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Crony capitalism is just socialism lite

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With the Democrat-primary win of socialist Alexandria Ocasio-Cortez, and Bernie Sanders’ popularity and outspoken advocacy for socialistic policies in his campaign for president, socialism appears to have gained popularity in the United States. Some reasonably explain the phenomenon as a reaction to rising income inequality as gigantic fortunes have risen for some, but real incomes at the bottom have stagnated. We are seeing the continuation of the Occupy Wall Street movement, which identified the bailouts of big banks and other large corporations during the Great Recession as crony capitalism, or just plain capitalism for some.

It’s true that corporate welfare policies are at least partly to blame for increased income inequality. Socialism, however, is not a solution. In fact, crony capitalism is more akin to socialism than it is to free enterprise, the real engine of our general prosperity. 

{mosads}Privilege and prosperity of elites side-by-side with unemployment and economic stagnation perfectly describes socialist economies like Cuba and Venezuela. There, government officials and their favored cronies do well while the masses languish. Then-expatriated Soviet historian Michael Voslensky’s 1984 book “Nomenklatura” described the privileged class of party elites in the Soviet Union, who enjoyed lives of relative ease and luxury. He pointed out that every sort of class exploitation Marx and Lenin accused the capitalist system of committing occurred in the Soviet Union, in spades, and was committed by communist leaders. Though not measured because of how Soviet elites received their rewards, and fake numbers, Soviet elites’ exploitation of their countrymen resulted in income inequality much worse than occurred, then or now, in the West.


Unfortunately, many policymakers who give a great deal of lip service to free enterprise sometimes act like socialists. Secretary of Energy Rick Perry, not an ideological socialist by any stretch of the imagination, championed the creation of two “deal-closing funds” when he was Texas governor that were used to pay large corporations for locating facilities in Texas. One of these funds was called the Texas Enterprise Fund. But free enterprise is the last thing anyone should think of when taxpayers who mostly pay sales taxes are tapped to pay well-established corporations such as Home Depot and Toyota for the “duh” decision of locating in business-friendly, growing Texas. 

These sorts of deals are being made constantly. Arizona established a deal-making fund partly to mimic Texas’ example. Oklahoma City recently offered Amazon $1 million from city-issued bond proceeds. Cabela’s and Bass Pro Shops, even before they merged, had a policy of never locating anywhere that failed to offer cash upfront or extended tax breaks. While a national chain like Olive Garden might get access to the public purse or is allowed to contribute less to it, mom and pop Italian restaurants get left out in the cold. Small competitors rarely, if ever, get the special deals from local governments that rich national chains get all the time. Examples of these deals from throughout the nation could regularly fill a daily newspaper.

The mayor of Oklahoma City justified the Amazon deal by reportedly saying, “It is the game cities are forced to play,” because everybody else is doing it and all are forced to compete. Whether or not this is a justification, when government rewards some businesses and not others with tax breaks or outright subsidies, it is a socialistic practice. Whether or not they actually succeed, government officials are attempting to control the flow of resources in our economy with state and local economic development deals. By definition, this is socialistic, because socialism involves, after all, government control of resources.

Our politicians like to claim, and might even believe, they are helping markets and growing the economy when they grant special economic privileges. They are actually cheating their constituents out of the benefits of free markets, distorting choices and interfering in decisions with unstable, arbitrary policymaking customized for the privileged elite. They are, on a more limited basis, doing what socialist leaders and bureaucracies have done everywhere socialism has been tried on a mass scale. And the negative results are the same, except that we have a huge economy, much of which is relatively unmolested, that mostly papers them over, at least until the last few decades.

Crony capitalism is socialism lite, and anti-free enterprise. Too many of our leaders, including some who call themselves Reagan Republicans, take part in it. But for those who see socialism as a counter to the elitism they see in capitalist economies, think again. History teaches that, due to socialism’s centralized nature, there is no place more replete with cronyism than one practicing socialism. 

Byron Schlomach, Ph.D, is director of the nonprofit 1889 Institute in Oklahoma City. He previously worked for the Texas Public Policy Foundation and for Arizona’s Goldwater Institute.

Tags Bernie Sanders Capitalism economy Free market Rick Perry Rick Perry Socialism

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