Conservatives and Cronyism: Time to Take Action

A really important column appeared November 3, 2016 by Yuval Levin in the National Review Online.  The title was “It’s Time for the Right to Get Serious about Tackling Cronyism,” and that title perfectly captures the thrust of the article.  You can read it here:  (Sorry, Bert Wheeler, I still can’t master just “link”).  But note the article was aimed at conservatives (including Republicans), though liberals have plenty to answer for on this front as well.  The subject was an old “friend” of ours here: cronyism.  Cronyism is a word recently coined for what economists call rent-seeking, but what in practice has existed for centuries (witness Mercantilism of the 16th through 18th centuries).  Levi characterizes cronyism pretty well: “Providing business interests (or labor interests, or any other established, well-connected group) with special benefits or shielding established market actors from competition….” (NRO, Nov. 3, 2016).  He adds examples:

“Direct subsidies to agribusiness and loan guarantees for some of our largest exporters use public resources to protect the standing of established market giants. The staggering array of tax carve-outs and targeted regulations benefits businesses with the resources to lobby and to ensure compliance, and comes at the expense of new competitors.” (Ibid.).

And more:

“But cronyism reaches much farther than these relatively obvious examples, to the core of the problems of modern American government. Self-dealing is, for instance, at the heart of our primary- and secondary-education crisis, as schools and districts are run in the interests of administrators and tenured teachers rather than students. It is a driving force behind our higher-education dilemmas, as the already accredited run the accreditation system and keep out new competitors and new models of schooling and financing. It undermines upward mobility, as established players in one industry after another use licensing and certification requirements to keep out competitors. It distorts our immigration debate, as the national interest and the interests of powerful employers are willfully confounded. It is a primary barrier to market-oriented health-care reform.” (Ibid.)

And finally:

“The federal government now uses a number of programs to subsidize American companies that export their products, for instance. Most notable in recent years (though far from alone) has been the Export-Import Bank. It provides taxpayer-backed loan guarantees, among other forms of subsidy, to lower the financing costs of foreign consumers who buy high-cost American-manufactured goods (such as aircraft and construction equipment). These subsidies benefit foreign buyers and domestic manufacturers at the expense of American consumers and taxpayers. They often simply reduce costs for purchases that would have been made anyway, while putting the domestic competitors of foreign buyers at a disadvantage (such that, for instance, an American airline pays more for a jet than does a foreign airline that has its financing backed by U.S. taxpayers).” (Ibid.)

Large, very wealthy businesses, organizations and individuals manage to “capture” Congress or administrative agencies (or state governments) to do their bidding, in the process doing two very bad things to individuals: (1) raising prices of goods and services without corresponding quality increases and with no new demand driving those higher prices and (2) denying individual who have creative and innovative capacities by virtue of being made in the image of God of reaching their fullest potential—in fact actually stifling of innovation by making it difficult or impossible to enter a market and compete.

The regulations established by bureaucrats make it difficult for beginning or small firms or sole proprietorships to pay the costs of meeting the standards, which sometimes were imposed simply at the bequest of the larger firms who of course don’t like competition.  The lack of competition then enables firms to charge higher prices and to skimp on quality.  Moreover cronyism jades our views of markets, as Levin points out, because we tend to define capitalism as equivalent to what we see in cronyism.  Of course this is not the case.  We have been repeatedly warned that real free markets don’t look like crony capitalism.

Levin writes (sorry for the long quote):

“Voters of all political stripes seem increasingly to think that the economy is somehow rigged against them, and to the benefit of some wealthy and powerful interests. This isn’t always true, of course, and it can easily become a convenient excuse for demanding special favors or protections. Indeed, resentment against the wealthy and powerful is frequently channeled by the Left to empower greater government intervention — ironically creating new opportunities for the wealthy and powerful to lobby and to curry favor…. But the Left’s tendency to misdirect concerns about favoritism and cronyism is not an excuse for the Right to pretend that such concerns are baseless. It is important to take those concerns seriously, both because they are in many cases valid and because cronyism badly undermines the kind of market economics that conservatives think is essential to America’s wealth and freedom. The failure to take complaints about cronyism seriously is in this sense both a political and an intellectual failure for conservatives — and the two reinforce each other.”

Conservatives had better take heed or the very outcomes they want, free markets in the economic realm, will be destroyed by both cony capitalists and voters who define markets as cronyism.  Unfortunately, those voters are sometimes all too right about what they perceive.  I agree with Levin:  The goal of government is not to protect any firm, but to establish rules by which all can compete on a level playing field, no more and no less.

Before I finish, there are ways to attack cronyism.  It will not be easy.  The incentives are already in place to create a kind of inertia, in Congress, agencies, large firms, unions, etc.  I have policy ideas, but they can wait.  First we must recognize our myopia on this subject.  It is a moral imperative.