Politics & Policy

Republicans and Crony Capitalism

(Andrew H. Walker/Getty)
Carly Fiorina makes a telling point about government–business alliances.

As Carly Fiorina gets a second look following her strong performance in last week’s debate, observers are noticing the emergence of an interesting theme in her campaign: opposition to the crony capitalism that infests so much of our economy today. “What we have now is less and less free market,” Carly points out, “and more and more crony capitalism.” It is a distinction that her opponents would do well to note. 

A lot of people use “crony capitalism” to mean any business practice of which they disapprove. But the term actually has a more precise definition. Crony capitalism is an insidious system in which businesses’ success is based on a close relationship with government, and specifically with the people in power who dispense favors, subsidies, bailouts, and other forms of special treatment.

From TARP to the Export-Import Bank, crony capitalism has increasingly squeezed out the genuine free market in our economy. It is the reason why so many businesses spend as much time courting politicians as they do innovating and creating. It is the reason why Washington is a buzzing hive of lobbyists, and why six of the ten wealthiest counties in the United States are D.C. suburbs. Crony capitalism costs taxpayers roughly $100 billion per year, according to Cato Institute estimates, and consumers hundreds of billions more in higher prices. It slows economic growth and leads to greater inequality.

Unfortunately, far too many of Fiorina’s fellow candidates are far too comfortable with this corrupt system. Take Scott Walker, for example. His support for using $250 million of Wisconsin taxpayers’ money to build a new stadium for the Milwaukee Bucks basketball team is a quintessential example of crony capitalism. Among those who will benefit from the taxpayers’ largesse is real-estate mogul Jon Hammes, a partner in the investment group that owns the NBA franchise; Hammes has agreed to serve as the national finance co-chairman for the Walker campaign. Walker also flip-flopped on support for the Renewable Fuel Standard and ethanol subsidies, dropping his earlier opposition in order to buy support in Iowa.

Want another example? Marco Rubio backs subsidies, loans, and import protections for the sugar industry, which cost American taxpayers millions every year and consumers even more — as much as $3.5 billion per year through higher prices. Time and again, Rubio has voted against reforming the sugar program. By coincidence, one of the senator’s earliest backers was Pepe Fanjul, one of Florida’s largest sugar barons. Rubio is another backer of the Renewable Fuel Standard and farm subsidies generally.

Actually, all the GOP candidates except Ted Cruz and Rand Paul back more money for agricultural welfare.

Jeb Bush has recently taken to criticizing crony capitalism in his speeches, but his record belies his rhetoric. For example, Bush joins Governor Walker in supporting taxpayer-financed sports stadiums. Bush flip-flopped, first opposing but later supporting a new ballpark for the Miami Marlins baseball team. Moreover, as governor, Bush regularly used taxpayer money to provide special benefits to favored businesses or industries. For example, he set up an “Innovation Incentive Fund,” which spent $456 million to lure biotech and life-science businesses to Florida. If you count local funding as well as this state funding, taxpayers ended up spending nearly $1 million for every job generated, and even the state was forced to admit that the fund “does not break even.” That’s just one example of Bush’s willingness to pick corporate winners and losers at taxpayer expense.

A continuation of this approach can be seen in Bush’s “all of the above” energy policy, which amounts to combining subsidies for the oil and gas industry with subsidies for the green-energy industry. And it should come as no surprise that Bush supported TARP and the bank bailout (although he opposed the bailout of the auto industry).

We don’t look to Democrats for support of free-market capitalism. We expect better from Republicans.

And, of course, Donald Trump’s entire career personifies crony capitalism. During last week’s debate he bragged about how he contributed to politicians in order to secure special favors (and not just to attend his wedding). He has fought for legislation to bar competition — e.g., to prohibit casinos in upstate New York that would have drawn business away from his Atlantic City properties. And he regularly “partners” with local governments to receive special tax deals or other subsidies for his business projects. Taxpayers have had to pony up hundreds of millions of dollars to help make Trump rich.

Trump has repeatedly relied on governments’ using their power of eminent domain to seize private property and turn it over to him for development. As he put it in a 2005 interview with Neil Cavuto, “If you have a person living in an area that’s not even necessarily a good area, and government, whether it’s local or whatever, government wants to build a tremendous economic development, where a lot of people are going to be put to work and make [that] area that’s not good into a good area, and move the person that’s living there into a better place — now, I know it might not be their choice — but move the person to a better place and yet create thousands upon thousands of jobs and beautification and lots of other things, I think it happens to be good.” So much for property rights and personal choice.

Trump’s supporters, who credit him with attacking the Beltway status quo, might be surprised to learn that he essentially backed TARP, and would have extended the bank bailout to Lehman Brothers. His current call for protectionism and tariffs is just another example of his desire for government to pick winners and losers. You can’t be for a free market while opposing the free movement of people, capital, and products.

We certainly shouldn’t expect today’s Democrats to stand up against crony capitalism. President Obama and Hillary Clinton see a virtually seamless integration of business and government. TARP, green-energy subsidies, the auto-industry bailout, the Export-Import Bank — nearly all the monstrosities of recent cronyism bear a Democratic stamp. Even Obamacare was stuffed with special favors for the insurance and pharmaceutical industries, as well as for the Obama administration’s favorite unions. But we don’t look to Democrats for support of free-market capitalism. We expect better from Republicans.

Maybe Carly will wake them up.

Michael TannerMr. Tanner is the director of the Cato Institute’s Project on Poverty and Inequality in California and the author of The Inclusive Economy: How to Bring Wealth to America’s Poor.


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