Crony Capitalism Comes With Big Government

Economic policy issues often divide on “pro-business” and “pro-government” arguments, with the pro-government side arguing that we need big government to correct the failures of the market, regulate business activity, and stand up to crony capitalism.  The problem with this pro-government view is that crony capitalism inevitably comes with big government.

In a democracy we are often told it is our patriotic duty to vote, to be informed citizens, and to get involved with government.  So, when big business gets involved, they are just doing what civics classes tell us everyone should be doing.  Former president of General Motors Charles Erwin Wilson was famously misquoted as saying “What is good for General Motors is good for the country,” and that theme underlies all business lobbying.  No lobbyist says “Give my client these benefits at the expense of everyone else.”  Lobbyists say the benefits they want for their clients are in the public interest, and they may even believe it.

When government is limited, both in its budget and its regulatory powers, businesses seek profits through innovation and productive activity.  Big government inevitably influences business profitability because taxes lower profitability, subsidies can raise it, government expenditures can aid business projects, and regulations can provide both benefits to firms and erect barriers for their competitors.  So, with big government, businesses have to turn their attention toward those activities of government that influence their profits.

The notion that big government can control crony capitalism is exactly backwards.  Big government causes crony capitalism.

I’ve mentioned the business side of crony capitalism, but the government side is just as strong, because those in government want the benefits that businesses can offer.  Set aside the possibility for bribes and corruption.  Businesses supply campaign funds, jobs, inside information, junkets, and other benefits that are legal and part of the accepted political routine.  Government benefits business, and business benefits government.  That’s crony capitalism, and when government has big regulatory powers and a big budget, it is inevitable.

While many supporters of big government argue for more government intervention in the economy to fight crony capitalism, bigger government only makes that problem worse.  The only way to fight crony capitalism is to shrink government.

Randall G. Holcombe is Research Fellow at the Independent Institute and DeVoe Moore Professor of Economics at Florida State University. His Independent books include Housing America: Building Out of a Crisis (edited with Benjamin Powell); and Writing Off Ideas: Taxation, Foundations, and Philanthropy in America .
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