wikipedia: Crony capitalism
Crony capitalism is a pejorative term describing an allegedly capitalist economy in which success in business depends on close relationships between businesspeople and government officials. It may be exhibited by favoritism in the distribution of legal permits, government grants, special tax breaks, and so forth.
 
Crony capitalism is believed to arise when political cronyism spills over into the business world; self-serving friendships and family ties between businessmen and the government influence the economy and society to the extent that it corrupts public-serving economic and political ideals.
 
Crony capitalism in practice
In its lightest form, crony capitalism consists of collusion among market players. While perhaps lightly competing against each other, they will present a unified front to the government in requesting subsidies or aid (sometimes called a trade association or industry trade group). Newcomers to a market may find it difficult to find loans or acquire shelf space to sell their product; in technological fields, they may be accused of infringing on patents that the established competitors never invoke against each other. Distribution networks will refuse to aid the entrant. That said, there will still be competitors who “crack” the system when the legal barriers are light, especially where the old guard has become inefficient and is failing to meet the needs of the market. Of course, some of these upstarts may then join with the established networks to help deter any other new competitors. Examples of this have been argued to include the keiretsu of post-war Japan, the chaebol of South Korea, and the powerful families who control much of the investment in Latin America.

Crony capitalism is generally associated with more virulent government intervention, however. Intentionally ambiguous laws and regulations are common in such systems. Taken strictly, such laws would greatly impede practically all business; in practice, they are only erratically enforced. The specter of having such laws suddenly brought down upon a business provides incentive to stay in the good graces of political officials. Troublesome rivals who have overstepped their bounds can have the laws suddenly enforced against them, leading to fines or even jail time.
 
States often said to exhibit crony capitalism include the People’s Republic of China; India, especially up to the early 1990s when manufacturing was strictly controlled by the government (the “Licence Raj”); Indonesia; Argentina; Brazil; Malaysia; Russia; and most other ex-Soviet states. Critics claim that government connections are almost indispensable to business success in these countries. Wu Jinglian, one of China’s leading economists and a longtime champion of its transition to free markets, says that it faces two starkly contrasting futures: a market economy under the rule of law or crony capitalism.
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Creation of crony capitalism in developing economies
In its worst form, crony capitalism can devolve into simple corruption, where any pretense of a free market is dispensed with. Bribes to government officials are considered de rigueur and tax evasion is common; this is seen in many parts of Africa, for instance. This is sometimes called plutocracy (rule by wealth) or kleptocracy (rule by theft).
   
wiseGEEK
What is Crony Capitalism?
Crony capitalism is a condition in which participants in an economy rooted in capitalism earn and manipulate favor with one or more government entities. The favor is generally not based on quality or merit; instead the relationship is normally based on political posturing that results in both the capitalists in business and the government officials determine such a relationship would be mutually advantageous. In the worst examples, this variant of capitalism creates a situation where taxes collected from citizens are used to purchase overpriced goods and services from favored suppliers, who in turn influence the creation and application of laws impacting business operations.
   
The basic function of crony capitalism is similar to that of cronyism. With cronyism, two or more businesses effectively form a working relationship that closes the marketplace to competing entities. Often, the business climate is made so unpleasant that newer companies are unable to connect with the target market and are effectively run out of business. With crony capitalism, this same set of circumstances also exists, but adds the factor of the manipulation of a government agency to maintain what amounts to a shared monopoly of the marketplace.
 
In general, the businessmen and businesswomen who function as cronies within crony capitalism relationships are much more concerned with personal interests that with the general health of the economy or the welfare of consumers.
   
Investopedia
Crony Capitalism
A description of capitalist society as being based on the close relationships between businessmen and the state. Instead of success being determined by a free market and the rule of law, the success of a business is dependent on the favoritism that is shown to it by the ruling government in the form of tax breaks, government grants and other incentives.
     
Merriam-Webster’s Online Dictionary
Main Entry: cro·ny
Pronunciation: \ˈkrō-nē\
Function: noun
Inflected Form(s): plural cronies
Etymology: perhaps from Greek chronios long-lasting, from chronos time
Date: 1656
: a close friend especially of long standing : pal
 
Time magazine
Friends in Need
Monday, Aug. 24, 1981
A case of crony capitalism
 
President Ferdinand E. Marcos has ruled the Philippines since 1965, including eight years of martial law that ended only in January. Standing essentially unopposed for re-election in June, he won handily with 88% of the vote. But Marcos may face his greatest threat because of Dewey Dee, a textile magnate who fled the country eight months ago and left behind more than $80 million in debts. The incident threw Philippine financial institutions into turmoil and exposed as seldom before the cronyism and corruption that has characterized the Marcos government’s relationship with business.
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Officials claim that the state will sell its interests when stability returns, but critics say that this is nothing less than de facto nationalization. One thing has not changed in Philippine business: Marcos’ pals are still running the companies. Crony capitalism is thus turning into crony socialism.
   
Time magazine
The Philippines: An Uncertain New Era
By Ross H. Munro/Washington;John Nielsen.;Sandra Burton/Manila Monday, Sep. 05, 1983
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Under martial law, the Philippine military has been transformed from a small, apolitical force into a bloated guarantor of Marcos’ power. The country’s institutions, from city halls to the courts to the press, have been emasculated. The economy has been crippled by “crony capitalism,” a system that saw the government pour hundreds of millions of dollars into a handful of companies controlled by the President’s friends.
     
Google News Archive (same story as below, from February 21, 1984, but without “crony capitalism” in the headline—ed.)
27 February 1984, Winnipeg (Manitoba, Canada) Free Press, pg. 30, col. 1:
Foreign lenders
seek to change
“crony capitalism”
By William Branigan
The Washington Post
MANILA, The Philippines—With the Philippine economy continuing to deteriorate, foreign lenders are seeking major economic reforms that could affect the power and influence of President Ferdinand Marcos’ inner circle.
 
In effect, the aim—supported by the Philippine business community and some top government officials—is to dismantle the system of “crony capitalism” in which friends of the president have amassed great wealth through monopolies and government favoritism.
     
New York (NY) Times
On Language; Crony Capitalism
By William Safire
Published: February 1, 1998
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The earliest use I can find of this alliterative gem is in the Aug. 24, 1981, issue of Time magazine, in an article about the financial predations of President Ferdinand Marcos. ‘‘Crony capitalism is thus turning into crony socialism’’ was its last line, and ‘‘A Case of Crony Capitalism’’ was its headline. The writer, John DeMott, disclaims coinage, suggesting that it may have come from a correspondent in the field or from an insertion by his editor at the time, George M. Taber.
 
Taber, now editor of Business News New Jersey, recalls how ‘‘everyone was talking about Marcos and his ‘cronies,’ and I probably came up with it for alliterative reasons.’’ Time editors then wrote the headlines, and ‘‘we spent an awful lot of time on the last paragraph, trying to make that loop from the headline to the last paragraph.’’
 
Let us now follow the track of crony, college slang at Cambridge in the 17th century, rooted in the Greek khronios, ‘‘long-lasting,’’ from khronos, ‘‘time.’’ (The slang term they used at Oxford for this was chum.) The chronic diarist Samuel Pepys, in his entry for May 30, 1665, wrote of ‘‘Jack Cole, my old [Cambridge] school-fellow. . .who was a great chrony of mine.’’
 
In politics, crony took on a pejorative connotation as the sinister side of ‘‘friend’’—more of a hanger-on, the recipient of favors for old times’ sake. In 1946, when President Harry Truman’s poker-playing friends brought disrepute on his Administration, the New York Times columnist Arthur Krock wrote that ‘‘New Dealers and Conservatives found themselves together in opposition to what a press gallery wit has called a ‘government by crony.’‘’
 
Soon afterward, Secretary of the Interior Harold Ickes (the memorable father, not the forgetful son) resigned from the Truman Cabinet with the well-publicized blast, ‘‘I am against government by crony.’’
 
Fox Business Network
January 13, 2010 08:52 AM EST by John Stossel
This Week’s Column: Take the “Crony” Out of “Crony Capitalism”
On my FBN TV show this week (Thursday 8pm ET / 5pm PT), we’ll take a hard look at crony capitalism. That’s when Big Business cozies up to Big Government and gets subsidies, bailouts, favoritism, and noble sounding regulations that just happen to benefit themselves. All too often, “crony capitalism” is conflated with “free market capitalism”, but that gives the free market a bad name. The two are very different. In a free market system, there is no preferential treatments for friends of politicians. If a business fails, there is no bailout.
 
That’s also the subject of this week’s syndicated column. Since the recession began, we’ve heard politicians and pundits declare that “capitalism” has failed:
 
But what exactly is this “capitalism” that is blamed?
 
The word “capitalism” is used in two contradictory ways. Sometimes it’s used to mean the free market, or laissez faire. Other times it’s used to mean today’s government-guided economy. Logically, “capitalism” can’t be both things. Either markets are free or government controls them. We can’t have it both ways…
 
If free-market capitalism is a private profit-and-loss system, crony capitalism is a private-profit and public-loss system. Companies keep their profits when they succeed but use government to stick the taxpayer with the losses when they fail. Nice work if you can get it.
   
Reason.com
Reason.tv: Tim Carney on “Obamanomics”—Crony capitalism disguised as progressive reform
January 21, 2010
In his new book Obamanomics: How Barack Obama is Bankrupting You and Enriching His Wall Street Friends, Corporate Lobbyists, and Union Bosses, Timothy P. Carney explains that Barack Obama’s “progressive” rhetoric masks good old-fashioned crony capitalism, in which the favored few and politcally well-connected get all sorts of benefits paid for with public dollars. Whether the area is Wall Street, health care reform, union organizing, or K Street lobbying, the same pattern is everywhere: using the government’s power to distribute goodies and rig markets.