Free-Market or Crony Capitalism?

It is rather interesting to hear the Obama administration argue they are pro-business. They may believe what they are saying, but true free-market capitalists would opine that Obama can’t grasp what being pro-business implies. Being pro-business does not mean changing the rules and regulations to help certain companies led by those who provided you with campaign dollars, while putting up barriers to their competitors. That is not capitalism: that is crony capitalism.

crony capitalism

Crony capitalism is precisely why nations like Russia have not been able to make capitalism work; manipulation, fraud, extortion, and corruption dissuades potential investors from risking capital unless they’re connected to those in power. It’s amusing when the Obama administration tells the American people that it believes in innovation, entrepreneurship, that these are the qualities that made America great, while propping up one industry and over-regulating another, destroying the mechanisms for market balance and equality.

When the Obama administration uses regulators to target one industry sector, issuing fines and increasing fees, then provides subsidies to other industries they wish to encourage with tax credits and relaxed regulations, they destroy the underpinnings of free-market capitalism. A strong example of the Obama administration favoritism can be found in Obamacare where the law demands all companies satisfy the requirements but certain favored companies are given exemptions; they have removed all fairness and neutrality from the marketplace. This is crony capitalism.

How can Mr. Obama claim he supports entrepreneurship, small businesses, and innovation while picking winners and losers? Why would anyone take the risk of investing in a company unless they knew they’d have the backing of the administration? It says you must first buy political patronage before risking capital; this is the cronyism of crony capitalism. The market no longer favors those that can provide a product to the public at a profit but rather a company producing a product supported by a political party; it is the opposite of free-market capitalism; the natural self-correcting characteristics of the U.S. economy is hindered and recovery slowed, much as we’ve seen these past few years. Crony capitalism stymies economic growth.

Crony Capitalism Destroys Markets and Innovation

President Obama’s approach warns entrepreneurs that we no longer believe in honest business dealings but rather favoritism, a classic earmark of crony capitalism. When you reward market manipulation and corruption, only the most amoral business leaders rise to the top; the free-market collapses. It’s no longer about building a better mousetrap but rather buying the most support from politicians; corruption reigns and innovation dies.

Does the institutionalization of crony capitalism mean honesty and ethics have become a liability for business entrepreneurs? Yes. Innovation will continue but at a far slower pace. Risk will be moderated by those with sufficient funds to purchase political support diminishing the opportunity for those at the lower end of the economic ladder to start businesses. Some of the greatest business successes have come from companies started with only a few dollars. Imagine if Steve Jobs and Steve Wozniak had tried to open Apple Computer in their garage in this business environment. Jobs and Wozniak had no funds to buy political favor. An administration that portends to support the little guy yet sells its support to those that help fund their political activities depresses the economy; in this environment only those with deep pockets can avail themselves of the benefits of Obama’s crony capitalism.

Free-market economies thrive when the demands and needs of the public are satisfied by business. Free-market economies cannot survive when the government decides what the consumer needs. In November you’ll get the opportunity to decide whether you want to yield that control to your government.