Wednesday, February 29, 2012


At Zero Hedge, there is a guest post by Charles Hughes Smith on Crony Capitalism. Smith's point is straightforward:
In the U.S. we now have the perfection of cloaked crony capitalism: corporate cartels use their vast concentrations of capital and revenue to buy the political leverage needed to write regulations specifically designed to eliminate competition.

Recall that the most profitable business model is a monopoly or cartel protected from competition by the coercive Central State. Imposing complex regulations on small business competitors effectively cripples an entire class competitors, but does so in "stealth mode"--after all, more regulations are a "good thing" (especially to credulous Liberals) which "protect the public" (and every politico loves claiming his/her new raft of regulations will "protect the public.")

This masks the key dynamic of crony capitalism: gaming the government is the most profitable business model. Where else can you "invest" a few hundred thousand dollars (to buy political "access" and lobbying) and "earn" a return in the millions of dollars, and eliminate potential competitors, too? No other "investment" even comes close.

From Investopedia:
A description of capitalist society as being based on the close relationships between businessmen and the state. Instead of success being determined by a free market and the rule of law, the success of a business is dependent on the favoritism that is shown to it by the ruling government in the form of tax breaks, government grants and other incentives.
Both socialists and capitalists have been at odds with each other over assigning blame to the opposite group for the rise of crony capitalism. Socialists believe that crony capitalism is the inevitable result of pure capitalism. This belief is supported by their claims that people in power, whether business or government, look to stay in power and the only way to do this is to create networks between government and business that support each other.

On the other hand, capitalists believe that crony capitalism arises from the need of socialist governments to control the state. This requires businesses to operate closely with the government to acheive the greatest success.
[Emphasis mine]

Let's think about that last emphasized bit above.

First off, the "cronies" come from both sides of the political aisle, it is true; but we have seen an unprecedented expansion of this sort of behavior in the 3 short years of Obamanomics. Even the media is noticing this reality with some alarm:
During the 2008 campaign, Mr. Obama promised to “end the abuse of no-bid contracts once and for all.” Don’t tell that to his friends. In May 2011, the pharmaceutical firm Siga Technologies, headed by Obama intimate Ronald Perelman, received a $443 million sole-source, no-bid, no-questions-asked government contract for an unnecessary anti-smallpox pill. Siga previously had been awarded a $3 billion contract after placing former Service Employees International Union boss and frequent White House visitor Andy Stern on its board.

Never in modern history has the U.S. government been used so extensively as a vehicle for benefiting political cronies at the expense of the rest of us. In his speech, Mr. Obama said America shouldn’t “settle for a country where a shrinking number of people do really well while a growing number of Americans barely get by.” Given this administration’s rampant favoritism, special treatment and backroom deals, restoring fairness is a major argument against Mr. Obama’s re-election.

Next,when you consider Solyndra, LightSquared and the other cronies who are capitalizing on Obama's ecofanatacism (algae companies are next!); when you consider Government Motors and the large-scale political paybacks to unions; indeed, when you consider how Obama deliberately manipulates business (denouncing it on the one hand, while the other is pocketing the campaign contributions from them) and issues commandments from Mt. Olympus (e.g., Insurance companies will eat the cost of birth control; etc.) then it is very easy to understand why business is "gaming the system" and why developing a cozy relationship with Obama and his band of merry regulators and redistributors is a key aspect of the new, improved business model.

This is not to say that there aren't and haven't been businesses and "capitalists" who eagerly suck up to power in order to destroy their competitors throughout history. But that is not a function of capitalism any more than it is a function of socialism or any utopian system.

It is a function of the darker side of human nature.

And, let's remember that human nature is the same whether it is operating under a socialist system or whether a capitalist system. However there are some crucial difference between those systems that hinge on their differing attitudes toward human nature.

I have said it before and I will say it again: Among all known social, political and economic systems, democratic capitalism is the one that is most consistent with human nature.

-Far from encouraging the "survival of the fittest" or even a "dog-eat-dog" animal mentality, capitalism simultaneously encourages cooperation for mutually beneficial trade and for competition.

-Far from encouraging war and dominance; capitalism encourages trust and human cooperation; as well as alliances to maximize productivity and wealth creation.

-In a capitalist system, you must persuade others that your products and services are better or cheaper than others--otherwise they will not buy it. In a socialist system, you have to always resort to force to get people to buy or use the state-approved product or service.

-Far from concentrating all wealth in the hands of a few, capitalism makes it possible for anyone to accumulate wealth (contrast for example the number of people who earn over $100,000 a year in the U.S., with those do in Cuba. The only really wealthy person there is Fidel Castro and his cronies. Likewise, in any collectivist system you will find that the only wealthy people are the thugs in control and their cronies. It is certainly true that "the rich get richer" under capitalism--but so do the poor; and, that happens because the creation of wealth is not a zero-sum game.

Envy is a real human emotion that is often destructive socially and personally, but only in a capitalist system can one transform one's psychological envy or greed into socially acceptable and personally positive actions that improve one's own lot without stealing or looting from others, or attacking and destroying them.

The problem with the underlying ideology of socialism/communism/Marxism and the "crony socialism" that we enjoy here in the U.S., is that they all inevitably breed and encourages envy, greed, and a lust for power and wealth--emotions that tend to drive ALL economic and political systems. But these emotions are unrestrained in the utopian wonderlands mentioned above; and they exist in a pure, unadulterated, undiluted, and particularly vicious form.

Yes, to be sure, capitalism also thrives on envy--and even greed, power, and wealth. Those emotions are part and parcel of human nature, after all. But, (and this is important) capitalism does not condemn human nature or expect a "new man" to emerge in order for it to be successful for individuals or society as a whole. And, capitalism is not blind to them, like collectivist systems are.

Instead, unlike those other systems that seek to perfect human beings, capitalism offers a healthy channel for the redirection of negative emotions like envy and greed into something positive for both the individual and the larger society. There is no healthy channel in crony socialism. To survive, you have to do what the State and its Masters say as they pocket your bribe money and pretend that their motives are "for the good of all."

Capitalism does not pretend that those messy negative human emotions can be "stamped out" merely by the Will of the State. It does not pretend these emotions don't exist; nor does it hide them under the mask of "We're doing it for YOUR OWN GOOD".

Instead, it human nature as a given and simply provides a system through which humans are able to sublimate and redirect those negative emotions to better both themselves and incidentally the larger society.

As economic systems go, this is a miraculous psychological breakthrough; and it is why capitalism dovetails so nicely with political systems that promote individual freedom, democracy, and the rule of law. Taken all together, democratic capitalism is about as close to "perfection" as humans are likely to get.

Human nature is what it is. This is not tragic, it is simple truth. History is littered with the corpses of the people whose nature the left has tried to "perfect" in some way; and all those utopian fantasies about changing human nature always end in misery, suffering and death for large numbers of imperfect homo sapiens wherever it is implemented.

In short, when you have perfected crony capitalism to the point that the Obama Administration has, you have really instituted perfect crony socialism and are well on your way to national socialism or some other redistributive utopian fantasy.

UPDATE: See what I mean here about how these virtuous, anti-capitalist utopians (i.e., the entire "Occupy" movement and their enablers) are perfectly OK with the dark side of human nature? Or, how about the environmental activist who hired a hit man to kill a random person wearing fur? She was very kind and sensitive about it, though.

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