What is Crony Capitalism? | 5 Minute Video

This election season there's a lot of talk about corruption, about politicians being "bought and sold", and about "crony capitalism". What do those terms mean? Why should we care? Is there a way to reduce corruption and restore our trust in government? Author Jay Cost, staff writer at The Weekly Standard, answers these questions and proposes a solution that every society could benefit from.

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Script:

Crony capitalism. What is it? Why is it so bad?

To answer these questions, let’s think about good, old-fashioned capitalism. It is premised on the free exchange of goods or services between independent agents.

Let’s say I want to buy some cereal. Steve’s Grocery is selling my brand for $4. Ted’s Grocery has it for $5. I buy from Steve, which creates the most value for both me and him. Meanwhile, Ted now has an incentive to cut his costs so he can compete better. Replicate this kind of transaction billions of times a day, 365 days a year, and that is how our economy functions and grows. Or at least how it’s supposed to.

Now, what about crony capitalism? Let’s say it’s the government that wants to buy some cereal. More specifically, the House of Representatives’ Committee for Cereal Acquisition is put in charge of the task. Steve still sells it for $4. Ted for $5. I buy from Steve. He’s the low price man. But the Committee for Cereal Acquisition buys from Ted. Why?

Because Ted lobbied the committee. Because his corporate headquarters is in the chairman’s district. Because he gave more campaign contributions. Because he promised a lobbying gig to an undecided committee member who plans to retire next year. That is how crony capitalism works.

And it happens all throughout the government—from defense contracting, to farm subsidies, clean energy programs, infrastructure spending, affordable housing, food stamps, Medicare, Obamacare, tax policy. You pretty much name it. Crony capitalism is there.

Capitalism is moral because it is premised on a voluntary exchange between independent parties – who agree to the deal only because it creates value for everybody. Crony capitalism is immoral because one of the parties—the government—has been bought off.

This creates three problems. First, it is unfair. Politicians are spending the public’s money, but not for the public interest. Instead, they reward friends, supporters, or themselves. Our Constitution grants Congress the power to provide for the general welfare. Crony capitalism violates this sacred principle.

Second, it is incredibly wasteful. In our cereal example, the government overpaid by going with Ted instead of Steve. That’s obviously a waste of taxpayer money. In fact, it is really stealing from the taxpayer. Here’s more waste. Ted had to spend money to lobby the government to get the contract. So, he didn’t get all of that dollar out of the transaction. That’s money that could have been spent making a better product or used in some other constructive way. Economists call this deadweight loss. And it can be substantial.

Moreover, crony capitalism distorts the broader economy. In some industries—like healthcare, student loans, home mortgages, and aerospace—the government is one of the biggest purchasers of goods or services. So its politicized decisions can have wide-ranging and detrimental effects. An entire industry can become, in effect, a client of the government. When that happens its goal is not to build a better mousetrap, but to keep politicians happy. How much does crony capitalism cost society per year? It is hard to say precisely, but the number reaches into the tens of billions of dollars, maybe beyond.

[acampoverdeify]

Crony capitalism? We used to call that corruption in the past.

[SimeonDenk]

It's nice to see that rare moment when liberals and conservatives agree on something.

[MrYuenH]

crony capitalism: government putting out legislation to cater to special interest groups who want to make money, instead of investing in the common people.

[BeTrueYourself]

This by far the best video I’ve ever seen to explain unprecedented crony capitalism from local to federal government. Simply put- as an American we need to make our government accountable in their dealings.

[hedleypanama]

#OBJECTION!
The left and the right AGREES regarding this topic!

[Joey-dbbv]

Again I'll say it. Conservatives say "We want limited government" Yet under Conservatives government always grows bigger!

[elinabelijayaman]

the name for this practice is "corruption" :)

[grndiesel]

"The government must have limits."

Nuff said.

[NarednikLobanja]

This video shows the USA in a nutshell

[yiyoascen]

one of the few vids on this channel that makes perfect sense

[GuilhermePereira-vivc]

This is literally a result of capitalism. Capitalism create the conditions for that to some individuals (the capitalist class) have the material interest in making this kind of thing (lobby the government... ) so it is a direct consequence of the way that the economic sistem works

[xlpeoplepower]

What annoys me is when people confuse corporatism with capitalism and then use this to push a socialist agenda. *cough* Bernie Sanders

[seedeed]

The fact that cronyism exists is not just because of the state. Certain components of free-market capitalism will naturally lead to the development of cronyism. If you have a system in which the means of production are operated collectively, but owned privately, the value created by the collective during the labor process will be appropriated by the private owner. The capitalist mode of production requires that wealth be continuously pumped upwards, and accumulated by the bosses. In short, the rich get richer, and the poor get poorer. Free market capitalism requires that class division will be perpetuated on a systematic basis. There will be economic inequality under a capitalist mode of production, and this means there will be competing class interests. The capitalist class of private owners will have a vested interest in retaining private ownership of the means of production, and the consequent economic inequality, whereas the working class will have an economic interest in abolishing private ownership of the means of production, and getting rid of the consequent economic inequality. Unless the capitalist class act directly against their own interest, they must establish ways of protecting their class position from the working class and consolidating economic privilege in the long term. Establishing a state apparatus to act in their interests with a monopoly on the use of violence that is perceived to be legitimate is an excellent way of doing that, even if it results in a deviation from market principles. The institutions created under free market capitalism have a greater economic interest in power consolidation than actually having a free market system. This is why crony capitalism exists. I should also add that I find the right-wing libertarian position on this issue disingenuous in certain respects. I don't like how they boldly declare that the economic problems in the world are all because we live under cronyism/corporatism or whatever, and then go on to say that all of the prosperity in the world comes from free markets.

[Kamsyah]

Wait, so corporation lobbying government is allowed in the US???
This would be illegal in my country which is a third world country!
Here, Government has to open tender/bidding if they want to do some goods and service procurement

[GreenGold]

"There can be no effective control of corporations while their political activity remains. To put an end to it will be neither a short nor an easy task, but it can be done."
-Teddy Roosevelt

[pinpon]

Whether left or right, I think this is something everyone should not tolerate. Lobbyists are screwing us in almost every sector.

[GlumoTV]

"Capitalism is good, except when it isn't, then it becomes not capitalism and it's the fault of gooberment" -every single PragerU vid ever

[SuperLumianaire]

So, who the Hell would dislike this video? Seriously? That's insane.

[kaleomariz]

Most people who say “capitalism is evil” they usually mean crony capitalism.

Because in most countries in the world, the government is the economic agent with most resources, and not private agents. So if one has good contacts in the government you basically can sell low quality stuff for a high price and “swim in the gold”.

I don’t know other countries but I think the country that has gotten close to becoming a ‘Real capitalism’ is the U.S. you don’t know many people who are desperate to get a good contract with the government.

———————————————

I am a Brazilian immigrant. Brazil 🇧🇷 is the land of crony capitalism. I have an uncle there who is an eye doctor who provides cataract surgery for the local public healthcare system. He makes tons of money out of these surgeries for the public.

But only because he got contacts in local government.

Every 4 years election happens and he needs to chose the right candidate to support. If his candidate loses, he loses the chance to provide surgeries for the public healthcare system (where he makes most of his income).

In Brazil the private sector is weak because most people don’t have money to spend. So the government becomes the number 1 client that everyone wants to have.

I thought América 🇺🇸 didn’t have this crap of crony capitalism.

[clmabry]

Correction at 2:07 The Constitution does grant Congress to provide for the general welfare. It grants Congress the power to promote the general welfare.