Commentary

Skittish About ‘Capitalism’ – But Who Is Really Rigging the Game?

By Richard Morrison | March 11, 2016 | 10:23am EST
A Boeing 737 at the company's factory in Renton, Wash. Foreign airlines that want to buy Boeing planes often do so with loans underwritten by the Export-Import Bank. (AP Photo/Saul Loeb)

This political season, Americans are skittish about capitalism. Some fear it will create inequality and wage stagnation, while others simply lack clarity on what capitalism really is. Amid all this uncertainty, we need to remind the American public of two things. First, government cronyism, not the free market, is the source of the worst unfairness in the economy. Second, cronyism is not a symptom of capitalism, but its opposite.

Sen. Elizabeth Warren, D-Mass, claims the U.S. economy is “rigged” against average Americans, and polling data from the Pew Research Center suggest many self-identified conservatives share her skepticism. Another recent poll found that 65 percent of Americans thought that most big businesses had “dodged taxes, damaged the environment or bought special favors from politicians.” True, a small minority of American businesses are in bed with government, but this has created the impression that the exception is the rule. Even if you take worries about the environment out of that survey scenario, a lot of Americans think cronyism is simply the way business gets done.

Despite being a small portion of the total, however, the number of business leaders feeding at the public trough is still too large. American consumers pay twice as much as they should for sugar because of price supports, import quotas, and tariffs protecting domestic sugar growers.

Billionaire owners of professional sports franchises get multi-million dollar tax subsidies to build new stadiums. Taxpayer money has flowed for decades to so-called “green energy” companies to pay for alternative energy sources that never seem to become cost effective. And some of the biggest companies in America have received loan guarantees from the Export-Import Bank, a federal agency that manages to dispense 75 percent of its financing deals to a mere 10 companies.

Fortunately, we’re now seeing more people on the pro-market side of the aisle addressing this problem. This year’s Conservative Political Action Conference, for example, placed it front and center with the panel, “Free the Market: Ending the Corporate Welfare Racket.” This framing gets it right. Special favors for corporations are a political racket and not part of a true capitalist economy. One of the panelists, Tim Carney, has been one of the strongest voices condemning cronyism in Washington in recent years. We need a chorus of such voices.

As distasteful as cronyist subsidies and special favors to undeserving companies are, we should also remember the flipside: the creative, unsubsidized entrepreneurs who are held back by stultifying taxes and regulations.

Supporters of economic freedom need to draw the clearest possible distinction between the wealth-producing business success that makes everyone better off, and parts of the economy that really are rigged – the parts controlled by government. 

In this debate, clarity is vital. Sometimes we sabotage our message with the words we use to talk about the problem, and the phrase “crony capitalism” is one of the chief offenders. What we mean to condemn when we use this phrase, of course, is cronyism itself – the corrupt dealing of government favors. Those receiving these favors are often businesspeople, so it makes sense to refer to this process as “crony capitalism,” right?

Not even close. Cronyism is not just another kind of capitalism. The corruption of government power for private gain is the opposite of capitalism, which is based on voluntary exchange and mutual benefit. A functioning capitalist economy requires a legal system in which property rights are respected and fraud is punished. A government that has the power to give favored treatment to anyone it chooses regardless of merit runs counter to that ideal. Linking these two, very different, concepts in the same phrase only reinforces the false impression that they are complementary, when they’re actually in direct opposition.  

Millions of Americans are worried the American economy isn’t working for everyone. But the biggest part of that problem – and the part we as citizens can do the most about – is the government’s disastrous interference into the process of wealth creation. When a government agency gives out loans and other financial favors to politically favored businesses, that’s a waste of taxpayer dollars and an insult to hardworking people everywhere. And when a company has to cut payroll or move workers to part-time shifts because of the burden of federal mandates, that’s also a lost opportunity to create prosperity for American’s families.

We can do better, and the first step is for government to move out of the way and let America get back to work. 

Richard Morrison is Program Manager of the Center for Advancing Capitalism, a project of the Competitive Enterprise Institute.

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