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"Crony capitalism" or "crapitalism" is a pejorative term describing a capitalist economy in which success in business depends on an extremely close relationship between the businessman and the state institutions of politics and government, rather than by the espoused "equitable" concepts of the free market, open competition, and economic liberalism. It may be exhibited by favoritism in the distribution of legal permits, government grants, special tax breaks, and so forth.
Crony capitalism arises when political cronyism spills over into the world of business, and the relationships between powerful businessmen and powerful politicians form a kind of aristocratic social hierarchy, influenced by self-serving friendships and family ties, to the extent that it corrupts public-serving economic and political ideals.
(Eg. One of China's leading economists and a longtime champion of its transition to free markets says that it faces two starkly contrasting futures: a market economy under the rule of law or crony capitalism.)
Viewpoints
The phrase is often used by socialists and other anti-capitalists, who assert that such corrupt processes are an inevitable result of any capitalist system. For example, Jane Jacobs calls it a natural consequence of collusion between those managing power and trade.
Theoretically, this can be explained by considering personal relationships as forming a network. As government and business leaders try to accomplish various things, they naturally turn to other powerful people for support in their endeavors. These people form hubs in the network. In a developing country those hubs may be very few, thus concentrating economic and political power in a small highly-interlocking group. In a fully developed country, the processes of capitalism have already concentrated wealth into the possession of a small group, with the same result: reduction of the number of hubs.
Capitalists generally respond that governmental favours are incompatible with true capitalism, that so-called "crony capitalism" is in fact the result of an excess of socialist-style interference in the market, which requires active corporate lobbying to reduce red tape. They point to the relatively higher levels of interaction between corporations and governments that are considered more socialist, taken to its maximum in the form of nationalization. For example, Burton W. Folsom, Jr., in his book The Myth of the Robber Barons, distinguished those that engage in crony capitalism – designated by him "political entrepreneurs" – from those who compete in the marketplace without special aid from government, whom he calls "market entrepreneurs".
Finally, some critics question whether the concept is meaningful at all, pointing out that personal factors influence business decisions in all economic systems that involve a government and that the existence of these factors, per se, is an insufficient explanation for why certain economic systems work better than others.
Examples
States often said to exhibit crony capitalism are China, Japan, Indonesia, Mexico, Brazil, Russia, and most other ex-Soviet states. Critics claim that government connections are almost indispensable to business success in these countries. Some allege that the same is true for certain industries in the United States, especially the so-called "military-industrial complex". The most recent example is the 5 Billion tax break given to the Oil Companies, which have close ties to the Bush Administration, despite the fact that the Oil industry in the U.S. has gained the most profitable quarter of any industry in recorded history (this includes accounting for inflation).
Enronomics is an example of the same principle.
See also
External links
"Crony capitalism"