Crony Capitalism- How Did It Happen?


There is no doubt that crony Capitalism exists. There is little doubt that it is a detriment to our economy and that if left to live it will cripple the American economy. How did this happen?

  1. First, the government has become a more dominant player in the economy, greatly expanding the potential for special interest groups to exert their influence over the economy to their advantage. The government has become more important both through its taxation and spending policy as well as through its increased regulatory reach. As recently as the mid-1960s, total US federal and local government spending amounted to less than 25 percent of GDP. Over the past three years, that ratio has been in excess of 35 percent. This large increase in public spending has been dwarfed by the explosion in government regulation. Whereas in 1950 there were fewer than 20,000 pages of federal regulations, today there are in excess of 165,000 pages, and the economic cost of these rules runs into the hundreds of billion dollars.
  2. A second factor contributing to the rise of crony capitalism has been the rapid rate of increase in the cost of election campaigns, which has made politicians particularly dependent on fundraising and forced them into a permanent campaign mode. In 2000, the total cost of the presidential and congressional campaigns was a little more than $3 billion; by 2012 the total cost had more than doubled to almost $7 billion. By 2012, the estimated average cost of winning an election to the House of Representatives had increased to $1.5 million, while the average cost of a successful Senate race had increased to almost $9 million.
  3. A third factor in crony capitalism’s rise has been a marked increase in lobbying activity as a channel by which large vested interests and deep pockets can legally influence the legislative process to their favor. According to the Center for Responsive Politics, over the past 15 years the amount of money spent on lobbying has more than doubled to its present level of around $3.2 billion. Equally disturbing has been the acceleration of the revolving-door between Congress and K Street. Prior to 1973, barely 3 percent of former members of Congress took up employment on K Street upon leaving the Hill; today around 40 percent of former US representatives and 50 percent of former senators lobby after stepping down from the Hill.

The roots of crony capitalism are undoubtedly deep. Any real solution must reduce the size of government. The smaller the government and the less involved it is in the functioning of the economy, the less leverage there is for crony capitalism to undermine the proper functioning of the free market. In addition, basic electoral campaign finance reform should be undertaken to free elected officials from their dependence on fundraising. Finally, the lobbying system itself might be reformed to reduce the excessive influence lobbyists presently exercise over the legislative process.

If left unchecked, crony capitalism will continue to sap vitality out of the US economy and to undermine public support for the American model of capitalism. In an increasingly competitive global economy, that is something that America can ill afford. This adds urgency to the task of finding ways to combat cronyism if America’s special brand of capitalism, which has made it the most prosperous and free nation on earth, is to endure.