The Problem With Crony Capitalism

Back in the 1980s, there were some committed communists in the UK who loyally voted for Maggie Thatcher’s Conservatives because they believed that her policies would cause the proletariat to achieve class consciousness and start a workers’ revolution.

Perhaps they were ideologically pure in their faith in Marx (Commo, not Groucho), or perhaps they had been banging their heads too hard when listening to the Sex Pistols.

However, as someone with Libertarian (much as I dislike that word) inclinations, I occasionally fear that my somewhat cautious trust in Free Market Capitalism is not too dissimilar from those Marxists on the other side of the spectrum, who argue that communism has never really been tried (such as the ones who instead of moving to the USSR or PRC, chose to stay in the UK and support Maggie Thatcher).

I particularly felt that way last night, after I finally got around to reading ‘Game of Mates’, a self-published 2017 expose of how those with wealth and influence in Australia are able to manipulate the political system and bureaucracy in order to get greater advantage and profit than the vast majority of the population, helping to extend the gap between the richest and the poorest (and those shrinking numbers of us in the middle).

‘Game of Mates’, whilst written by academics, is not an academic publication. It is better described as a pamphlet, written in plain language and with the arguments simplified for easy consumption by the general public.

Most people will have never heard of it, nor will read it. This is because it is only available online, rather than through bookstores (still my preferred way of buying books).

There are flaws in this pamphlet, and not just in the simplified, almost Zoroastrian clash between ‘James’ (the person with the power and influence to change policy) and ‘Bruce’ (the average mug punter who is deprived of what they otherwise would benefit of through James’ gaming of the system in different ways) which makes up the narrative running throughout the book.

The book takes for granted that any ideological position which questions the extent to which government power exists and is exercised is legitimate, or the purpose of taxation (such as Classic Liberal or Libertarian philosophy), is ‘myth making’. No it is not myth making (even if it comes from the Institute of Public Affairs, who are drawn up as an oversimplified straw man for half a page), questioning the power of government is a very valid part of political philosophy going back to the time of Plato (to say nothing of Locke and the other doctors of the Scottish Enlightenment who have helped to shape our own modern political thinking), which itself is a subset of Ethics, one of the four classical branches of the discipline of Philosophy (the others being Logic, Aesthetics, and Metaphysics).

Another, probably more serious flaw, is that the book, whilst almost anecdotal in its narrative of instances where the elites are gaming the system at the expense of the Hoi Polloi, does not really apply any rigorous theoretical structure to its argument, or at least not to do so sufficiently as to strengthen the argument and give it more impact.

Specifically, it does not talk about concepts such as ‘Crony Capitalism’, which is far more insidious and prevalent than the pure and possibly idealistic ‘Free Market Capitalism’ which I believe in.

To quote from Wikipedia:

Crony capitalism, sometimes called Cronyism, is an economic system in which businesses thrive not as a result of free enterprise, but rather as a return on money amassed through collusion between a business class and the political class. This is often achieved by the manipulation of relationships with state power by business interests rather than unfettered competition in obtaining permits, government grants, tax breaks, or other forms of state intervention[1][2] over resources where business interests exercise undue influence over the state’s deployment of public goods, for example, mining concessions for primary commodities or contracts for public works. Money is then made not merely by making a profit in the market, but through profiteering by rent seeking using this monopoly or oligopolyEntrepreneurship and innovative practices which seek to reward risk are stifled since the value-added is little by crony businesses, as hardly anything of significant value is created by them, with transactions taking the form of trading. Crony capitalism spills over into the government, the politics, and the media,[3] when this nexus distorts the economy and affects society to an extent it corrupts public-serving economic, political, and social ideals.

Essentially, without saying so in so many words, ‘Game of Mates’ is a book which criticises Crony Capitalism in Australia. By not distinguishing it from Free Market Capitalism, and being dismissive of the philosophical underpinnings of Capitalism and Liberalism more generally, the argument is diminished in its impact.

Having said that, there are significant issues raised in the book, in its anecdotal way, which are of concern.

As a first example, the capture of state planning authorities and political decision making at a higher level of planning decisions by property developers, in a manner as to cause disadvantage to the general public and the consumer and great profit to those said developers, is a matter of considerable concern.

To me, this is best illustrated by the fact that local council elections are more fiercely contested than state or federal elections (I live in a very safe Labor area, where the other parties do not really bother in the latter two), due to the value which a council seat will hold if a candidate sympathetic to property development interests wins.

The analysis of how the rise of the superannuation industry has caused both the corporatisation of the union movement (such that it is now run almost exclusively by professional apparatchiks rather than by those who have worked in those industries) and the legal channelling of large (and mostly unjustifiable) amounts of money through various fees into the pockets of fund administrators and trustees to the detriment of the super balances of the average worker is also disturbing. [And there I was, naively thinking that the industry super funds were slightly less dodgy than those run by the banks and other financial institutions.]

The mining industry and farmers also are examined in detail, for the privileges they are able to extract from our political leaders which are frequently at our own expense as taxpayers. Examples cited include railways and ports which will exclusively serve those mining companies, but which are frequently subsidised by the taxpayer, and the way that farmers are indemnified by the taxpayer from loss in the lean years, but keep all their profits in the good years.

But perhaps the area of most concern is the use of ‘Public Private Partnerships’ (aka PPP) in the building of infrastructure over the past three decades. In many, if not all, instances, it appears very clear from the research undertaken by the authors of this pamphlet that the taxpayers in those states where PPP have been undertaken would have been better off if the roads had been built by more traditional finance (such as the government raising the loans directly) than by such partnerships.

I do not see that private ownership of freeways is a bad thing. What I see as a bad thing is that the terms under which such agreements are made are excessively skewed to the benefit of those corporations, to the detriment of the taxpayers and consumers in those jurisdictions.

In all cases, the problem is a bipartisan one. The major political parties, whenever either of them holds power, is very willing to acquiesce to the wishes of the vested interests and their lobbyists, rather than consider the broader interests of the public generally, and to make decisions which frequently enrich those interests at public expense.

How do we fix cronyism? The authors of the book make it very clear that this is a matter of human nature, it always emerges over time. Perhaps this sociological insight needs to be explored further, but at the very least, we need to keep cronyism under the spotlight, as it does thrive in darkness.

Published by Ernest Zanatta

Narrow minded Italian Catholic Conservative Peasant from Footscray.

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