Two kinds of capitalism

Political pundits and TV newsreaders make much of ‘crony capitalism’ - as if all capitalism is based on monopolistic tendencies. The mainstream media will usually characterize this as conspiratorial corporate collusion aimed at hapless consumers. Monopolies or price-fixing never last because they’re inherently inefficient and unmanageable in a dynamic free-market system. One needs only to look at OPEC, an openly conspiratorial and monopolistic bunch. Whenever OPEC oil ministers agree to set market prices at an artificially high benchmark it only takes a couple of weeks before one of their own is exceeding their production quota or lowering their prices. Despite all their machinations, they can’t control the price of oil. It’s market forces and human nature at work - good, bad or indifferent.

Typically, ‘crony capitalism’ involves government intervention or collusion, because the ‘cronies’ involved are usually government officials, elected or otherwise. Free-market capitalism by its very nature wouldn’t tolerate an unfair advantage, because market forces and competition would undermine the enteprise with an unfair or unethical advantage. This was true when our own government got involved in the corrupt practice of handing out special charters to politically connected individuals who would then form steamboat, railway, subway or trucking lines. These government-sponsored businesses were inherently inefficient and unprofitable not only because of the amount of bribery and graft involved, but because workers and management didn’t apply themselves, confident that their government charter protected their incomes. This is as true today as it was in the 1840s, when crony capitalism first began to appear. Compare Northern Suffolk Railways, a profitable private-sector operator, to Amtrak, a government-controlled operator that costs taxpayers millions each year. Fannie Mae and Freddy Mac, both government-chartered lenders, were subject to corruption and political gamesmanship that triggered the mortgage meltdown.

Pure capitalism has little in common with crony capitalism. In fact, crony capitalism is more closely aligned with socialism, where the government owns businesses outright. When government gets involved in business, those businesses will be run with the vision, energy and efficiency of government itself. In other words, it will be a disaster. Which doesn’t provide us much hope now that government is part-owner of banks, broker-dealers, insurance companies and carmakers.