What is Crony Capitalism and what is bad about it?

What is Crony Capitalism and what is bad about it?

What is Crony Capitalism and what is bad about it? – Over the years, fueled by globalization and the rise of automation, countries that used to enjoy the low hanging fruits of capitalism and industrialization have soured and fomented near-open rebellion. An example of this would be the United States and Britain, where fear of immigrants and seemingly bad trade treaties has caused a backlash from citizens adversely affected by the opening of borders and companies moving operations offshore.

This could help explain Brexit, the rise of Donald Trump and the resurgent of the Right in European and American politics. Many have blamed capitalism for the woes presently felt by large swathes of the global population. However, capitalism at its core is a pure and moral instrument to use in the betterment of human life and collective prosperity. It is a perverted form of capitalism known as crony capitalism that is to blame for many of the crises and problems ailing modern society today.

In genuine capitalism, an individual takes a risk and invests their funds, expertise and time on a given venture to solve a problem in society or provide a valuable service in exchange for profit. Genuine capitalism allows free trade and private ownership of property. In its pure form, genuine capitalism allows for human progress and leads to innovation.

Crony capitalism, on the other hand, is an economic system that thrives because of the close connection of a few individuals in the private sector with the movers and shakers in government. Since the government acts as regulator and an arbiter of justice in the market, having the close ear of the most important officials in the government can give an individual or a business an upper hand over competitors. This unfair advantage might remove any incentive for the business to play fair, follow rules and regulations that protect the environment and the commons. It can also lead to the business or individual evading taxes that fund social projects such as health, education and security.

Crony capitalism promotes corruption

Corruption arises when a few connected individuals pay bribes and kickbacks to government officials in order to get lucrative public contracts and tenders, evade paying fines and taxes where necessary and cut the bureaucratic red tape that protects the public from risky business practices. An example of this would be a pharmaceutical company paying off officials from the drug administration authority so as to fast track the legalization of a new drug in development. Fast tracking the process would ignore safeguards meant to protect the public from the harmful effects of a poorly tested and researched drug.

Crony capitalism promotes injustice

Crony capitalism and its spawn (corruption) can lead to unemployment and can affect people’s income. For instance, if multinational companies deny countries tax revenue and hide it offshore using tax shelters, then the government won’t have enough money to pay for essential services. Doctors, policemen and other essential personnel will be understaffed, underpaid and working in poor facilities. This is an injustice to people who have rights enshrined in the constitution.

Crony capitalism might well be responsible for 8 men having more wealth than 3.6 billion people combined, as illustrated in the 2017 Oxfam report on Poverty: Economy for the 99%.

Part of Australia Unwrapped ongoing exploration into wealth disparity see:

What you need to know about Tax Shelters


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