On Crony Capitalism: Its Origins and the Perils of a Hybrid Economy

Perhaps more so than at any other time in the past sixty years, the American left is predominantly anti-capitalist.  The most recent example of this is Occupy Wall Street, an ideologically incoherent movement, but one that more or less shouts its vote of no confidence for free markets.  I don’t disagree with the idea that there are people who abuse the capitalist system: rigging deals, engaging in insider trading, ensuring disproportionate bonuses for executives.  The question is “Why does that happen?”

The answer on the left is that there is something about capitalism itself that encourages this sort of behavior, and it is here that I strongly disagree.  If the alternative to this economic order is socialism or communism (or some “softer” diluted version of capitalism that looks more like these), we have to ask ourselves: Is there any historically-based reason to believe that these arrangements are less prone to abuse and manipulation?  I think the answer is no.  Rather than cite the many actual historical examples, I will recount a scene from Orwell’s 1984 that struck me as a young teenager (some of the details are probably off now).  After his capture and detention in the crypto-communist dystopia of Airstrip One, Winston is finally given an audience with a party insider (a character I think was named O’Brien).  During their discussion, Winston marvels at the quality of the wine and tobacco that O’Brien shares with him throughout the interview: out in the world no one has such luxuries.  Socialism and Communism both create their “1%,” they just choose different people and can’t bring themselves to admit that it exists.  Worse still, their “99%” is generally about 99% worse off than our 99%.

I am not saying that socialism or communism are more prone to abuse and disparity than capitalism: I am trying to get to the idea that the drive for material self-gain (by whatever means) is unfortunately an inherent one in the human character.  But there is one other reason for crony capitalism, and that is our government’s rejection of the free market model.  The proper operation of capitalism depends on non-intervention; in other words, the market is not supposed to have a “will.” Surely, capitalism produces winners and losers, but the economic structure itself doesn’t choose who they will be: individuals win or lose based on individual choices, ideas, and risks.

As an extension of our democratic insistence upon equality, we have lost our ability to accept the existence of the loser: everyone, the story goes, should “share in the prosperity.”  And everyone does, albeit to different degrees.  Thus, at the governmental level, we have pursued policies that provide a check on the forces of the free market.  We have sought to insulate individuals from the consequences of their choices and penalize other individuals for being beneficiaries of certain accidents of birth.  Put differently, we have introduced a “will” into the free market: the market no longer produces winners and losers, the people who control it choose them.  The outcome of this fence-sitting (should we choose the free market?  or the socialist model?), this hybrid economy, is that those entering the “free” market are less willing to take risks because they (rightly) perceive that in some way, the game is rigged.  Thus (wrongly), they sometimes seek illegal means to mitigate or insure against their potential losses.  I guess I’m saying that capitalism might be more ethical if we would trust it, stop trying to make it work like something it is not, and stop believing that the primary virtue of an economic order is its ability to bring about some abstract “social justice” and/or equality of outcome.  To set those goals as the ends of economic interaction is to ignore human nature and to negate so much of the individual drive to innovate, invent, produce, strive, win, prosper, and give.  Two cheers for capitalism.

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