Crony Capitalism - The American Economy is Not a Free-Market Economy

There are few people who do not recognize that there is something wrong with the way things are working in America. Some blame greed, some blame government and some blame corporations. The truth is easy to see if you do not assume that you must select one of the options above. The fact is that ALL of the above in concert are to blame, it is something called cronyism or crony capitalism.

Personally, I am willing to throw the term 'capitalism' under the bus for a variety of reasons not least of which being its derogatory origins from the communists of more than a century ago.

I prefer to call what has always worked since time immemorial, when allowed to flourish unmolested, the free market.

The American Economy is Not a Free-Market Economy

Those of us who favor the free market must confront a problem. The virtues of the market, and the vices of socialism and interventionism, have been made incontestably clear by Mises, Rothbard, Hazlitt and others. The case for the free market, as these great figures explain it, can readily be grasped and demands no esoteric knowledge. Yet many academics reject the market. They condemn capitalism for leaving many in poverty and for glaring inequalities. How can so many academics fail to grasp what seem to us obvious truths?

The result of this governmental takeover of the economy has predictably been dire. “Many of the new mega rich of the 1990s and 2000s got their wealth through their government connections. Or by understanding how government worked. This was especially apparent on Wall Street. ... This was all the more regrettable because, in a crony capitalist system, the huge gains of the few really do come at the expense of the many. There was an irony here. Perhaps Marx had been right all along. It was just that he was describing a crony capitalist, not a free price system, and his most devoted followers set up a system in the Soviet Union that was cronyist to the core.”

Cronyism extends far beyond the financial sector. Lewis has for many years been active in the natural health movement, and he is thus keenly aware of the manifold ways in which crony capitalism risks our lives, health, and safety in pursuit of profit. Shunning a genuine free market, the predators strike at products that, if widely distributed, would threaten their ill-gotten gains. “In general, the FDA maintains a resolutely hostile stance toward supplements. It will not allow any treatment claims to be made for them, no matter how much science there is to support it, unless they are brought through the FDA approval process and become drugs. ... Who can afford to spend up to a billion dollars to win FDA approval of a non-patented substance? The answer is obvious: no one. So the real FDA intent is simply to eliminate any competition for patented drugs, since these drugs pay the Agency’s bills.”

In this controversy, there can be no doubt on which side Hunter Lewis sides. “However bad things have become, the new populist forces may yet prevail and roll back today’s crony capitalist system. If so, it will be the people who have done it, not elitists urging less democracy and more delegation of power to ‘experts.’”

Complete unregulated free market led to the Great depression.

reply to post by greencmp


Nice post. To add, a free market requires that a state of perfect competition exists. A simplified definition of perfect competition is a market where no participants within it are large enough that they can basically set the price, where there is an exceptionally high number of competitors and there are no barriers to enter into the market. A high degree of competition is what capitalism requires for it to have any form of "invisible hand". Basically, nobody should be so comfortable in their market that they can get away with a shoddy product or an unethical behavior because they are dependent on that public opinion to continue their sales.

People may balk at the idea that we're having difficulties in terms of declining competition as one can walk through a grocery store and see a wide variety of brands. However, I invite any and all to actually look at the labels to see the parent companies and realize just how many companies are truly represented on our grocery store shelves. As opposed to the seemingly wide variety of options, it's the clearest example of the oligopoly that exists in just one market. Also note the prices for those products that are not affiliated with one of these major companies. Part of the reason for this is because, in competition for resources, the large manufacturer gains more flexibility in pricing because of volume discounts and more. Walmart is considered to be a possible monopsony in that they have market dominance not just in the retail but also to any vendors that it works with.

Having 4-5 major companies dominating a market is not competitive enough for capitalism to work effectively. That's why we're facing so much degradation in product quality whether it be clothing or food. Our markets are truly whacked. Personally, I blame the FTC for not doing their damn jobs. If we found cause to create the Sherman Act after the Great Depression and yet, entities are allowed to grow so large as to dominate markets, then the existence of the Sherman Act and the FTC only serves to enable the legitimacy of oligopolies and monopolies. Oligopolies can actually increase competition by making it more fierce but they also create a lot of issues including closing the ability for new producers to enter a market, collusion (price-fixing either through direct collusion or price leader), or even a reduction in quality of exchange (ie. paying the same and receiving less in exchange).

reply to post by crazyewok


Crony capitalism led to the great recession

lets watch this to the end and see which one is worse

reply to post by WhiteAlice


monopolies come and go, theyre strangle hold is usually broken by inovation. however our society has reguated inovation to the point only the largest companies can be truly inovative in most markets. Also governments now view many of these monoplies as to big to fail and will quite happily bail them out or hobble the compition with selective legislation.

reply to post by monkofmimir


That's generally what would occur. The best example where innovation would break a stranglehold would be the oil market. However, if you know that innovation (a new fuel source) could break your control over a market, so do they. They counter and control innovation through a variety of ways that prohibit a free innovative market including the buying up of research pertaining to alternative energy, political control, marketing (media) power and probably more*. Innovation within a market can generally occur through public pressure (ie. "green" products) but it's often rapidly adopted by those major producers to preserve their market share.

It's usually in markets where the product is newer where you get the most competition and innovation expressing itself in the market. Even then, competition still eventually declines. Even Adam Smith stated that this narrowing of markets was the primary interest of manufacturers.

The interest of the dealers, however, in any particular branch of trade or manufactures, is always in some respects different from, and even opposite to, that of the public. To widen the market and to narrow the competition, is always the interest of the dealers.Adam Smith, The Wealth of Nations

*Basically, they create barriers of entry into the market for both the innovation and the competitor.

crazyewok
Complete unregulated free market led to the Great depression.

Well, this is a very common opinion that I disagree with. I consider 'regulations' to be one of the tools of the crony capitalist, if not the primary one. It is how companies hinder existing competition through selective preferential legislation and deter new blood from entering the market.

I will go into 'regulations' in depth a little later but, for now, think of them in the way that they were introduced. As limits and requirements to operation that are intended to make a particular segment of a market "more regular", that is, less volatile. To lower the peaks and raise the dips. However, they rarely achieve this for a variety of reasons and when they do, it is usually in a circumstance that causes damage to the market. In other words, they are used selectively by crony capitalists to enforce their own ideal market conditions.

Furthermore, consider the quality of intellect that is entrusted to compose these 'regulations'. Either they are blatantly appointed special interested parties or, in the best case scenario, relatively unsophisticated public servants who do not have the ability to understand much less influence in any significant way, the market they are presumed to control. They are easily manipulated by their intellectual betters who occupy the positions within the companies that they are supposed to keep in check.

Also, you may find this thread interesting as it discusses the quickly corrected depression of 1920 by essentially doing nothing, allowing the failures to fail and the remaining competitors to gather steam and fill the void. The opposite of what was done in the great depression which lasted so long and utterly disproved the Keynesian philosophy.

Lessons from The Forgotten Depression of 1920

reply to post by greencmp


The problem with regulations is that, over time, the power of the regulation tends to degrade. Most of our laws are tested out and interpreted through the courts or altered by more recent legislation so that they lose efficacy. For instance the Securities Act of 1933 was meant to deter fraud; however, the interpretation of the language of the law has, overtime and through revisions, it's essentially lost its teeth. I was told by the chair of my state's CPA board that 99 out of 100 cases of securities fraud do not get prosecuted due to issues with "scienter". Basically, a plaintiff, if accusing a defendant of fraud, must prove that fraud was a part of the defendant's state of mind or intent.
www.wsgr.com...

You see this happening with all sorts of regulatory laws and agencies. Once a window opens through court interpretation, so many fly through it.

I think it is much deeper than this. I'm not quite sure what the solution is, but Capitalism has lead to the modern day decline of this country. You think our country is run by the people, but it is not. It is run by large corporate America. They govern us, enslave us, and we all just play along.

reply to post by mzinga


in virtually every major finacial market place from supermarkets to banks to pharmasutical companies there are only a handful, half a dozen at most companies that control that field but even worse when you look at who is on the board or running the company the same names appear again and again and again.

These 1000 at most people control the market stopping capitalism and creating crony capitalism, which is nothing but a doppleganger of the original and has more in common with the planned economics of soviet russia than it does with true free market economics.

mzinga
I think it is much deeper than this. I'm not quite sure what the solution is, but Capitalism has lead to the modern day decline of this country. You think our country is run by the people, but it is not. It is run by large corporate America. They govern us, enslave us, and we all just play along.

Could it be a variation of Marxist principals ?

Could it be that "Progressive Corporatism" is using Marxist 'theories' and applying selective agendas to control governments as well as populations ?

Perhaps the "Ten Planks" are being implemented.

It may go beyond known 'borders'.

Hmmm.

monkofmimir
reply to post by mzinga

 

in virtually every major finacial market place from supermarkets to banks to pharmasutical companies there are only a handful, half a dozen at most companies that control that field but even worse when you look at who is on the board or running the company the same names appear again and again and again.

These 1000 at most people control the market stopping capitalism and creating crony capitalism, which is nothing but a doppleganger of the original and has more in common with the planned economics of soviet russia than it does with true free market economics.

YEP! Have you ever tinkered with this site? theyrule.net...

The underregulation is one of the reasons driving the economic decline.

Free market works well at the initial stages, although after certain period some of the companies are becoming so large, that they are actually starting to kill the competition with it, as starting companies have no ability to compete with the giants, unless they produce a really innovative idea. Joining an already existent market is nearly impossible because:

1) Large companies get their raw products much cheaper due to larger amounts bought.
2) Large companies have much higher revenues, which lets keep the prices much lower from the opponents. While a small store might need a 50 cent profit per every product in order to survive (not profit), then Walmart can earn 1 cent per every product and still earn billions.
3) Less options for marketing due to the high commercial fees, which nearly only the big ones can afford
4) Existing patents are held by the large companies. They often do not even need to invent things on their own, but buy the patents from the inventors.
5) Newer technology is extremely expensive.
6) Legally it is nearly impossible to compete with the large companies, who can afford the best lawyers. The amount of paperwork is increasing faster and faster and it takes a lot of resources to manage all that.
7) Lobbywork allows the larger companies to push through laws that benefit them.
And so on...


Some might argue that US small business sector is fine, although the statistics is a bit misleading. In US for some reason small businesses are businesses with up to 500 employees . Internationally the small business size is defined as 50 or even less in some countries. That is more sensible, at least in my opinion. A company with 500 is not a small company, whatever the paper may say.

Small business sector is one of the driving forces of innovation and economy, although the amount of newly started companies and small companies with under 50 people is incredibly small in US compared to the rest of the advanced economies, while over 50% of people work for corporations.

The large companies with extreme resources are basically killing off the small business sector and that is what has caused the decline of free market.

Purely free market without any regulations does not work well, the driving greed leads to monopolies/only couple of competing big ones in the long run with companies in certain sectors trying to take advantage of inelastic demand (like healthcare). If you know the product will save your life, it does not matter whether it costs 10 dollars a month of 1000, you find the money. That is inelastic demand, when price does not affect the demand. Same applies to several other social issues, like education.

Regulations have to exist in order for companies not to gain too large part of the sector and for them not starting to exploit their employees and/or customers.

As we can see, many of that is happening in US currently, whether in healthcare, education, prison industry etc etc.

reply to post by xuenchen


Okay let's go through these ten planks:

1. Abolition of property in land and application of all rents of land to public purposes. We're not even close to that yet.

Top 5 largest private landowners:

1. John Malone--former CEO of Liberty Media and Tel-Com. Primary Market: Media. Owns 2.1 million acres.
2. Ted Turner--former CEO/founder of CNN and TBS among other things. PrimaryMarket: Media Owns: 2 million acres.
3. Archie Aldis Emmerson--founder of Sierra Pacific Industries. Primary Market: Lumber. Owns 1.7 million acres.
4. Brad Kelley--NC2 Media and Commonwealth Brand Tobacco (former) Primary Market: Media Owns 1.7 million acres.
5. Irving Famiy (patriarch JD Irving)--founder JD Irving Lumber. Primary Market: Lumber Owns: 1.25 million.

The US Government would be the largest landowner at 650 million acres. However, the total acreage for the US is 2.3 billion acres. The government only owns 28% of all the land in the US. The remaining 1.65 billion acres is owned by individuals, corporations or foundations. So much for the abolition of all property in land...or rents, no less, for public purpose. I'd hazard that currently the major banks are probably some of the largest corporate property holders still.

2. A heavy progressive or graduated income tax. Only true on the surface. We do have a graduated income tax; however, the majority of the ultra-wealthy pay a lower effective tax rate than the top marginal tax bracket because of the kind of income they have. Mostly capital gains and dividends. In fact, as an accountant, I was taught that a way to offset taxes was to be paid in stock options and dividends...

3. Abolition over all rights of inheritance. Not happening.

In fact, estate taxes have grown more lenient over the years. It used to be more severe but these days one can exempt the first $2 million of inheritance after deductions from tax. That was improved upon even more in the allowance of a surviving spouse to also use any unused portion of their deceased spouse's lifelong exemption in 2010 for a possible maximum of $4 million exemption. More being exempt from estate taxes does not equate to all of it being claimed by the state according to this plank.

4. Confiscation of the property of all emigrants and rebels. I haven't seen any evidence of that though there has been cases of weapon seizures. Partly true?

5. Centralization of credit in the banks of the state, by means of a national bank with state capital and an exclusive monopoly. Close but the Federal Reserve is a deliberate mixture of state and private banking.

6. Centralization of the means of communication and transport in the hands of the state.

Internet--Large corporations own and control the primary backbone for the internet in the US along with much of the lines. Smaller isps also own parts of the physical internet communications as well as individuals. The ownership is very diverse.

Telephone--ATT, Verizon, et al.

Television--In terms of cable, you have a handful of cable companies (ie Comcast, Verizon). In terms of channels, you have about 5 or 6 corporations running most of the channels.

Transport--only place where it's true. In the US, after toll abuse, it was decided to make roads a shared responsibility between the state government and the federal. As far as railroad, I believed that is a mixed ownership. Airports are publicly owned.

7. Extension of factories and instruments of production owned by the state; the bringing into the cultivation of waste lands, and improvement of the soil in accordance with a common plan.

Our largest manufacturing sector would be the defense sector. That is privatized. In fact, the move to privatize the Department of Defense through the use of defense contractors has been increasing over at least the last 10 years.
Second part is a dated principal. Locally, what would be viewed as a "waste land" is left as it is to help protect private property from flooding. Third, regulation of what goes into the soil and water tables should be a no brainer unless you like PCBs in your drinking water.

8. Equal obligation of all to work. Establishment of industrial armies, especially for agriculture.

Most of our manufacturing takes place in China where you may find industrial armies. Even our super farms here in the US don't have "armies" tending them but a lot of automation iirc. Kind of a funny one to consider coming into fruition really concurrent with claims of the US being a "welfare state where lazy people don't have to work".

9. Combination of agriculture with manufacturing industries; gradual abolition of all distinction between town and country by a more equable distribution of the populace over the country.

So much for "equable distribution of the populace over the country."

And we let the majority of our manufacturing leave the country via trade agreements...

10. Free education for children in public schools. Abolition of children's factory labor in its present form. Combination with education with industrial production, etc.

2/3rds absolutely correct and I must say, thank god for the second part. The third part, not really applicable but could be amended to be creating of a labor force. Then it would be true. However, the biggest proponents for this stuff were a bunch of eugenicists and elitists from the 20's and 30's.

Overall, I would say that if there is indeed centralization going on within the US, it is not a federal centralization but a corporate centralization. If you look at just about each plank, you'll see the names of big corporations behind them.

reply to post by WhiteAlice


wow is all I can say to that site and thanks for the link


reply to post by Cabin

Cabin
4) Existing patents are held by the large companies. They often do not even need to invent things on their own, but buy the patents from the inventors.
5) Newer technology is extremely expensive.
6) Legally it is nearly impossible to compete with the large companies, who can afford the best lawyers. The amount of paperwork is increasing faster and faster and it takes a lot of resources to manage all that.
7) Lobbywork allows the larger companies to push through laws that benefit them.
And so on...

under regulation is pretty much the opersite of the problem 4,5,6 and seven of your OWN points are caused or exaserbated by over regulation.

you are right though that free markets start failing after a sector of industry has been in existance for a while but that isn't because capitolism is flawed rather because, when a new industry is first istablished it is often left predominatly unregulated and otften undertaxed (compared to other sector of industry.)

under purely free markets monopolies can and will undoubtedly rise but the diffrence is that they will inevitably crumble and be replaced with multiple successors as inovation outpaces the bloated and overconfident monopoly. However in more regulated societies like ours this is being stopped from happening and it is causing cultural, economic and technological stagnation.

in short monopolies are only ever a short term threat (even the east india company failed in time) where as crony capitalism and other forms of over regulated or poorly regulated economics can and will set our entire civilisation back decades if not longer.

reply to post by WhiteAlice


to be honest I don't think communism is where we are headed I think a facist corporate olgiarchy with a socialist, nationalist leaning would be how I'd describe it but I guess that sounds less catchy

monkofmimir
reply to post by WhiteAlice

 

to be honest I don't think communism is where we are headed I think a facist corporate olgiarchy with a socialist, nationalist leaning would be how I'd describe it but I guess that sounds less catchy

Yep, that's what I see, too. It'd almost be humorous to consider all the accusations about communism and socialism being bandied about when the reality is that our government either could be under threat by corporate interests or in collusion with.

monkofmimir
reply to post by WhiteAlice

 

monopolies come and go, theyre strangle hold is usually broken by inovation. however our society has reguated inovation to the point only the largest companies can be truly inovative in most markets. Also governments now view many of these monoplies as to big to fail and will quite happily bail them out or hobble the compition with selective legislation.

edit on 26-9-2013 by monkofmimir because: (no reason given)

Not when game-changing innovation is bought up and shelved.

WhiteAlice

monkofmimir
reply to post by WhiteAlice

 

to be honest I don't think communism is where we are headed I think a facist corporate olgiarchy with a socialist, nationalist leaning would be how I'd describe it but I guess that sounds less catchy

Yep, that's what I see, too. It'd almost be humorous to consider all the accusations about communism and socialism being bandied about when the reality is that our government either could be under threat by corporate interests or in collusion with.

I'm hoping for a democratic socialism with limits on Legal Entity size (dollar, people and influence).

But I'm an old hippie.

Crony Capitalism

I came across a better expression of the kind of capitalism being used today, a type of capitalism that has been used for the last few decades, and it really fits the symptoms of the ruinous wake it is leaving behind it...the expression is 'predator capitalism'.

Take a look...

Economic hit men (EHMs) are highly paid professionals who cheat countries around the globe out of trillions of dollars. They funnel money from the World Bank, the U.S. Agency for International Development (USAID), and other foreign “aid” organizations into the coffers of huge corporations and the pockets of a few wealthy families who control the planet’s natural resources. Their tools include fraudulent financial reports, rigged elections, payoffs, extortion, sex, and murder. They play a game as old as empire, but one that has taken on new and terrifying dimensions during this time of globalization. I should know; I was an EHM. — John Perkins, Confessions of an Economic Hit Man (2004)

www.globalresearch.ca...