The Corner

Institutionalizing Cronyism

The Wall Street Journal reports this morning that if reelected the president intends to create a secretary of businesses.

“We should have one Secretary of Business, instead of nine different departments that are dealing with things like giving loans to SBA or helping companies with exports,” Mr. Obama said in an interview that aired Monday on MSNBC. “There should be a one-stop shop.”

Mr. Obama blamed Congress for such consolidation not happening during his first term because lawmakers have been “very protective about not giving up their jurisdiction over various pieces of government.” But the president has done little to push the idea himself.

At least, it is consistent with Obama’s “You didn’t build that” comment and the fact that he truly believes — like many Republicans, unfortunately — that it is the role of the government to mingle with the market. In the aftermath of the Solyndra scandal and the attention that it brought to cronyism, the president’s “Secretary of Business” ideal is just another way to give a new lease on life to corporate welfare. Think about it: The thing these agencies have in common is that their main goal is to deliver taxpayer dollars to the private sector. 

In most cases, it is not in taxpayers’ interests. The Small Business Administration, one of the agencies in the plan, is a good example of that. First, the agency guarantees loans to undeserving small businesses (one criterion for getting an SBA loan is that the business can’t get credit elsewhere). Unsurprisingly, these businesses end up defaulting at a higher rate than small businesses that do not rely on the guarantee to access capital. Second, the SBA’s loan program is little more than a corporate-welfare program for the big banks issuing the loans.

I think it is very possible that consolidating all the programs that grant privileges to a selected few could end up institutionalizing cronyism — or the unhealthy marriage between the private sector and government — more than it already is. Basically, this consolidation could make the job of lobbyists even easier. Whatever your private interest, in order to get government money, you would only have to make one stop instead of nine.

The Mercatus Center has recently published a series of papers on the issue of cronyism, and if you are interested you can check them out here


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