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Cronyism: Crushing the Free Market and Promoting Rent-Seeking

Posted By Romina Boccia On August 28, 2012 @ 3:10 pm In Featured | Comments Disabled

Imagine your son or daughter aspiring to be a government crony instead of an engineer or business owner. That nightmare scenario plays out in a new video [1] by Crony Chronicles [2], a website that fights cronyism.

In the video, kids who might otherwise have become doctors and architects aspire instead to work in powerful government agencies or to become lobbyists to help put rules in place that favor their friends. Crony Chronicles describes cronyism as follows:

Cronyism occurs when an individual or organization colludes with government officials to create unfair legislation and/or regulations which give them forced benefits they could not have otherwise obtained voluntarily. Those benefits come at the expense of consumers, taxpayers, and everyone working hard to compete in the marketplace.

A system of political favoritism is increasingly encroaching on America’s free-market system. In a recent Wall Street Journal op-ed [3], Luigi Zingales, a professor at the University of Chicago’s Booth School of Business, argues that crony capitalism is at the root of the West’s economic situation and that the U.S. is not far behind [4] Italy and Greece when it comes to fiscal woes:

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.

Some of the best-known examples of crony capitalism include the Detroit auto bailout [5] and the loan guarantee to the now-bankrupt solar company Solyndra [6]. But crony capitalism comes in many more forms and shapes than bailouts and loan guarantees.

A recent report [7] by Mercatus Center scholar Matthew Mitchell lists the various forms that government-granted privileges take and explains their harmful consequences, including less economic growth, more government spending, and rent-seeking.

Additional examples of cronyism are barriers to entry granted through monopoly or regulatory privileges, tax privileges, bailouts, and tariffs and quotas imposed on foreign competition.

Free enterprise, limited government, and individual freedom form the bedrock of America’s greatness. They allow the American economy to flourish and its people to prosper. To strengthen these principles, we must root out crony capitalism by attacking its source: big government.

We can do this by cutting government spending [8], eliminating all government subsidies [9] to industry, and reducing harmful regulation [10].


Article printed from The Foundry: Conservative Policy News from The Heritage Foundation: http://blog.heritage.org

URL to article: http://blog.heritage.org/2012/08/28/cronyism-crushing-the-free-market-and-promoting-rent-seeking/

URLs in this post:

[1] new video: http://www.youtube.com/watch?v=2aO9tA5DWJM&feature=youtu.be

[2] Crony Chronicles: http://cronychronicles.org/

[3] Wall Street Journal op-ed: http://online.wsj.com/article/SB10001424052702303665904577450071884712152.html?KEYWORDS=luigi+zingales

[4] the U.S. is not far behind: http://www.heritage.org/federalbudget/us-debt

[5] Detroit auto bailout: http://www.heritage.org/research/reports/2012/06/auto-bailout-or-uaw-bailout-taxpayer-losses-came-from-subsidizing-union-compensation

[6] solar company Solyndra: http://blog.heritage.org../../../../../2012/08/06/morning-bell-solyndra-revelations-show-its-time-to-close-the-bank-of-washington/

[7] report: http://mercatus.org/publication/pathology-privilege-economic-consequences-government-favoritism

[8] government spending: http://www.heritage.org/research/reports/2012/06/cbo-s-long-term-budget-outlook-congress-must-act

[9] all government subsidies: http://www.heritage.org/research/reports/2011/11/real-energy-tax-reform-eliminates-subsidies

[10] harmful regulation: http://www.heritage.org/research/reports/2012/03/red-tape-rising-obama-era-regulation-at-the-three-year-mark

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