Crony Capitalism Taking Over In The US

June 8, 2012

Crony Capitalism Taking Over In The US
Luigi Zingales worries in an op-ed in the WSJ that we’re becoming a bit too much like Italy:

In Italy today, even emergency-room doctors gain promotions on the basis of political affiliation. Instead of being told to study, young people are urged to “carry the bag” for powerful people in the hope of winning favors.

…Once an incompetent appointee finds himself in a powerful position, he tends to hire only subordinates of equal or lower quality, since more talented people pose a threat to him. After a few years, a firm’s human capital will become so eroded that it won’t be able to compete without some form of protection. The more protection it can gain from government, the greater the scope of the cronyism, which in turn makes protection even more necessary. Crony capitalism creates a vicious circle.

…Traditionally, the U.S. has enjoyed a relatively honest democracy and transparent form of capitalism, which encouraged robust economic growth and contained the hunger for entitlements. This is less and less true. The U.S. tax code is filled with loopholes and special exemptions. Political connections increasingly count more than innovative ideas; young entrepreneurs often learn to lobby before they learn how to run a business.

Seven out of the 10 richest counties in the U.S. are in the suburbs of Washington, D.C., which produces little except rules and regulations. Even worse, the slow growth and decreased social mobility of the last decade have damaged the free market’s reputation as a creator of prosperity. The hundreds of millions of dollars awarded for disastrous economic performance–from Robert Rubin’s salary as chairman of almost-bankrupt Citigroup to government loans for the actually bankrupt solar company Solyndra–have in turn weakened public belief in the system’s fairness.

For the U.S., the moment to act is now, before the cancer of crony capitalism metastasizes. The tax code needs an overhaul that eliminates special treatment and bans any form of corporate subsidy–starting with too-big-to-fail banks. We must find ways to introduce more competition into sectors such as education and health care, while expanding economic opportunity for those at the lower end of the income spectrum. And we must curb the political power that large industry incumbents have over legislation. Not only does it distort legislation, it also forces new entrants to compete on lobbying instead of concentrating on making more innovative and cheaper products.

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  • criolle

    “Taking” over? 
    Go back to your 7th grade US History class. Crony capitalism took over government during the War of 1812 and dominated debate about taxes and tariffs The War Between the States (when Republicans passed any tariffs they wished).
    The Hamilton/Jefferson debates were about crony capitalism.
    Nothing has changed except the names and the technology.

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