Wednesday, May 10, 2006

Crony Capitalism

Gary Becker and Richard Posner discuss at their blog the movement toward left-wing politics in South America. Becker writes:

One legitimate reason for the opposition to capitalism in Latin America is that it frequently has been "crony capitalism" as opposed to the competitive capitalism that produces desirable social outcomes. Crony capitalism is a system where companies with close connections to the government gain economic power not by competing better, but by using the government to get favored and protected positions. These favors include monopolies over telecommunications, exclusive licenses to import different goods, and other sizeable economic advantages. Some cronyism is found in all countries, but Mexico and other Latin countries have often taken the influence of political connections to extremes.

This analysis seems exactly right to me.

Indeed, the point applies broadly and provides a useful lens through which to view U.S. political debate. The political left in the United States sees pervasive crony capitalism in U.S. economic policy. While I don't agree that it is pervasive, it certainly does happen. Sugar quotas, for instance, are a bipartisan example of crony capitalism: I can't recall any impartial policy analyst thinking the quotas are good policy, nor can I recall a prominent politician of either party calling for their repeal.

Unfortunately, as recent actions in Bolivia show, opponents of crony capitalism in South America think the solution is less capitalism. A better solution is less cronyism.