Crony Capitalism
Crony capitalism is an economic system where business success is heavily dependent on close relationships between business people and government officials. This arrangement often leads to favoritism in the distribution of legal permits, government grants, tax breaks, and other forms of state intervention. Unlike a pure free-market economy where competition and consumer choice drive success, crony capitalism thrives on mutual back-scratching and favors.
In crony capitalism, wealth and opportunity are not distributed according to merit or market forces but according to privileges granted by state authorities to individuals or companies with close ties to the government. This can lead to an inefficient allocation of resources, hinder economic growth, and exacerbate income inequality.
Examples
- Russia under Vladimir Putin: Highly concentrated economic power among a few oligarchs with strong connections to the Kremlin.
- India’s License Raj Era: Before economic liberalization in 1991, businesses required numerous permits and licenses, leading to rampant corruption and favoritism.
- Cronies in Thai Construction Sector: Certain construction companies receive special government contracts due to their owners’ connections with political elites.
Frequently Asked Questions
Q: How does crony capitalism differ from corporate lobbying? A: While both involve businesses seeking to influence government policy, crony capitalism implies a systematic and ingrained relationship of favoritism and mutual benefit, often resulting in corruption. Lobbying, in contrast, can occur within a transparent and regulated framework aimed at influencing legislation.
Q: Is crony capitalism illegal? A: Crony capitalism itself is not illegal, but the actions it includes, such as bribery and corruption, frequently violate laws and ethical standards.
Q: Can crony capitalism occur in democratic countries? A: Yes, crony capitalism can and does occur in democratic countries. While democratic institutions may offer checks and balances, personal relationships can still significantly influence political and economic systems.
Q: What are the consequences of crony capitalism? A: Crony capitalism can lead to inefficient resource allocation, stifled competition, reduced foreign investment, greater economic inequality, and overall reduced trust in both governmental and economic systems.
Q: How can crony capitalism be reduced? A: Implementing effective anti-corruption measures, increasing transparency in government dealings, promoting fair competition, strengthening institutions, and fostering a robust civil society can help mitigate crony capitalism.
Related Terms
- Free-market Economy: An economic system where prices for goods and services are determined by open competition between private businesses, without undue interference from the government.
- Government Corruption: The use of power by government officials for illegitimate private gain.
- Lobbying: The act of attempting to influence the decisions of government officials, usually carried out by special interest groups.
- Favoritism: The practice of giving unfair preferential treatment to one person or group at the expense of others.
Online References
- Investopedia: Crony Capitalism
- Wikipedia: Crony Capitalism
- Business Standard: Crony Capitalism in India
Suggested Books for Further Studies
- “Crony Capitalism: Corruption and Development in South Korea and the Philippines” by David C. Kang
- “Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism” by Ha-Joon Chang
- “Confessions of an Economic Hitman” by John Perkins
- “The Anatomy of Fascism” by Robert O. Paxton
- “The Road to Serfdom” by Friedrich Hayek
Fundamentals of Crony Capitalism: Economics Basics Quiz
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