Palin v. Crony Capitalism

I have long believed that the biggest problem we have in this country is that the government and the businesses that have captured the regulatory state have become one seamless monstrosity.

A lot of people have had a hard time getting their heads around this.

Lefties like to think that “business” is evil but that “government” regulates it to protect the people from pollution and defective products, etc.

Righties like to think that “business” = free enterprise, menaced by the evil “government” that is driving it to extinction.

Both are mostly wrong.

The government has turned into an amalgamation of iron triangles — regulators, legislators (or actually their staffs) and industries that are regulated. These work in tandem to their mutual advantage at the expense of the taxpayer and of truly entrepreneurial and innovative businesses. It is in the joint interest of this business/government crony capitalist complex to crush out potential rivals and created government sponsored, protected and subsidized monopolists.

This is precisely the hazard the USA was founded to fight against. The American Revolution was provoked by British monopolists authorized by the Crown — crony capitalism, 18th Century style. The founding generation was acutely aware of this problem. Further the major thinkers influencing 19th Century liberal thought in the USA, Canada and Britain were all focused on this problem: Jefferson, Edmund Burke and Adam Smith. (See the brilliant book The Transatlantic Persuasion: The Liberal-Democratic Mind in the Age of Gladstone by Robert Kelley, which explains this now-forgotten history.)

The greatest threat to our liberty is the uniting of government power and private greed, and that is exactly what we are facing now.

The creation of a regulatory state meant its inevitable capture by the industries it supposedly regulated. I remember having a life-changing intellectual moment when I read The Logic of Collective Action by Mancur Olson as an undergrad at the University of Chicago. (If you have not read this, you must do so. Really.) George Stigler’s analysis of the regulatory state was consistent with this picture. (See, e.g. The Citizen and the State: Essays on Regulation.) Once you see how this works, it is obvious that this process is inevitable.

The political class that services this machine has come to be known in Chicago as The Combine. Both parties service the machine, with no substantial difference between them. The Democrats tend to have more of what our co-blogger Carl from Chicago, in an excellent and prescient post, called stone-cold redistributionists, but neither party has any interest in making any basic changes in these arrangements. Mr. Bush, with the bank bailouts, then Mr. Obama, with Solyndra being just one of many egregious examples from him, has taken this process to a new level.

During the Cold War, people would argue that the United States and the Soviet Union were “converging.” The argument went that the Soviet Union would liberalize and become more humane, while the USA would become more socialistic, and we would all end up looking something like a utopian notion of Sweden. This did not happen. The Soviet Union fell apart. Mr. Fukuyama famously asserted that liberal democracy had “won” and that the ideological struggles of modernity were over, and history had ended.

But what if the final state is not democratic capitalism? What if convergence is right after all? What if Soviet communism fell apart and turned into a mafia state run by an alliance of government and favored businesses, which control the country by corruption and intimidation, a nomenklatura that strips out all the value in the country on behalf of a well-connected elite, immiserating everyone else. This amoral, vicious, greed-driven, undemocratic dystopia is what we are now converging toward. It is an Orwellian future, with an Inner Party of senior politicians and business executives, an Outer Party of government employees and business managers, and a vast, despoiled, proletariat with no opportunities, or assets or future. It sounds like the world Mr. Obama is brazenly pushing us toward. It also sounds like a future that no Republican has so far dared to point to, to name, to denounce and to oppose — because they would prefer to be in on the game than take the risks inherent in opposing it.

So, Fukuyama was right: We are approaching a single form of governance around the world. Unfortunately, it turns out, it’s fascism.

Until Gov. Palin’s speech on September 4, 2011, in Indianola, Iowa.

… there is a name for this: It’s called corporate crony capitalism. This is not the capitalism of free men and free markets, of innovation and hard work and ethics, of sacrifice and of risk. No, this is the capitalism of connections and government bailouts and handouts, of waste and influence peddling and corporate welfare. This is the crony capitalism that destroyed Europe’s economies. It’s the collusion of big government and big business and big finance to the detriment of all the rest – to the little guys. It’s a slap in the face to our small business owners – the true entrepreneurs, the job creators accounting for 70% of the jobs in America, it’s you who own these small businesses, you’re the economic engine, but you don’t grease the wheels of government power.

Please listen to this speech, or read it, if you have not done so already.

Today, Instapundit linked to a Facebook post entitled “Crony Capitalism on Steroids.”

She is pounding the same drum.

She is apparently going to make this theme the main focus of a Presidential campaign.

Say what you like about Mrs. Palin. She is the only person in public life who has successfully identified the threat, named it, shone a spotlight on it, denounced it, and begun to threaten it.

This is the first faint flicker of hope I have seen that our political order can be reformed democratically without a massive, system-wide failure happening first. Maybe the other candidates will be forced to respond to these denunciations, maybe there will be a populist response to this challenge raised by Gov. Palin. I hope so.

We do live in interesting times, and they just got a lot more interesting.

UPDATE: Paul Ryan had this excellent speech linked on Instapundit. Here’s an excerpt:

… if we surrender more control over our economy to the governing class – then life in America will become defined by a new kind of class warfare: A class of bureaucrats and connected crony capitalists trying to rise above the rest of us, call the shots, rig the rules, and preserve their place atop society at the expense of working Americans, entrepreneurs, and the small businesswoman who has the gall to take on the corporate chieftain.

My highlighting. Sounds familiar.

More of this, please. Faster, please.

23 thoughts on “Palin v. Crony Capitalism”

  1. One measure of the breadth and depth of the regulatory captures and the scope of the Nomenklatura in this country is the fact that the Institutional Republican party hates and attacks Sarah Palin as much as the “Progressives” do with two technical differences. First, there is a lot less scatology and sexual fixation in the Republicans’ attacks. Second there is a lot more of the “knife in the back” aspect from the Republicans.

    Subotai Bahadur

  2. I had an interesting conversation with a gentleman that has come to the US from China in the mid 90’s.

    He is bitterly disappointed because the American people put up with this form of corruption. He made tremendous sacrifices to pursue the “American Dream” only to find that we allow ourselves to put up with what he left behind.

    I drove away thinking of the reputed Chinese curse, “may you live in interesting times”.

    I would add Milton Friedman to your list (even though it would be fair to assume that most, if not all, of the readers of this blog are very familiar with his work). He was the first to introduce me to the idea that big business, despite their protestations, loves regulation.

  3. Thanks for the “shout out”.

    One interesting but sad metric is how much of our current economy is either “non tradable” or “captured” by the forces of government. It is quite high. Many sectors have to get involved with government at a basic level just to do business.

    Another element is corruption. People view corruption as an “error in the system”, but in fact it is the “system”. Public power becomes a means to wealth, and over time it attracts the sort of people that are attracted either to the potential for cash rewards or, more subtly, the chance for FUTURE cash rewards once they leave the system and are able to interact with it from outside as an agent of a future non government employer. Other classes of people thrive on the power of being able to make decisions for others that can’t be overturned just by their role in the hierarchy.

    One of the strongest criticisms of the system is that it DOESN’T WORK. For instance, there was a campaign that “union made” once was tied with quality, but nowadays pretty much it is just people saying “I want to retain my job and benefits” or it is “not fair” to change their compensation or benefit levels. You don’t hear even an attempt to correlate unions with quality, which is sad because, if true, it would be one of their stronger defenses. They are just trying to hold on to what they have. Detroit city which is fading to zero is the start, peak and ultimate fate of unions.

    In the most virulent form you get the states in Africa where the ENTIRE POINT of government is to financially reward those in power with the spoils of the state. All jobs are solely tied to natural resources or other types of wealth and the job of government is to ensure that the ruling party / dictator stays in power. This is on display in Syria, Angola, etc… in some ways I see a lot of future in the less-well run parts of Africa because if they can build their own systems they might have a more dynamic future. We will never end up like that because there are many solutions at the local level and we have offsetting institutions but it won’t mean we won’t end up bankrupt and economically subservient to others.

  4. This is terribly familiar. We have been trying to explain regulatory capture in the UK for years. Of course, we have two levels of it, Whitehall (Westminster) and the EU but the mechanism is the same. It is not easy to explain to people who are used to the old dichotomy: state v. private enterprise, state ownership v. private ownership. Many people have not woken up to the fact that the economy can be controlled without the state actually owning it or that competition and economic growth is not necessarily the aim of large privately owned conglomerates.

  5. Benjamin Franklin:

    There are two passions which have a powerful influence in the affairs of men. These are ambition and avarice—the love of power and the love of money. Separately, each of these has great force in prompting men to action; but, when united in view of the same object, they have, in many minds, the most violent effects.

    Irving Kristol:

    Now, the pursuit of power is a zerosum game: you acquire power only by taking it away from someone else. The pursuit of money, however, is not a zero-sum game, which is why it is a much more innocent human activity. It is possible to make a lot of money without inflicting economic injury on anyone. Making money may be more sordid than appropriating power—at least it has traditionally been thought to be so—but, as Adam Smith and others pointed out, it is also a far more civil activity.

    By tightly coupling the pursuit of money to the pursuit of political power, the overreaching regulatory state makes wealth-seeking a much less civil activity, and turns a useful and productive game into a destructive war.

  6. Subotai, I agree. For the GOP, opposition to Palin is about a potential threat to the Nomenklatura’s business as usual. To the Democrats there is also a cultural and psycho-sexual threat that adds to the shrillness. Also, they are all insiders and genuinely believe anyone who isn’t is stupid. So they are outraged that she has as much popularity as she does. It is a perfect storm of animosity. And, to be fair, she is less knowledgeable than she should be for someone running for president. However, on this issue, the most important issue of the age, she is the only person saying out loud what needs to be said. The importance of the message outweighs any defect in the messenger. I am hoping the entire GOP will at least start paying lip service to these themes, and that the public will become alerted to these issues. This really should cross party lines, and bridge much of the Left and Right. Mr. Obama was supposed to be the uniter, but on substance he is polarizing. Mrs. Palin’s approach suggests the possibily of a new unity and a new alignment.

    VictorWhatsYourVector. I agree. We are converging with China in the same way. In fact our crony capitalists probably look at least as “Chinese” as they do “Russian.” However the irony of the much-touted convergence and a variant on the End of History theme led me to talk about Russia. The fact is, Fukuyama was right: We are approaching a single form of governance around the world. Turns out, it’s fascism. As to Friedman, I learned about how real capitalism works from him — but I learned about the cancer eating away its guts from Olson, and I remember the day it struck me, like a bolt of lightning, and it reconfigured my brain. So, the post reflects my personal awakening to this problem. I will say that Milton Friedman is the first person I saw use the expression “iron triange.” He was acutely aware of this problem. He does not happen to be the guy who I learned about it from.

    Carl, your second point is our best hope. Compared to genuine competitive capitalism, it DOESN”T WORK. People see that, even if they don’t see clearly what is happening. That makes me think the Nomenklatura, the ruling class that Codevilla describes, won’t have a long run in power.

    Helen, you guys have a real problem on your hands. The unaccountable EU framework has created an unaccountable layer of government that creates a particularly virulent version of this problem. But, I hope they day may come when they will tremble when they think of the edge of England’s sword. Then, you have the rats’ nest of cronyism in Westminster to worry about … . No one ever said this would be easy.

    David, bravo. Two excellent quotes. Franklin knew exactly what he was talking about based on first-hand observation, both here and in London.

  7. Richard Fernandez, of the Belmont Club, has a pamphlet just out, and available on Amazon, called “Storming the Castle,” which discusses the “Party Of Incumbents” versus the “Outsiders,” represented by the Tea Party. A quick and worthwhile read.

  8. Outstanding, Lex.

    Fully agree that “the biggest problem we have in this country is that the government and the businesses that have captured the regulatory state have become one seamless monstrosity.”

    Problem #1.
    And it is not even close.

    To say that Sarah Palin “is the only person in public life who has successfully identified the threat…and begun to threaten it,” however, is not entirely accurate.

    Ron Paul has been attacking corporatism for many years.

  9. Sev, I suppose you are right about Ron Paul. However, he has been systematically ignored. It will be harder to ignore Mrs. Palin. They will instead rely on mockery and personal attacks to drown out the message. It may work. I hope not.

  10. Lefties like to think that “business” is evil but that “government” regulates it to protect the people from pollution and defective products, etc.

    Righties like to think that “business” = free enterprise, menaced by the evil “government” that is driving it to extinction.

    Another way of looking at this phenomenon:

    The left wing establishment conflates free enterprise and crony capitalism in order to attack free enterprise.

    The right wing establishment conflates free enterprise and crony capitalism in order to defend crony capitalism.

    The predictable result is that we get less free enterprise and more crony capitalism.

    It’s essentially the same thing that you are saying, Lex, but I think it’s important to realize that the confusion is not just an innocent ideological misunderstanding. There is a good bit of deception, or at least self-deception, on the part of those who benefit from the current state of affairs.

    Ron Paul has been attacking corporatism for many years.

    Ron Paul is my hero not because he’s electable or even an effective politician, but because he’s been patiently beating this drum since I was in elementary school. It doesn’t bother me that commentators call him crazy; heck, I don’t care if he is crazy. The fact that these ideas have entered the national discussion is due in large part due to his calm and consistent presentation of them.

  11. “She is apparently going to make this theme the main focus of a Presidential campaign.”

    Is she enter the election and does, she will have my active support. Otherwise, none of the GOP candidates really excites me (though I think Daniels would have).

  12. Lex,

    Ron Paul is being ignored by the bought and paid for media precisely because of his precision and persistence in attacking this very issue (the Fed being the most egregious subset of capture/cronyism).

    The efforts to ignore and discredit Dr. Paul are enormous.


    Because if his message reached a wider audience he would be imminently electable.

    The powers that be have decided that Palin is not worth the effort.


    Because she is the one who is truly unelectable.


  13. I don’t see a languid resignation to a foredoomed slide into serfdom as a good option.

    So, in that case: Now what?

    It is very late.

  14. “Now what” has a simple answer, you describe crony capitalism and you excise it like the tumor on the body politic that it is. This does not take bullets. It does not take heroic action. It merely takes patience, stamina, and the will to do the work necessary.

    So, what is the work? The job is identify, list, and repeal all laws, rules, regulations, and executive orders that are crony capitalist. Describing the process is simple:

    1. Identify all sovereign and corporate bodies that have the right to impose such laws, rules, regulations, and executive orders.
    2. Get the corpus of all their laws, rules, regulations, and executive orders. For national security reasons, some will be beyond our reach. This is a minor issue today but bears watching.
    3. Structure the information
    4. Read it, judge it, and plan a repeal campaign
    5. Successfully institute the campaign.

    It’s impossible for one person to do. It’s vaguely plausible if 10,000 people devote their lives to it as a full time job. It’s reasonable if 10,000,000 people spend 15 minutes a day doing the work. Are there 10,000,000 tea party people with 15 minutes of time regularly on their hands? I think there are.

    The tipping point will be when the middle of the road people who don’t pay much attention start noticing that areas that strip out these crony laws faster have a better quality of life and better economics than those who are laggards in the process. That’s when the electoral math will change and the ordinary politicians elected in that new normal will largely stop resisting the efforts and start championing them.

  15. Left unsaid but should have been mentioned is that the companies you are talking about are all huge multinational corporations – not small and medium sized businesses. Government is working against them.

    And not all multinationals are in this triangle – look at what is happening to Boeing – not only in the NRLB ruling but the Defense Dept 9until recently) deciding to order Airbus tankers.

    I’ll have to review your links tonight when I have more time. Interesting comment about palin – I like her and cannpt understand the vitriol against her – a gut-level hatred.

  16. The steady creep of regulatory/corporatist tyranny is something I’ve tried to capture in a map of the political spectrum I’ve developed.

    The Asplund Chart is the map.

    My take from another post is

    The gradual, incremental accumulation of slightly more centralized control results from what seem to political insiders to be prudent, pragmatic decisions. This slowly sets up an environment where creeping regulatory control and interest group cronyism gains enough power to corrupt the entire system. Democracies and republics slowly undermine themselves in a way that sudden authoritarian power grabs could never do. The capture of democratic institutions by self-interested and self-serving elites happens automatically, though clearly some political actors work tirelessly to accelerate the trend. No secret totalitarian aspirations are needed to explain a process that’s repeated itself since the earliest recorded human civilizations.

  17. “Interesting comment about palin – I like her and cannpt understand the vitriol against her – a gut-level hatred.”

    Bill, this a war over power and money, who will control both. Palin is a threat to the old order.

    The propaganda machines of the Left: newspapers, television, magazines, went into overdrive to destroy her. It was Orwell’s Two Minute Hate writ large. And most people swallowed the Big Lie – hook, line and sinker. They hate her, but can’t really tell you why.

    I hope Tina Fey was well paid for her part in all this. I wonder if she has any clue what a complete tool she was?

  18. The regulatory creep and control over the “system” is much like the putting a frog in bioling water vs slowly turning up the flame situation.

  19. Michael – agreed – but I think there is still more to this – there has always been – during my lifetime – an “us vs them” mentality between what I would term the “east coast elites” and the rest of the country.

    If you weren’t educated back east – preferably one of the Ivy League schools – you are considered to be “sub standard” – thus Obama can be accepted coming from Harvard – although it would be nice to know what his grades were – but Palin – who worked though school going to Idaho St – well to these east coast snobs she is a laughing stock.

    There was a lot of this against Reagan, too, but not nearly to the extent I see against Palin.

    Add to the mix that she is a conservative woman and like conservative blacks who, among the establishment, “leave the reservation” – they get an extra dose of hatred.

    Clarence Thomas’ background is not that different from Palin’s and look how they treated him.

  20. TMLutas,

    Is there any ongoing, organized, effort to execute on those 5 steps? I’m sure they could work purely independently but ther would be a great deal of duplicated effort, especially in the early steps. Some kind of coordination might be useful.

    It seems to me that 1-3 could be handled very efficiently via the web, perhaps as a wiki or some similar collaborative data base?

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