Tuesday, February 08, 2011


"The State pays for the blunders of private enterprise... Profit is private and individual. Loss is public and social."
-Gaetano Salvemini

When the United States government took over a large percentage of General Motors' stock shares, that became the most obvious and infamous example of something that has become too common and obvious lately in the federal government. That something is often described as "crony capitalism" and is best defined as big government and big business working together for mutual benefit.

In this system, the government manipulates or works with companies to make them follow certain procedures and the companies work with and manipulate government to pass laws and regulations which best help that company's power and earnings. Typically this tends to weaken competitors and prevent anyone from becoming too effective a rival to the big business.

For example, GE has been working very closely with the US Government, with CEO Jeffrey Immelt one of President Obama's biggest fans. Immelt has chewed out the news department of NBC for daring to report news critical or harmful to Obama and has been a very outspoken supporter and donor to the president and his causes. GE set up a special corporation to push for government health insurance in the US.

GE has benefited from this relationship as well, getting billions of dollars in "stimulus" funding and a $140 billion dollar bail out. GE's CEO Immelt also retired from the company and is now President Obama's chief financial adviser. If GE had to get a government bail out under his leadership, what will Immelt advise Obama to do? Immelt made it clear he thought government and big business ought to work hand in hand, in an interview with Atlantic he said:
The fact that I'd like GE to work in concert with where government policy is in the U.S. doesn't mean that I'm a traitor or a bad guy, I think it's just being practical that that's gotta happen.

In other words: GE should work to design regulations and policy in a manner which helps the company's bottom line.
This isn't unique to General Electric, and it isn't new. ENRON worked closely with the US Government under the Clinton administration to protect its interests, shape policy for energy trading, and get bail outs to stay in business. Former Bush treasury secretary Henry Paulson was CEO of Goldman Sachs, who is entangled with many powerful congressmen as well. Timothy Geithner, who succeeded Paulson in the position under Obama, is also a Goldman Sachs alum. Goldman Sachs and other financial giants work closely with congressmen and presidential administrations to manipulate law and regulation to their benefit, even to the point of helping to write policy. When GE pays 3% taxes and helps write laws that run their company, something has gone very wrong.

To be sure, companies working with government can sometimes b wise: its reasonable to have major business leaders involved in policy which is in their area of expertise. The problem comes when it becomes a relationship which moves beyond smart, well informed policy to deliberate manipulation of the market and laws to benefit the company.

There was a nation once founded on this principle, the idea of big business such as I.G. Farben working very closely with government to control the economy. Huge corporations and industrial leaders developed laws, set up contracts, and determine shipping and taxation laws to limit competition, control their business, and deal with foreign products. Under this economic system, the government exerts strong directive influence and effectively controls production and allocation of resources. Although some industries were nationalized, most were private, but contingent upon service to the state.

More powerful businessmen and companies were viewed to be more evolved socially, and their strength lent strength to the state. Businesses were not autonomous, but had very powerful influence on the state's decisions and policies. That nation was Germany, and the system was called "National Socialism." The system in which government and big business work hand in hand to shape policy and law for mutual benefit.

It isn't capitalism at all when huge companies have so much influence over government that they're able to shape policy to their benefit and the detriment of competitors. Its actually closer to fascism, where backroom deals by corporate fat cats control government while government controls business either directly through nationalization or indirectly through socialism.

Another term some libertarian writers use is "feudalism." The Feudal system was one in which the powerful and rich held everyone else in virtual slavery to feed and cloth them, in exchange for theoretically keeping the serfs safe and alive. During the medieval period, this was standard, as there was a lot of chaos and banditry, with lords preying on other lords' territory and serfs. People clustered around a strong man's manor and worked his property. They were able to keep a portion of what they made and the rest went to the strong man.

Feudalism describes the modern era painfully well. Instead of lords we have bureaucrats and politicians. Instead of serfs, we have weak, dependent people who have after decades been trained to turn to the government for every problem rather than rely on themselves. In the place of liberty, we have bondage. And the corporations are part of the overlords when they work so closely with government as to control laws and policy to their benefit.

Capitalism requires healthy and robust competition, the ability for smaller companies with fresh ideas to find their way in the market by ingenuity and competition. Crony "capitalism" rejects this notion for a top-down control of the economy through government regulation, laws, and big business manipulation of both. Without that kind of economic freedom, consumers are trapped by whatever big business wants them to have or is willing to produce. Competition tends to destroy shoddy products and poor service unless they're protected by government and regulation.

Business to have an undue influence on government is as bad as government having undue influence on business. As conservatives we're quick to condemn the latter, but too often shrug at or even defend the former as if free market principles require us to always side with business. This kind of fascist cronyism is as far away from the free market as the top-down socialist control of business that Chavez is trying in Venezuela; both violate the basic principles of capitalism and finally demolish the free market.

Too often, conservative love of the free market and defensive stance when business is attacked leads us to stand up for big corporations and their power. The problem with this is that its too easy to end up meaning to stand for the free market and instead defending the enslavement of the populace to crony business which has nothing to do with the free market. President Bush put it best when he said "I've abandoned free market principles to save the free market system." That's as clear a statement as possible about the reality of big business bailouts and sweetheart deals. Its an abandonment of the free market.

Conservatives should always, forcefully, and steadfastly, oppose crony "capitalism" for the failure of capitalism it represents. And leftists ought to do the same, because this system represents big business running your life and dictating to government how they should be treated. This isn't new in America, nor is it unique to the US, but it should be rare and shunned by everyone, especially conservatives.

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