Suggesting that crony capitalism is in decline in this country may be an unpopular argument in our election cycle. Those bent upon reforming a corrupt system first have to believe it exists, and after 2008 and the housing bubble, it’s hard to dispute. Except the financial collapse wasn’t due to crony capitalism in itself, but to the regulatory systems that permitted the bubble. (Blog June 1,2016) In any case, according to a report in The Economist, (May 7-13, 2016, pg. 55) of the 22 nations measured for its crony capitalist quotient, the United States has dropped a notch since last year, falling to 16th place from 17th, while Russia retains its unenviable position at 1.
Ironically, the report reveals that businesses where crony capitalism is most likely to exist are those most regulated by the government. (Ibid pg. 54.) Chief among these industries would be telecoms, natural resources, real estate, construction and defense. (Ibid pg. 54.). Believe it or not, technology, being the least regulated, has a lower crony capitalism index than most. The situation is likely to change as businesses like Uber and Google confront government intervention.
The link between crony capitalism and government regulation is one to which most of us have turned a blind eye. Government is supposed to protect us, right? Ideally, that would be true but data shows the greatest lever to hold businesses in check is the Labor movement. Unfortunately, with its influence diminished, businesses are consolidating to achieve economies of scale. These consolidations not only reduce competition but they reduce the number of jobs. At the moment, consolidation is occurring most rapidly in banking, warehousing, transportation and railroads. Technology has at role in job loss but the jobs that remain will require skills that can command good salaries. Meanwhile, money that accrues from having to pay fewer workers will be diverted to shareholders, paying business taxes and pursing more consolidations and innovation.
The reason why rising profits aren’t lifting all boats is more complex than accusing the rich of being greedy. Crony capitalism, as I’ve noted, was worse in the past than in the present. Technology is responsible for much of the change in the way business does business. To offset the effect of consolidation, we need new ways to distribute the wealth. We are not a poor nation so there should be no poor among us.