On: Crony Capitalism.
Episode: N/A
Date: February 2019
Background: Philosophy at Duke University, article “The Road to Crony Capitalism”.
Key Subjects:
- Is capitalism inherently unstable as it leads inevitably to crony capitalism.
- How to prevent the descent into cronyism.
- Hayek’s Road to Serfdom:
- Socialism: danger of excessive collectivization and centralized planning (communism).
- Start with central planning of one industry, and you may corrupt the whole economy.
- Capitalism analog: danger of cronyism in one industry may corrupt the whole economy.
- Socialism: danger of excessive collectivization and centralized planning (communism).
- Argument for why cronyism logically emerges in capitalism:
- System driven by self-interest.
- Mature industries, government with power to regulate.
- Entrepreneurs seeking profits, politicians seeking money.
- Marginal dollar spent on lobbying may be more profitable than investing in the business.
- Politics incentivized to sell off rent seeking opportunities for money / power.
- Dependence on the state grows – rent seeking behavior increases .
- Incentives and human nature align to pursue behavior that is rational, legal, but may be “immoral”.
- Importance of morals / culture in determining desirable economic outcomes.
- Cultural norms influence individual morals.
- Morals impact individual material interests and incentives.
- Not captured in economics.
- Economics tool box limited in handling this type of issue.
- Constitution is either insufficient or not necessary.
- Insufficient: rules can be rewritten if they differ from what agents want.
- Not necessary: rules not needed when principles are shared by all agents.
- Only way to avoid this type of behavior is to have a “proper moral code”.
- [Or (i) stop politicians from taking money and/or (ii) limit the number of regulated industries].
- Constitution is either insufficient or not necessary.
- Importance of morals / culture in determining desirable economic outcomes.
Key Takeaways:
- Cronyism is logical and inevitable in a system driven by self-interest.
Worth Listening:
8/10