The term “crony capitalism” has a fairly long lineage, but lately it’s been uttered by supporters of both Occupy Wall Street and the Tea Party to denounce what they say is a distressingly cozy relationship between big government and some big businesses.
However, while both groups agree that the status quo of corporate welfare subsidies and difficulty of entry for new businesses are intolerable, their solutions could not be more different.
Occupy Wall Street has been consistent in calling for more government involvement in the private sector, from a mandatory 20 dollar-per-hour minimum wage to a regulatory crackdown on what they perceive as corporate opulence.
The Tea Party meanwhile, has called for almost exactly the opposite, citing government as the problem rather than the solution and seeking less interference from Washington.
A recently released report by senior research fellow Matthew Mitchell of the Mercatus Center at George Mason University, takes a closer look at the veiled relationship between the public and private sector, and makes some revealing new discoveries.
A common gripe from those on the political left is that without government regulation business will grow too powerful and form large monopolies, which leave the average consumer with less choice and higher prices. Thus, according to this economic philosophy, big business must be regulated into obedience.
Yet, Mitchell’s report debunks this myth by demonstrating how big business can actually profit from what he dubs “Regulatory Privilege:
“Though business leaders and politicians often speak of regulations as “burdensome” or “crushing,”…sometimes it can be a privilege to be regulated, especially if it hobbles one’s competition. This insight prompted consumer advocates Mark Green and Ralph Nader to declare in 1973 that “the verdict is nearly unanimous that economic regulation over rates, entry, mergers, and technology has been anticompetitive and wasteful,”and that “our unguided regulatory system undermines competition and entrenches monopoly at the public’s expense.”
Another claim of the left is that without more government regulation on all competitors, large businesses will dominate the marketplace and leave little room for new actors. However, Mitchell’s findings reveal just the opposite, demonstrating how regulation actually serves to keep out new competitors who are often unable to meet the many costly regulations:
“While barriers to entry impose costs on all firms, the costs are more burdensome to newer and smaller operators. This is why existing firms often favor regulations. University of Chicago economist George Stigler won the Nobel Prize in economics for showing that regulatory agencies are routinely “captured” and used by the firms they are supposed to be regulating.”
Last year, during the rise of Occupy Wall Street and the political scrambling to form a deficit reduction Super Committee, National Taxpayers Union partnered with U.S. PIRG and published a report titled Toward Common Ground. This non-partisan set of common sense proposals offered solutions that would appeal to both the political left and the political right, by focusing on issues such as ending wasteful subsidies, cutting unnecessary military spending, and enacting entitlement reform.
Although as we all know the Super Committee turned out not to be so “super” after all, if the United States is serious about revitalizing our dreary economic landscape, the left and the right will need to work together more often in changing outdated policies that no longer work. As demonstrated by Mitchell’s research and underscored by the NTU-U.S. PIRG report, restoring a vibrant and competitive economy will mean a commitment to eliminating wasteful “crony capitalism” policies. It will also entail adopting pro-growth reforms that reward companies based on their contribution to the economy rather than the number of lobbyists they can afford to hire to regulate their competitors out of business.