'The Economist' Misses the Point on Crony Capitalism
by Peter Schweizer 17 Mar 2014
The Economist’s latest
cover story warns readers of “The New Age of Crony Capitalism.” The magazine’s
editors are to be commended for shining a journalistic light on cronyism’s rise
and the corrosive effects of rent-seeking behavior.
The Economist does a fine job of
defining rent-seeking as “the difference between what people are paid and what
they would have to be paid for their labour, capital, land (or any other inputs
into production) to remain in their current use.” The magazine offers a
“crony-capitalist index” using Forbes data “to calculate the total wealth of
those of the world’s billionaires who are active mainly in rent-heavy
industries, and compare that total to world GDP to get a sense of its scale.”
This bizarre methodology suffers
numerous limitations (three of which even The Economist recognizes) and misses
the broader point of what the oft-used phrase “crony capitalism” even means and
why lovers of free markets despise its rise.
At the Government Accountability
Institute, we define “cronyism” or “crony capitalism” as those instances when
government gives certain companies favorable rules or taxpayer monies others
don’t enjoy. The reason we investigate and expose cronyism is that when
government gives an unfair advantage to a politically-connected business it
ends up undermining true competition, which is the heartbeat of economic
freedom.
Put simply, when government picks
winners and losers it disrupts free markets, doles out taxpayers’ money in the
form of corporate welfare, and sets up incentives for politicians and companies
to engage in corruption and kickbacks.
Unfortunately, The Economist’s
index is not constructed to capture the critical moves cronies make. Indeed, a
more complete cronyism index would include metrics such as the number of
government-backed loans a company or individual has received, subsidies or
set-asides, and the number of concessions scored by so-called “offensive”
lobbying efforts.
Part of the problem lies in the
fact that The Economist has championed things like government-backed green
energy initiatives and so-called “public-private partnerships” (PPPs)—the very
things that fuel cronyism and corrode true free-market competition. For
example, The Economist defends billions provided in subsidies to green energy
companies, ignoring the fact that politically connected firms like Solyndra have
received the bulk of these cash grants and government backed loans.
The Economist’s crony-capitalism
index also isolates business sectors like casinos, oil and gas, and real estate
as crony sectors while ignoring things like high-tech, healthcare, and entertainment.
By that measure, the magazine concludes that the United
States ranks number 17 and China fares even better with an
index score of 19. “The total wealth of [American] billionaires is high
relative to GDP, but was mostly created in open sectors. Silicon Valley’s
wizards are far richer than America’s
energy billionaires.”
By not focusing on things like the
entertainment industry and Silicon Valley, the index elides critical instances
of cronyism, such as President Barack Obama and Vice President Joe Biden’s role
in “milking” donations from Hollywood and Silicon Valley during the debates
over the Stop Online Piracy Act (SOPA) and the Preventing Real Online Threats
to Economic Creativity and Theft of Intellectual Property Act (PIPA). Or what
about the $22,471,562 in campaign donations the health sector donated to Obama
in 2008? Were those contributions not instrumental in gaining massive crony
concessions in Obamacare? Indeed, Obamacare’s enactment has powered the S&P
500 healthcare sector index to an astounding 37.5% gain, “making it the S&P
500’s best-performing sector” in 2013, reports Reuters.
The Economist did its readers a
service by elevating cronyism to cover-story status. However, citizens must be
clear on what crony capitalism is and what it isn’t. Sadly, the methodology the
magazine currently uses to construct its cronyism index misses many of the key
variables that drive cronyism. Worse, the magazine’s editorial embrace of
government support for green energy and PPPs further undermine its ethos on the
issue.
The Economist
Mark
Malloch-Brown was a political correspondent for The Economist, the vice chairman for Refugees International, and is a co-chair for the International Crisis Group.
Note: Foundation
to Promote Open Society was a funder for Refugees International, and the Carnegie Endowment for
International Peace (think tank).
George Soros
was the chairman for the Foundation to Promote Open Society, is a board
member for the International Crisis
Group, and the founder & chairman for the Open Society Foundations.
Open
Society Foundations was a funder for the Carnegie Endowment for
International Peace (think tank), and the Atlantic Council of the United States
(think tank).
Jessica Tuchman Mathews is the
president of the Carnegie Endowment for International Peace (think tank),
a director at the American Friends of Bilderberg (think tank), and a
2008 Bilderberg conference participant (think tank).
Ed Griffin’s interview with
Norman Dodd in 1982
(The investigation into the
Carnegie Endowment for International Peace uncovered the plans for population
control by involving the United
States in war)
Marjorie M.
Scardino is a director at the Atlantic Council of the United States (think tank), and
was the CEO for the Economist Group.
The Economist is
a publication for the Economist Group.
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