Home
/
RELIGION & LIBERTY ONLINE
/
Does capitalism always become crony?
Does capitalism always become crony?
Dec 27, 2024 11:40 AM

Mark Zuckerberg has finally admitted he needs help. From the government. After years of shady dealing, data collection, and intentionally designing addictive technologies, Zuckerberg has asked the government to regulate tech.

And who do you think will help write all the regulation that “regulates” all these tech firms? Bureaucrats in Washington won’t have enough knowledge, of course, so they’ll have to get it from experts in the tech industry. Lucky tech industry. Now that Facebook and Google, et al., have such huge marketshare, it’s time to create barriers to entry and costly regulations that only big existing firms can afford.

One of the critiques of capitalism from progressives to traditionalist Catholics is that despite all the talk of free markets, capitalism always ends up in crony capitalism. Supporters of the market economy claim that this is a distortion of capitalism, and that it is government intervention that is the culprit, but this can often sound like the socialist who tells us despite the evidence from the Soviet Union, North Korea, Cuba, and Venezuela that real socialism hasn’t been tried.

How should we think about the relationship between capitalism and crony capitalism? Is it the case that capitalism always es captured by special interests, or can we create and maintain what Luigi Zingales has called “capitalism for the people”—a capitalism that doesn’t simply favor the wealthy and well-connected at the expense of everyone else?

The Road to Serfdom or The Road to Crony Capitalism?

Mike Munger and Mario Villareal-Diaz wrote an interesting piece on this topic in the Independent Review.

(There is a pay wall but there is much more to this article than I am highlighting; it is worth the money. They ask whether capitalism can be sustained in a democracy and use the work of Smith and the Spanish philosopher Ortega y Gasset’s book The Revolt of the Masses, which has some profound insights. I use Gasset’s work, especially his idea of the “spoiled child of history,” in my lectures on cultural critiques of capitalism and the victory of socialism.)

You can also listen to Munger’s EconTalk interview with Russ Roberts.

Munger and Villarreal-Diaz ask, “If real capitalism exists, is it sustainable? Or does capitalism in a democracy always devolve into corporatist cronyism?”

The reality is panies benefit when they go to the government for help and protection.

“At some point, panies cut back on hiring engineers and shift their focus to lawyers and lobbyists. The use of patents, lawsuits, professional licensing, and other regulatory barriers petitive entry into “your” industry or product line can produce enormous revenues, even though it adds nothing to the value of the product and does nothing to benefit consumers.”

It’s not panies that benefit. So does the state. Munger summarizes the tendency toward crony capitalism in a follow-up piece for the American Institute for Economic Research: “Corporate leaders benefit, monetarily and in the short run, from negotiating favorable legislation and protection from politicians.”

Even if business leaders behave “irrationally” and leave that money on the table—remember, it’s legal to lobby, even if it’s immoral—it’s still true that politicians benefit from making businesses dependent on taxpayer handouts. Businesses that don’t play along will be singled out for “special” attention, either extra taxes or e regulation.

Capitalism for the People

They are not alone in addressing this problem. There are number of interesting books on the problems of crony capitalism. Luigi Zingales’s 2012 book Capitalism for the People, Jonathan Tepper’s The Myth of Capitalism, Tim Wu’s The Curse of Bigness, and Hunter Lewis’s Crony Capitalism in America are worth reading. They have different perspectives. Some make the case for anti-trust legislation, some think that will make the problem worse.

As Munger and others have noted, the problem of crony capitalism was identified by the father of modern economics, Adam Smith himself.

Smith wrote: “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”

Smith argues that it would be a violation of liberty to prohibit such meetings, but that law should at least be careful not to “facilitate such assemblies.”

Collusion among businessmen is bad enough. It es even worse when business and government collude together. This, unfortunately, is the essence of today’s political economy—government and business working together for their own interests, what I’ve called Davos Capitalism.

Munger and Villareal-Diaz are right that “the road to cronyism leads through capitalism.” But must it always be so? And is there any solution to it? I think the answer to both questions is yes and no.

There is no way to create a perfect economy with perfect justice. As long as there are men and women involved, there will be collusion, cheating, and attempts at dishonest gain—including legal dishonest gain that petition. There is no perfect solution. The best we can do is create a system and solutions that help minimize cronyism and give the widest amount of opportunity to people. This requires rule of law, personal virtue, long-term thinking, and a culture that helps foster these things.

Munger argues that along with other institutional changes we need “to empower entrepreneurs not to want to e rent seekers and to constrain state actors not to sell off rents in the first place.”

This is right, but this requires a radically different concept of the the state-market relationship that we have now, not to mention a profound cultural and moral shift that would include among other things:

a shift away from the faulty thinking that as long as something is legal, then it must be morala restructuring of the current regulatory regimes and the “revolving door” between business and governmenta reduction in the power and size of the statea reduction in the political power, access, and influence of businessa new vision of mercial society that promotes petition and accessa reconnection of economics and moral philosophy

The Economy is Embedded in Culture

Part of the problem is that we have unhinged market economies from any real consideration of morality. This applies to the legal, but unfair and unjust practice of crony capitalism in the regulated sectors of the economy. It also applies to some of the practices in the freer, less regulated sectors, notably tech. Those of us who support free petitive market economies may not like to admit it, but alongside a highly regulated economy, we do have some radical free-market ideology in parts of big tech. When bine the Silicon Valley ethos of radical autonomy, Berkley Buddhism, and morally and socially unhinged techno-utopians with a free market economy, you get, well, Google, Facebook, and what Shoshanna Zuboff calls “surveillance capitalism.” To be clear, I am not suggesting that regulation is the best answer—as I note above it will, like most other regulation, get captured and only institutionalize the corruption.

This plicated topic with no immediate or simple solution. mercial society grew out of a certain culture with certain beliefs and standards. A lot of what we need to do is to reframe how we think about the economy in the light of human flourishing and mon good. We also need to take seriously the effects of culture on the economy.

As I wrote 10 years ago in a piece called “Davos Capitalism: Adam Smith’s Nightmare“:

The goal of economic liberty is not a society of producers and consumers in equilibrium. Economic liberty is important because it creates space for people to live out their freedom, take care of their families, and fulfill their responsibilities. Economic freedom is necessary because it allows people to take risks and create material prosperity for a flourishing life. Economic liberty is needed because without it there can be no political liberty. Both require individual virtue and a moral culture for sustenance. Neither an adolescent culture following its whims, nor a soulless culture severed from its historical roots, from the sacrifices and struggles of our fathers whose spirit and dedication to freedom made it possible, is adequate.

Lord Acton wrote, “Liberty is the delicate fruit of a mature civilization.” We must begin anew the work of rebuilding the moral mitted to truth, responsibility and a spiritual depth that the Davos Man cannot provide.

Image source: JD Lasica on Flickr License: (CC BY 2.0)

Comments
Welcome to mreligion comments! Please keep conversations courteous and on-topic. To fosterproductive and respectful conversations, you may see comments from our Community Managers.
Sign up to post
Sort by
Show More Comments
RELIGION & LIBERTY ONLINE
Should we treat Medicaid like food stamps?
Want to help the poor? Promote a free market in health care. That’s the argument made by John C. Goodman, author of the new book Priceless: Curing the Healthcare Crisis. Timothy Dalrymple talked with Goodman about the best approach for restoring free-market pricing mechanisms into the market for medical care and health insurance: Aren’t there some people, however, who have little of money and lots of time, and would prefer to wait in order to receive cheaper care? There are...
Unemployment as economic-spiritual indicator — July 2017 report
Series Note: Jobs are one of the most important aspects of a morally functioning economy. They help us serve the needs of our neighbors and lead to human flourishing both for the individual and munities. Conversely, not having a job can adversely affect spiritual and psychological well-being of individuals and families. Because unemployment is a spiritual problem, Christians in America need to understand and be aware of the monthly data on employment. Each month highlight the latest numbers we need...
How EU immigration policy spiked human smuggling
The trouble with modern politics is not merely that it is tribal. It is that the tunnel vision these tribal allegiances demand blind us to the permanent things. In Europe, a rhetorical battle wages over Europeans’ self-image. One side supports Angela Merkel’s open-door immigration policy and EU migration quotas for member states. It sees itself as cosmopolitan, Europhile, and offering the passionate response to the refugee crisis. This view, dominant in Brussels and the centers of political and academic influence,...
Fine arts form fine people at Chesterton Academy
In school art may be considered a hobby, a break from real schoolwork, or a chance for kids to let loose and express themselves. At Chesterton Academy of Milwaukee, art is treated as nothing less than a virtue. Theresa Jace, one of the founders of Chesterton Academy of Milwaukee, recently explained the importance of the fine arts within the broader classical liberal arts curriculum. Chesterton Academy of Milwaukee has been in operation for three years and is based on the...
What Care Bears can teach us about virtue ethics
Unless you’re a nostalgic Gen-Xer or a parent of a small child that likes old cartoons, you probably haven’t given much thought to the Care Bears. But since their debut in 1981, they’ve popped up everywhere. Although they were originally characters created for a line of greeting cards, the Care Bears have since appeared in a TV series, two TV specials, five feature films, several music albums, a video game, and ic book series. Books in which they’ve appeared have...
When is Tax Freedom Day 2017 in the EU?
Tax Freedom Day dawns in the U.S. earlier than 26 of the EU’s 28 member states. For two European nations, the date when employees stopped paying taxes and began earning money for themselves and their families came last week. Americans celebrated Tax Freedom Day shortly after they paid their taxes, this year: April 23, according to the Tax Foundation. Members of the European Union are not so lucky. A new report calculated Tax Freedom Day across every nation of the...
Maximizing profit and the average cost curve
Note: This is post #43 in a weekly video series on basic microeconomics. panies, being able to predict expected profits—or expected losses—is a very useful tool. In this video by Marginal Revolution University, Alex Tabarrok introduces the third concept you need to maximize profit — average cost. When looked at in conjunction with the marginal revenue and marginal cost, the average cost curve will show you how to accurately predict how much profit you can make! (If you find the...
The Burkean lessons of children’s lemonade stands
Every year when the air turns warm and green leaves bud, the same story seems to repeat itself: A motivated young person opens a lemonade stand, only to have police or a local zoning authority close it down because it lacks a business license. This holds true across the transatlantic sphere, from North America to Europe, summer after summer, like a nightmarish version of Groundhog Day. The most recent case of prominence took place in London last month. Police fined...
Free trade is good stewardship of creation
Christians seeking to be good stewards of God’s creation sometimes find themselves torn. The environmentalist movement tells them that the most destructive force ever unleashed upon Mother Nature is rapacious “neoliberal” capitalism, which they also know has has been thegreatest producer of wealthin history. If this teaching, which is mon among church leaders, is true, how should a person of faith view free markets? Thankfully, many of the environmental concerns about free trade are misguided, according to a new essay...
The moral hazard of fuzzy contracts
“You may already be aware that many state and local public pensions are in trouble,” says Victor V. Claar in this week’s Acton Commentary. “By one estimate, the nation’s state, county, and municipal governments face bined funding shortfall of about $5 trillion. . . But what you may not know is that many private pension funds are in trouble, too.” How did this happen? It depends on who you ask, but one can point to various culprits that include roller-coaster...
Related Classification
Copyright 2023-2024 - www.mreligion.com All Rights Reserved