A Brief History of Crony Capitalism in America
Crony capitalism has long been a facet of American life. Ever since the government radically expanded in the Progressive Era, government handouts and contracts rooted in corruption have enriched a few financiers and businessmen with pull at the expense of the average American.
Crony Capitalism During the Gilded Age
In many cases, crony capitalism is what led to those memorable dimensions of the Gilded Age. Yes, willpower, ruthless business practices, and the genius of the monopolists also played a role. Their business empires weren’t built on pull and corruption alone.
However, without the expansion of the government at both the state and local level, it is unlikely that much of what we remember of the Gilded Age would have happened. Crony capitalism created vast fortunes for politicians and Big Business.
Crony Capitalism During the Great Recession
Similarly, crony capitalism is part of what led to the Great Recession of 2008. Government programs and funding led to a housing boom that destroyed the savings of many hard-working Americans; much like college degrees today, too many people were able to buy homes because George W. Bush wanted to make it easier for unqualified people to buy them.
Then, when that led to the collapse of the banks and housing markets, crony capitalism stepped in again; government bailouts of big banks and businesses like GM saved the bankers and C-suite of mismanaged businesses at the expense of the now impoverished and out of work American public.
Once again, the government stepped in to solve a perceived problem, created more problems, and then tried to solve the new problems in the worst way.
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Crony Capitalism During 2020
We’ve seen much the same thing in 2020. Big Tech businesses like Amazon, Google, Facebook, Zoom, and Microsoft have thrived. So have more traditional Big Business companies like Walmart, McDonalds, Chick Fil A, and Target. Meanwhile, small businesses have been pushed to the brink. Independent restaurants, forced to only serve customers outside, if they’re even allowed to do that, are going bankrupt every day not because they’re mismanaged, but because they can’t act in their own best interest. Small shops and businesses have been forced to limit the number of their customers, making it difficult, if not impossible, for them to stay afloat.
Why has that happened? Because of crony capitalism. Our overlords have been bought off. Even before the horrendous stimulus bill that was recently signed, armies of lobbyists descended upon D.C. and state capitals. Campaign donations were made and so were special exemptions.
While your neighborhood taco joint or toy store was forced to close, Amazon rapidly expanded to ship more goods and groceries than ever, McDonalds handed burgers out of drive-through windows, and hordes of people fought over toilet paper in Target and Costco. You couldn’t go to the gym or even walk outside for pleasure, but Walmart could keep its doors open and sell cheap Chinese goods by the dozen.
All of that happened because of one term: “essential businesses.” Those that were deemed “essential’ by the powers that be could continue making money. In fact, they made more money than ever because their competition was not allowed to compete.
What businesses were deemed essential? The ones that could buy special favors. Gyms couldn’t remain open, but marijuana dispensaries could. Churches had to shut their doors to the faithful during this trying time, but casinos and strip clubs quickly reopened. Local restaurants couldn’t serve customers, but fast-food restaurants could.
That tragedy took place because of crony capitalism. Favors were bought and sold by those that could afford them and grant them and the public suffered.
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Why Corporatism Occurs
All three of those cases have their differences. The corporatist policies of the Recession took place because the government was trying to solve the problems that it created. The Gilded Age was defined by cronyism because politicians at every level wanted to enrich themselves and saw railroads or construction contracts as an easy way to do so. The corruption of 2020 took place because of our unreasonable response to the Covid pandemic.
But there are two factors that unite those disparate examples of crony capitalism: government power and the sale of that power. None of those moral and budgetary travesties would have occurred had the government remained small. The spoils system had been in place since the days of Andrew Jackson, but before the Civil War, it was largely limited to the postal system and importation system.
Once the federal government grew tremendously under Abraham Lincoln, however, there was much more money to throw around and power associated with it. Bureaucrats could enrich themselves and their friends by handing contracts to companies owned by acquaintances, as unscrupulous men like Boss Tweed frequently did.
Then the government grew again during the Bush and Clinton years, inserting itself into the housing market and pursuing counter-productive financial policies that expanded access to easy credit. The result was the crash and the cronyism that ensued; government power resulted in crony capitalism and riches for the corrupt at the expense of the honest.
Finally, there was the Covid pandemic. Thanks largely to liars like Dr. Fauci and his devoted following of Karens that thought the sky was falling, both the federal bureaucracy and state governments were given huge levels of control over what businesses could stay open and which ones had to close. The unsurprising result was crony capitalism. Governors and bureaucrats had more power and they quickly auctioned it off to Big Business.
In every case where the government was granted more power, it quickly put that power on the auction block. Contracts, bailouts, and exemptions were granted at the cost of campaign donations and payoffs.
Why 2020 Is The Worst Case of Crony Capitalism in American History
While crony capitalism has long existed, at least it led to some good ends in the past. Corruption is never acceptable, but at least it got the railroads built and city utilities modernized during the Gilded Age and saved the financial system from a temporary collapse during the Great Recession. Those tradeoffs probably weren’t acceptable, but at least there was something to put in the “positive” column.
In 2020, however, there were no positive results of the government’s sale of favors and corporatist policies. Millions are still out of work, not because they were bad employees, but because the government wouldn’t and still won’t let them work. Small businesses, the backbone of the American economy and our middle class, were devastated by government lockdown policies. And when the government did try to “help,” namely through the Covid relief bills, the main result was even more corruption and cronyism. Special interests received billions and average Americans were left with crumbs.
And what did we gain from that? Nothing but a transfer of wealth from the hard-working to the corrupt oligarchs and politicians. What Ayn Rand called the “aristocracy of pull” in Atlas Shrugged delivered a mortal blow to Jefferson’s aristocracy of talent. Hard-working small business owners lost everything; their life’s work and life savings vanished while Bezos saw huge returns on his Amazon stock and irresponsible airlines received billions of dollars of bailouts.
The crony capitalism of 2020 delivered what might be a mortal blow to real capitalism in America. Competition was snuffed out by government policies and now a few companies have more power than ever over the American economy.
Real capitalism requires competition; the need to beat competitors is what results in innovation, productivity gains, and cost or quality improvements for consumers. Corporatism, however, is rooted in the government’s monopoly on force and the ability of Big Business to buy that force. With crony capitalism, businesses don’t need to outcompete each other. They just need to buy off a bureaucrat and have that bureaucrat shut down their competitors.
2020 has been a terrible year. But the worst aspect of it was the reemergence of large scale cronyism. Now, thanks to the events that transpired ostensibly because of Covid, the monopolists and billionaires have more control over us and our political system than ever. That’s not capitalism, that’s an oligarchy rooted in corporatism, which is incredibly dangerous and does not portend the survival of our republic.
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