Crony Capitalism

Extracted Attributes

• Core Mechanism

  Collusion between business elites and government officials

• Common Benefits

  Permits, government grants, tax breaks, and public works contracts

• Economic Impact

  Stifles innovation, distorts markets, and increases income inequality

• Primary Strategy

  Rent-seeking through monopolies or oligopolies

• Contrasting Concept

  Risk Capitalism (innovation-based value creation)

Timeline

• Publication of 'The Problem of Crony Capitalism: Modernity and the Encounter with the Perverse' by Kahn and Formosa. (Source: Wikipedia)

  2002-01-01

• Publication of 'American cronyism: How executive networks inflated the corporate bubble' by Gerald F. Davis. (Source: Wikipedia)

  2003-01-01

• Publication of 'Crony Capitalism, American Style' by Salter at Harvard Business School. (Source: Web Search Results)

  2014-10-22

• All-In Podcast Episode 164 discusses crony capitalism in the context of General Motors and the voiding of Elon Musk's pay package. (Source: Document 3f435d8e-7f67-4be0-a2d8-51c7c89a9071)

  2024-02-01

Crony capitalism

Crony capitalism, sometimes also called simply cronyism, is a pejorative term used in political discourse to describe a situation in which businesses profit from a close relationship with state power, either through an anti-competitive regulatory environment, direct government largesse, or corruption. Examples given for crony capitalism include the obtainment of permits, government grants, tax breaks, or other undue influence from businesses over the state's deployment of public goods, for example, mining concessions for primary commodities or contracts for public works. In other words, it is used to describe a situation where businesses thrive not as a result of free enterprise, but rather collusion between the business class and the political class. Wealth is then accumulated not merely by making a profit in the market, but through profiteering by rent seeking using this monopoly or oligopoly. Entrepreneurship and innovative practices that seek to reward risk are stifled since the value-added is little by crony businesses, as hardly anything of significant value is created by them, with transactions taking the form of trading. Crony capitalism spills over into the government, the politics, and the media, when this nexus distorts the economy and affects society to an extent it corrupts public-serving economic, political, and social ideals.

Web Search Results

• Crony Capitalism, American Style

  CRONY CAPITALISM, AMERICAN STYLE: WHAT ARE WE TALKING ABOUT HERE? • SALTER • OCTOBER 22, 2014 8 Defining Crony Capitalism Stripped to its essential characteristics, crony capitalism conveys a shared point of view—sometimes stretching to collusion—among industries, their regulators, and Congress that results in business-friendly policies and investments that serve private interests at the expense of the public interest.15 More specifically, crony capitalism is a special type of moneymaking that [...] “capitalism,” “crony” takes on a more cunning and sinister tone implying accomplices, co-conspirators, or collaborators working together in an underhanded manner. Much of that connotation is correct. David Stockman, former director of the Office of Management and Budget under President Reagan, subsequent Wall Street banker, and a libertarian critic of contemporary capitalism, defines crony capitalism as “stealing through the public purse in ways that reward the super-rich.”12 Painting with a [...] Strenuous lobbying by private-equity, real estate, and hedge funds has so far preserved the status quo. Is this crony capitalism at work? It all depends. . . Whether a public policy or rule qualifies as cronyism depends on factors such as unique access to public decision makers by beneficiaries, their overwhelming financial resources in lobbying public officials and financing their campaigns, and other means of crowding out opponents’ views—or even, in the worst case, implicit quid pro quos. In

• Crony capitalism

  Crony capitalism exists along a continuum. In its lightest form, crony capitalism consists of collusion among market players, which is officially tolerated or encouraged by the government. While perhaps lightly competing against each other, they will present a unified front (sometimes called a trade association or industry trade group) to the government in requesting subsidies, aid or regulation. For instance, newcomers to a market then need to surmount significant barriers to entry in seeking [...] Crony capitalism, sometimes also called simply cronyism, is a pejorative term used in political discourse to describe a situation in which businesses profit from a close relationship with state power, either through an anti-competitive regulatory environment, direct government largesse, or corruption. Examples given for crony capitalism include the obtainment of permits, government grants, tax breaks, or other undue influence from businesses over the state's deployment of public goods, for [...] Kahn, J. S.; Formosa, F. (2002). "The Problem of 'Crony Capitalism': Modernity and the Encounter with the Perverse". Thesis Eleven. 69: 47–66. doi "Doi (identifier)"):10.1177/0725513602069001004. S2CID "S2CID (identifier)") 144254578. Davis, Gerald F. (2003). "American cronyism: How executive networks inflated the corporate bubble". Contexts. 2 (3): 34–40. doi "Doi (identifier)"):10.1525/ctx.2003.2.3.34.

• Why Crony Capitalism Is Bad for Economic Growth

  In the case of crony capitalism, owners of companies receive credit and may expand because their size is a political asset (too big to fail). They may mislocate in the country’s capital to be close to those they wish to influence regardless of cost; since the owners receive subsidized credit regardless of the prospective real returns, cronies can persist in business even when their activities are no longer economic; and since they receive subsidized credit, they in effect have soft budget [...] As the real rate of return on capital fell for whatever reason, and the implicit subsidy in domestic credit also dropped, the flaws in the financial system and the commitment to cronies or chaebol became increasingly costly, just as SOE losses mount over time. Whether the problem is crony capitalism or SOEs, it seems evident that long-run satisfactory economic performance can be resumed only when means are found to allocate resources to best uses with arm’s-length transactions. [...] However, suppose instead that the cronyism consists of extend-ing to some individuals or groups favored status with respect to entry into economic activity. It is this form of cronyism that has been the focus of concern in East Asia. In countries pursuing im-port-substitution policies, this favoritism was exercised through the granting of import licenses for capital or intermediate-goods im-ports to these favored groups. Since foreign exchange was over-priced, it was rationed; since imports of

• IMPACT OF CRONY CAPITALISM ON INCOME INEQUALITY

  securing economic advantages, often leading to unfair competition and market distortions. Crony capitalism undermines the principles of a free-market economy by allowing privileged access to resources, contracts, and regulations, creating an uneven playing field for businesses and perpetuating income inequality. The cozy relationship between business leaders and government officials, often tinged with corruption (crony capitalism), is raising red flags for economists. This system can create an [...] literature books, thesis etc. Crony capitalism, characterized by close relationships between business elites and government officials, has been identified as a significant factor influencing income distribution. Using a comparative approach, this study analyzes the extent to which crony capitalism contributes to income inequality and explores the mechanisms through which this relationship operates. This is attributed to various factors, including preferential treatment and regulatory advantages [...] system, individuals and businesses gain advantages and influence over government policies and regulations through their personal connections rather than through fair competition in the open market. Crony capitalism refers to a form of economic system where individuals or businesses form mutually beneficial relationships with influential government officials or politicians for personal gain (Mazumdar et.al., 2008). In this system, political connections and favors play a significant role in

• How Trump's 'crony capitalism' has shaken up U.S. business

  But now, these business insiders say, Trump's policies are creating a government-controlled style of "state capitalism," in which the government — rather than competition between private businesses — shapes the economy. Some go so far as to call it "crony capitalism," meaning that the U.S. government picks winners and losers based on the president's personal relationships.