Home > Federal Power, Free Market > Capitalism doesn’t create poverty, but Cronyism does

Capitalism doesn’t create poverty, but Cronyism does

June 16, 2014

thepoorandtherichToo often I will see bloggers and media reporters trying to make the case that capitalism creates an inequality that forces people into poverty. Such connections have been consistently debunked. Yet people love to make that connection in order to show that government should ‘do more’. If only those advocating for government to ‘do more’ would realize that they are asking for cronyism to be increased.

A good example of capitalism versus cronyism is highlighted in D.W. MacKenzie’s latest article highlighting the fact that the free market reduces poverty. Here is part of what MacKenzie has to say:

It is an obvious fact that severe poverty has disappeared in the most industrialized countries. Nations like the US, UK, Switzerland, and Japan industrialized within what were predominantlylaissez-faire free-market conditions. Even the so-called social democracies, like Sweden and Germany, developed in free-market conditions, and adopted extensive state welfare and regulatory programs only after achieving high levels of economic development and industrialization.

I would agree that severe poverty has almost disappeared in industrialized countries. Over the years I have traveled the world (both in an out of the Army). The poverty that exists in pre-industrialized countries is very extreme. Are there are poor people in industrialized countries such as the United States? Yes. But the worse conditions of poverty-struck people in the industrialized countries is nothing compared to the extreme conditions poverty-struck people in pre-industrial countries. To those that would dispute such claim I would ask them to travel to pre-industrial countries and see the conditions for themselves. I find it almost morally vacant to even consider comparing the poor of industrialized countries to the abhorrently poverty-stricken masses from pre-industrial countries.

As MacKenzie points out above: it is capitalism (predominantlylaissez-faire free-market conditions) that has allowed whole masses of people to get out of poverty. Even the great socialist democracies such as Sweden were only allowed to become what they are because of capitalism.

So what about Cronyism? Well. Cronyism actually undoes much of the good done by free-market principles. Here is the definition of cronyism via dictionary.com:

the practice of appointing friends to high-level, esp political, posts regardless of their suitability

Cronyism it the mechanism used by government officials to work against the free market. Cronyism is also a favored tool of big-government officials. By using cronyism it is possible for elected officials and government bureaucrats to redistribute vast amounts of wealth from the general populace to their favored special interest. Which is what many such as myself are talking about when using the phrase Crony Capitalism. This special reallocation of resources is NOT done for the good of all, as it is usually marketed. Instead such special allocations are done purely for political reasons; and usually end up removing more wealth from the free market that could actually help poor people.

I really wish the people who deride “evil corporations” would look at the other half of the equation: cronyistic government officials (not to excuse all corporations, there are some that act morally vacant as well). As long as governments will have the power to intrude on capitalism there will be cronyism. Cronyism will continue to reallocate resources away from the free market, which in turn hurts poor people. MacKenzie does point out the one small advantage of cronyism though:

The idea that domestic laissez-faire causes poverty is unfounded. It is a historical fact that India, China, and Kenya never tried capitalism, so this system was never given a chance to work. Furthermore, China and India have realized some progress in abating poverty since they moved in the direction of capitalism. Of course, China and India adopted regulated crony capitalism, but this is still better than their old socialist systems.

The emphasis was added by me. Even though crony capitalism is bad, it still allows more people to come out of true poverty than socialist systems do. As a country the United States should learn from this and discard the failed social expiraments that are redistributing resources away from the free-market. If such a change were to happen the cronyists would eventually lose power, and the poor in this country could actually start attaining wealth. But on the other hand, if we as a country continue down the path of socialist programs I fear cronyism will eventually create a true case of extreme-poverty in this industrialized country. And that is a situation where only those favored by the cronyistic government officials will be doing well. That is where cronyism will lead to poverty in a way pure capitalism never could.

  1. Merlyn Schutterle
    June 16, 2014 at 2:01 pm

    Cronyism is everywhere- especially in the news organizations. Here in Rochester the Post Bulletin is in bed with Mayo and every other powerful organization around. But then look in the court houses. I was told by a lawyer that certain law firms were in with the judges. He told me that judges make decisions that are easy for them ,not necessarily what is good for the people involved.I saw that happen several times myself.

    There are more lies told in courtrooms than in barrooms. And, of course, they are told by lawyers.

    • June 16, 2014 at 2:49 pm

      The media is a whole separate category of corruption and cronyism. Media corporations have long ago been bought out by special interest groups.

      Now lawyers. That is what we get for giving them such power. I still think a good change would be to disallow a judge from ever having served as a lawyer.

  2. June 16, 2014 at 6:54 pm

    The more I find out about SD corruption, cronyism, nepotism and favoritism the more depressed I become. I understand why people want nothing to do with politics. Unfortunately that is exactly what the politicians want, apathetic and uniformed people.

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