Saturday, 1 September 2012

What is Crony Capitalism?

The term "crony capitalism", although the relationship between the state and well-connected businesses have existed for decades and even centuries (or probably from the very beginning when states were first formed), has become ever more noticed in recent years with the large scale bailouts of "too big to fail" companies by governments, the tax payer that is. So if you're not familiar with the term or simply need a reminder, here's what it is.

The Ludwig von Mises Institute explains,
Crony Capitalism is a term that refers to the relationship between the state and politically well-connected businesses in a mixed economy. The state’s natural tendency is to grow, spreading its influence into more and more sectors of society and its economy. As society becomes increasingly controlled, collusion between the political class and well-connected business leaders occurs with greater frequency and to a much higher degree.
And according to Wikipedia,
Crony capitalism is a term describing an economy in which success in business depends on close relationships between business people and government officials. It may be exhibited by favoritism in the distribution of legal permits, government grants, special tax breaks, or other forms of dirigisme. Crony capitalism is believed to arise when political cronyism spills over into the business world; self-serving friendships and family ties between businessmen and the government influence the economy and society to the extent that it corrupts public-serving economic and political ideals.
The term "crony capitalism" made a significant impact in the public arena as an explanation of the Asian financial crisis. According to a recent opinion poll, 39% of America believe the US has a crony capitalist system.

And here's Ron Paul's explanation of capitalism vs crony capitalism,



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