Crony Capitalism: The Real Enemy

Crony Capitalism is the close relationship of government and business that manipulates and completely distorts the marketplace.  It is a true example of government favoritism for some companies over others, at the taxpayers’ expense, and unfairly allows government to pick winners and losers.  Favoritism happens when politicians have close ties, whether through family, friendship or political contribution, with a corporation that spills over into the business place and then distorts the system.  This favoritism shows itself in the form of tax waivers, tax credits, bailouts and government backed loans.

Corporations and people who fairly make money are not the problem.  The problem is that our government takes our tax dollars and uses our money to support its favored corporations based solely on than that relationship.

Crony Capitalism enables greed by giving money to businesses that would otherwise not make it on their own.

Those who are the victims of Crony Capitalism are the businesses that are not politically connected.  They are not given tax breaks, incentives, etc. and the irony of all this is that their tax dollars can potentially be used against them by being given to their competition. 

Imagine starting a business only to find out that the government is giving tax breaks, government backed loans and tax incentives to your competition?  How can your business fairly compete under these circumstances even if your business has the superior product? 

Conversely, if you have political connections, your business can be the recipient of many tax advantages and if your business fails, you can be in a position to count on tax dollars to be used to bail you out.  Just think back to GM. The bailout of GM and UAW cost the taxpayer nearly $23 billion.  GM could not survive on its own with government bailouts.  What does that say about GM?  How can they be deserving of this money if they couldn’t make it on their own?

Other car companies had to watch as the tax dollars they pay be used to bail out their competition, which failed due to many factors which could range from poor management to inferior products.

Capitalism and the free market system is the wrong target of such vitriol.  These systems, at the very least, allow men and businesses to succeed or fail based on ideas, implementation of ideas and providing good and services that people want.  As Ayn Rand said, “Capitalism demands the best of every man – his rationality – and rewards him accordingly. It leaves every man free to choose the work he likes, to specialize in it, to trade his product for the products of others, and to go as far on the road of achievement as his ability and ambition will carry him” ( all without government intervention, I might add.)

It is not the government’s place to come in and alter the way a business operates by giving funding or offering tax incentives to purchase a product.  Not only is it completely unfair, it disrupts the system of a product being launched and the improvements that should be made through consumer feedback.  Once the funding or tax breaks end, the business will only have to start again at square one of product development and will be in no better of a situation than when it started. 

One of the most flagrant abuses of government intervention in the free market system is the Obama administration’s insistence on giving tax breaks, tax payer loans and tax incentives to many green energy companies that have given him political contributions.  Specifically, Solyndra, a solar panel company.   Solyndra was the recipient of $585 million of taxpayer money through a government backed loan.  If Solyndra was left to their own devices and tax incentives and subsidies were not given, would anyone have bought this product if not for the tax write-off? 

The government’s insistence that solar panels and green energy are the jobs of the future and the vehicle to spur economic growth proved to be grossly false.  The government tries to forcibly make this industry something it is not. While green energy sounds nice, products are being touted way before the technology has had a chance to be better developed, improved upon and made affordable on its own – without having to entice people with a tax write-off. 

Solydra has since gone bankrupt, taking $585 million of our tax dollars with it.  Money was given to Solyndra, not based on a tried and true product, strong business plan and strong financials, or strong economics, but rather based on political connections. 

This outcome proves that government should not intervene in the free market.  The free market can do a much better job of correctly picking those businesses that will succeed and those that will fail, all without putting the taxpayer on the hook for the money

At the end of the Solyndra debacle we are all left to wonder, “What happened to all of that money?”

There is only one way to level the playing field in the market place and that’s through Capitalism and the free market.  These systems are the only systems that allow the REAL winners to rise to the top and the only systems that reward the ingenuity and the risk taken to start a business.  Government’s only job in the free market should be to “get out of the way.” (Ayn Rand).

Since government has refused to “get out of the way,” it is safe to say at this time that the US is not the real Capitalist society as it once was.