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Business Review Board / July 9, 2019

Cronyism Threatens Capitalism

Accepting government favoritism is a recipe that ultimately undermines the free market.

Crony “capitalists,” not pure socialists, pose a greater danger to capitalism. So concludes Reason’s Matthew Mitchell following his survey of 500 American business leaders. Mitchell contends, “[Cronyists] who benefit from government favoritism are more likely to accept interventions into markets.” Unsurprisingly, he adds, “Being a favorite is correlated with approving of favoritism.”

While Mitchell found that 61% of surveyed business leaders claimed to have benefitted from at least one government-granted privilege, the vast majority held the view that government shouldn’t be picking favorites. The percentage of business leaders who had not received any benefit from the government and were opposed to such favoritism was 84%.

The problem is the more instances of government favoritism that exist, the more likely the public will sour on capitalism, and for a couple of reasons. First, fairness. The more government is as seen as picking winners and losers, the more the public will believe that government and not the free market is responsible for a business’s success. Second, eroded trust. The public will stop believing in the fairness of a free market system, if the market is not free from companies cozying up to government to squelch competition.

Finally, Mitchell observes, “Were they alive today, I suspect that free marketeers like [Adam] Smith, [Joseph] Schumpeter, and [Milton] Friedman would say that our findings are consistent with their conclusion that capitalists are their own worst enemies. At the same time, I can’t help but note that the study is consistent with Marxist notions of class interest and false consciousness. According to Marxist theory, different classes — capitalists, workers — have different and often opposing interests. The idea of false consciousness is that many of us are deluded into thinking and acting in ways that do not serve our class interests.”

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