Crony Capitalism

Dangerous Web of Dependability

Written by Brittany Stepniak
Posted September 26, 2013

Make no mistake; I'm a big fan of capitalism.

Since grade school, I've harbored a competitive nature. My siblings have always given me a hard time for being an overachiever.

And despite everything I think is wrong with our "competitive capitalistic economy," I still believe good, healthy competition brings out the best people have to offer.

I believe hard work should be rewarded and success shouldn't come easily — but when it does, it should come freely and naturally, not through some sort of manipulative scheme that keeps you on top by preventing everyone else from climbing.

Unfortunately, this is no longer the case...

Since the 1997 Asian financial crisis, the world has begun to awaken to troubles of modern-day capitalism, better known as "crony capitalism."

Free Market

The world finally broke free of the chains of tyranny and a life determined by one's predisposition in the 18th century... yet somehow, we've managed to take a lot of wrong turns in the centuries that followed.

We've regressed to the state we once fought so hard to escape in the spirit of revolution, and our once celebrated free market is under attack from within.

The brilliance behind a free market mentality is that each individual has an opportunity to channel the power vested within to climb the social, economic, and professional ladder.

This is a powerful thing. It's incentive to really strive for your goals... to make something of yourself... to dream something, and to do it — without jumping through obnoxious, unnecessary hoops and getting tied up in all that red tape.

A free market mentality means being born poor doesn't have to be a death sentence. Instead, it could be a character-building obstacle course, a breeding ground for innovation and advancement. When we see individuals overcoming poverty, we're generally experiencing economic growth as a whole.

We cheer one another on, because we all benefit from this progression.

Unless, of course, that economic capital is stolen by one's "rulers or their friends or allies," according to Hunter Lewis, author of Crony Capitalism and former CEO of Cambridge Associates...

Government Takeover

When this happens, cronyism becomes the order of the day, and the private market becomes unsustainable without big government buddies already in alliances with mega-corporations around the globe.

These days, you'll inevitably run into trouble if you're not in the public sphere (read: directly or indirectly controlled by the government).

Economic expert David Gordan explains why this is a problem, according to Lewis' thesis:  

The result of this governmental takeover of the economy has predictably been dire. "Man of the new mega rich of the 1990s and 2000s got their wealth through their government connections. Or by understanding how government worked. This was especially apparent on Wall Street. ... This was all the more regrettable because, in a crony capitalist system, the huge gains of the few really do come at the expense of the many. There was an irony here. Perhaps Marx had been right all along. It was just that he was describing a crony capitalist, not a free price system, and his most devoted followers set up a system in the Soviet Union that was cronyist to the core." (p. 17)

Those inclined to dismiss Lewis's claim as exaggerated must confront the solid body of evidence he amasses. Everyone knows that governmentally-sponsored mortgages helped to fuel the housing bubble that burst in 2008 with disastrous consequences. As Lewis points out, though, the situation is much worse than most people imagined. "By the end of 2007 government-sponsored mortgages accounted for 81% of all the mortgage loans made in the US and by 2010 this had risen to 100%." (p. 39)

Government dominance is of course bad for the economy, but it works to the benefit of a small group of the powerful. A great strength of the book is that Lewis names names: he tells us who the predators are. "Clinton's choice for Fannie CEO, Franklin Raines, took away $90 million in pay and stock option gains, in part because of misleading accounting practices. Obama advisor James Johnson took only $21 million. For 2009-2010, the chief executives of Fannie and Freddie got a combined $17 million, even as these organizations were being bailed out. The top six executives got $35 million over the same period." (p. 45)

The Market is Rigged

The examples above perfectly illustrate the painful side effects of the corrupt collusion among market players.

If you're familiar with the way trade associations or industry trade groups work, you know this is another practical example of crony capitalism, a major problem for today's budding entrepreneurs...

Although members of such groups may appear to compete with one another, these industry groups are unified in their requests for government aid, subsidies, and regulations.

If you're not part of their group and are new to the field, you'll see how difficult it is to get started without the aforementioned government assistance and rules that give the competition special privileges; unique and exclusive to the "group".

Therefore, it might prove nearly impossible to get a reasonable loan to start your business.

Or you might have no problem getting started, only to find it's not feasible to get your products on the shelves because you are unable to receive official sanction to sell products or services already patented by competitors. Often times, distributors refuse to help newcomers because of previous alliances, contracts, and legal bonds shared exclusively with the competition.

Chances are the competition has already covered all their bases to ensure they'll stay up by keeping you down.

It's like joining a game of Monopoly after all the property has been bought and everyone has made an agreement not to sell any to you. It's no wonder small businesses are a dying breed in the age of virulent giants like Wal-Mart.

Too Much Government Intervention

This is just one of the many reasons we here at Outsider Club are strong advocates for limited government. We see how detrimental this "buddy system" is for society and the marketplace at large.

The web of government dependability has spread from the poorest city dwellers to the biggest corporations, but it's only a facade of security. In reality, it's a convoluted mess with dire consequences.

Only the richer are getting richer. Our economy is stagnant. Incomes are declining, and 46,700,000 Americans are on food stamps.

When an elite few share almost all the nation's wealth... the middle class loses incentive to produce goods and services via declining incomes and increasing adversity associated with this crony capitalism, making new business start-ups more challenging than ever... and the poor have given in to complete despair...

How are we supposed to maintain our status as a global power?

Decades of foolish decisions are finally catching up to us, and I don't think the government or the major corporate plutocrats have any idea how to remedy the situation.

The government may have good intentions in its interventions, but they're not working.

This intervention overload mindset is destroying capitalism... and it's destroying America.


Farewell for now,

Brittany Stepniak Signature

Brittany Stepniak

Brittany Stepniak is the Project Manager and Editor for the Outsider Club. Her “big picture” insights have helped guide thousands of investors towards achieving and maintaining personal and financial liberties while pursuing their individual dreams in lieu of all the modern-day chaos.

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