How Economic Regulation Causes Cronyism and “Regulatory Capture”

Kronies action figures - They're Konnected!I’m very much pro-capitalism. However, I agree with Bernie Sanders and many of his allies on the American Left about something. I agree that cronyism is a serious problem in the US. Businesses should not get special favors and money from the government that they didn’t earn. But where Bernie and friends seem to think the solution to cronyism is more government regulation and control, I think cronyism is a symptom of too much government regulation and control. I think the solution is purer capitalism, which means freer markets. In this essay, I’ll explain why I think this, and how I think government regulation of the economy causes cronyism, lobbying and “regulatory capture.”

Let’s start by observing a correlation: Cronyism and lobbying tend to show up in the most regulated industries, not the least regulated. Finance in the US is heavily regulated–by no fewer than eight federal agencies–and the government protects and bails out big banks. Pharmaceuticals are controlled by the FDA, and the FDA often keeps smaller competitors out of the market. Whether a sports team can build a stadium is practically controlled by the city government, and team owners typically get a bonanza of special deals and subsidies from the city. Cronyism was virtually non-existent in the less-regulated tech sector, until the government pursued the anti-trust case against Microsoft. Now, Microsoft has a division in Washington D.C. for lobbying purposes. (Apple and Google now both lobby, too.) In general, retail stores are not very heavily regulated, and there’s not a significant issue of cronyism in that field.

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Why Socialism is Always Oppressive, Dictatorial and Corrupt

This essay is Part 2 of a three-part series on socialism:

Communists: Marx, Engels, Lenin, Stalin, Mao

Theorists and socialist leaders in the Communist ideological tradition.

In the first essay in this series, I gave the definition of socialism offered in the Oxford English Dictionary and explained why the essential idea of socialism is immoral. Even in it’s “purest” and most democratic form, socialism is inherently unjust and will lead to mass poverty.

In this essay, I will explain why many historical examples of countries that called themselves “socialist,” such as the Soviet Union and China, were in fact socialist, (contrary to the protestations of many of today’s socialists) and explore why the more consistent implementations of socialism have always resulted in dictatorship, oppression and corruption.

Again from the Oxford English Dictionary, socialism is defined as:

A political and economic theory of social organization that advocates that the means of production, distribution, and exchange should be owned or regulated by the community as a whole.

First, let’s look at what this definition does not say: It does not say that everyone must have equal wealth or income. It does not say that money must be abolished. It does not say that the state or political leadership must be abolished. (The abolition of money, the state and political leadership were supposed to be features of Marx’s communist utopia that would arise out of socialism.)

A key part of what the definition does say, that gives us a clue to the basic idea underlying socialism, is the last part: “owned or regulated by the community as a whole.” Socialism is based on the idea that the community as a whole has interests apart from individual interests, and at least in some cases, community interests override individual interests. A community as a whole can allegedly make decisions that protect or further those interests. This forms the basis for why socialist ideologies believe that the community as a whole has the right to own and regulate property.

The idea that the community as a whole (or any other group) has interests, rights, and the ability to make decisions apart from individuals, is called collectivism. Collectivism treats the group–in this case, the community–as though it were a single living organism, with individuals as parts or cells of its body. Under this view, the individuals are inherently dependent on the whole for everything in their life. Individuals’ choices are entirely determined by their circumstances and place in the community, and separation from the community means a loss of personal purpose and rapid death for an individual. Thus, the community, as the agent responsible for everything an individual is, has the right to determine how goods and services will be produced and distributed.

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“Equal is Unfair – The Inequality Advantage”: A Talk by Yaron Brook

Should economic inequality (inequality of wealth) in a capitalist system concern you? Is inequality of opportunity a problem that needs a governmental solution? Is it fair or just that some people make more money than others, or inherit wealth from their parents?

I found this video so powerful that I had to share it in its own post on my blog. In this video, Yaron Brook is both reasonable and passionate when he speaks about one of the central moral and political issues of our time: inequality. He also answers questions from his audience at the University of Exeter after the talk.

Stick around for the Q&A for Dr. Brook’s view of what legitimate equality is. (Hint: It’s the same type of equality meant by the Founding Fathers of the United States.)

Also, look for Yaron Brook’s upcoming book, Equal Is Unfair: America’s Misguided Fight Against Income Inequality, co-authored with Don Watkins.

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Related Posts:

Socialism and Welfare vs. Justice: Why Inalienable Private Property Rights are Required for Justice

On Fairness and Justice: Their Meanings, Scopes, and How They Are Not the Same

Wealth is Created by Action Based on Rational Thought

The Role of Profits in Free-Market Capitalism, and Why High Profits are Good for a Company’s Workers

How Business Executives and Investors Create Wealth and Earn Large Incomes

The Role of Profits in Free-Market Capitalism, and Why High Profits are Good for a Company’s Workers

Underpants Gnomes Meme - Phase 1: Physical Labor Phase 2: ? Phase 3: ProfitWhether people like it or not, it is a fact that the production of valuable things requires more than physical labor. (I’m looking at you, Karl Marx, with your Labor Theory of Value and “profit as exploitation.”) This is especially true when it comes to industrial-scale mass production. To successfully deliver products at a reasonable price and quality, a company must be organized in certain ways that are effective; there must be communication and coordination between the various departments; there must be management to make sure things keep running smoothly together and that timetables are kept; there must be wealth invested for buildings, machinery and raw materials in the right amounts; any machinery and facilities must be continually maintained; there must be management of sales and distribution of the product; etc.

A collection of factory workers without power tools, without specific roles and without management direction will produce very little and very inefficiently. In any line of business, there is a tremendous amount of strategy, business planning, technical planning, management, and industry knowledge that goes into making a company productive and successful.

As I discussed in my essay, “How Business Executives and Investors Create Wealth and Earn Large Incomes,” a company’s chief executive officer (CEO) carries tremendous responsibility: he is crucial in making large-scale decisions for the company, implementing and coordinating major changes, planning long-term for the future market and technology the company will face, formulating and holding onto a large-scale vision of where the company should go, etc.

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What Squeegee Bandits Can Teach Us About the Welfare State (Voices for Reason)

Don Watkins makes an excellent and concise point about consent and moral responsibility in this blog post at Voices for Reason:

What Squeegee Bandits Can Teach Us About the Welfare State

Here’s a bonus video: “Is Inequality Fair?” by Yaron Brook of the Ayn Rand Institute:

 

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Related Posts:

America Before The Entitlement State

19th-Century Capitalism Didn’t Create Poverty, But Reduced It

How to Show That Taxation is Robbery

On Fairness and Justice: Their Meanings, Scopes, and How They Are Not the Same

The Nature of the Morality of Rational Egoism: Short Notes

Student suspended for questioning CT Governor on Gun Legislation

First, government officials come after your Second Amendment rights. Then, when you peacefully question them about it and tell them that they’re destroying your business, government officials violate your First Amendment rights to shut you up! (Note that Asnuntuck Community College is a public/government institution.) All hail the coming police state!

Two Heads are Better Than One


Shut up

If you’re one of the many folks upset about Connecticut’s new gun laws, that state’s governor has a message for you: Shut Up.

Courtesy of the Daily Caller:

“…student Nicholas Saucier tried to get (Democratic Governor Dannel ) Malloy to answer questions about his support for gun control legislation, which has put Saucier’s ammunition manufacturing business in jeopardy. Saucier followed Malloy to his car after the governor finished speaking at a public forum at Asnuntuck Community College.

The exchange took place in October of last year, and was captured on video…” 

Sounds relatively harmless so far, right?

Now here’s the video:

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Yaron Brook Interview on The Heartland Institute Daily Podcast: The Philosophy of Liberty

What’s the difference between “equality,” as the US Founding Fathers meant it and “equality,” as those in today’s political Left mean it? The Founders created the freest and most prosperous nation on earth. Yet did you know that the Khmer Rouge of Cambodia were motivated by “equality” in the deliberate murder of millions of people?

In this interview with Jim Lakely of the Heartland Daily Podcast, Yaron Brook, president of the Ayn Rand Institute, discusses equality, morality and general philosophy, and their connection to liberty:

Here is Part 1.

I had some trouble with the player stopping in the middle. If anyone has this problem, the direct link to the file is here:

http://heartland.org/sites/default/files/yaronbrook-part1.mp3

Here is Part 2.

And the direct link to the file:

http://heartland.org/sites/default/files/fire-yaronbrook-part2.mp3

If you found the interview enlightening or persuasive, please share this post with as many people as you can. Yaron Brook has a very important message, and is an excellent speaker. Here is a particularly good example of his many lectures:

Finally, I recommend the book Yaron Brook coauthored with Don Watkins: Free Market Revolution: How Ayn Rand’s Ideas Can End Big Government

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Related Posts:

How to Show That Taxation is Robbery

Wealth is Created by Action Based on Rational Thought

Why Healthcare in the US is So Expensive, and What Can Be Done About It

The Nature of the Morality of Rational Egoism: Short Notes

An Objectivist Refutation of Anarcho-Capitalism (Market Anarchy)