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What is Crony Capitalism?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 02 December 2016
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Although they mainly functioned as downspouts, gargoyles were also intended to scare people into attending church.  more...

December 3 ,  1989 :  The Cold War officially ended.  more...

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.

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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. They may seek to use their government ties to initiate new tax laws that will drive competitors out of business while at the same time seeking tax concessions that help to reduce their overall tax burden. Favored capitalists may also seek special privileges when it comes to mergers, securing government contracts, and obtaining permits on localized operations anywhere within the nation.

While referred to as crony capitalism, the concept effectively negates the basic tenets of capitalism. By attempting to control the marketplace, businesspeople who engage in this sort of activity prevent the growth of free enterprise and can sometimes create circumstances that have profoundly negative consequences for consumers and the economy in general. In many countries around the world, efforts to pass legislation that limits the practice of cronyism and crony capitalism have provided some success in containing the phenomenon.

However, crony capitalists can often identity and implement ways to circumvent the restrictions of laws aimed at limiting the incidence of crony capitalism. In some cases, they are able to manipulate the laws as a means of gaining an unfair advantage at the expense of another company or sector of the population. For this reason, the battle to minimize or eliminate crony capitalism from any capitalistic economy remains a difficult task.

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anon86257
Post 4

Your definition is imprecise. In crony capitalism, cronies (businessmen with mutual business interests) support each other, to the detriment of specific markets, and specific investors (George Bush's Harken Energy is a good example: it was propped up by Bush sr.'s cronies, and investors were soaked, because they thought it was a good investment, even though it was kept artificially afloat).

No government agency or entity advanced Bush jr.'s company, merely his dad's business contacts.

I've noticed a recent seeming attempt to rebrand "crony-capitalism" to fit the current administration, when the last president was a prime example, before he took office. It's a sad commentary on the current hyper-polarized political climate, that conservatives think this rebranding will last.

anon76548
Post 3

Capitalism nearly always sides down the slippery slope to Crony Capitalism unless barriers to this are made.

Immediately the cronies cry "communism" if a move is made to protect the public.

McCarthy was a terrorist for the cronies. No communist threat actually existed in the US but fear was spread and millions reacted disgracefully.

The test is, can capitalist be protected as a tool to further all of society or does the greed of a few have to wreck the system for others? At the moment the greed of a few has wrecked the system and people will have to be strong to fight the greedy who have taken control.

Another puppet for sick corporate greed waits in the wings

for the American people to be weakened and confused from their little show of strength last election. He/she may be worse than bush who is an international joke and America is the butt of it.

Slogans and name calling are spread by the unthinking, the greedy and the scared.

America is in conflict over whether inequality is fair and just or just plain greedy and stupid.

Test question: "Does it hurt to share a little or is that a weakness?"

anon60490
Post 2

So there is a name for what our government and some businesses are doing. Thanks

xathos
Post 1

Thank you, that was very enlightening. I'm assuming that at the moment, America is a good example of crony capitalism. I'm fully supportive of capitalism in principle (and also of idealistic communism), but I'm sick and tired of the corrupt system that we currently have now. I wasn't aware that this had a name, however. I had previously simply been calling it "corrupt capitalism". Thanks so much for the clarification; this also informed me about some things I didn't know about before.

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