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Crony capitalism

Crony capitalism is an expression or variant of capitalism in which the opportunity to open or succeed in business is heavily dependent on one's connections. This results in business decisions being powerfully influenced by business friendships and family ties rather than by impersonal market forces and open competition.

The term is used only perjoratively - often abbreviated crapitalism - and is generally used as an explanation for why a superficially market-based system fails to generate economic growth. The term has been used to describe the economic systems of Japan, Indonesia and the United States.

Like Fascism, "crony capitalism" often describes a close relationship between government and business, but to a much less obvious extent. Instead of the government directly controlling businesses and giving it orders (as is the case with Fascism), the government gives legislative favors to certain businesses or types of businesses - ease of permits, government grants, specially created tax benefits, etc.

Capitalists are quick to point out that said actions are "not capitalism", but socialists are just as quick to say that said actions are. Some refer to this system as mercantilism or as being related to it. Some, like ethicist Jane Jacobs, just call it corruption, a natural consequence of letting those managing power and trade collude.

Crony capitalism is partially explainable by using the principles which govern any network. As government and business leaders try to accomplish things they naturally turn to other hubs (powerful people) for support in their endeavors. In a developing country those hubs may be very few thus concentrating economic and political power in a small interlocking group. In a fully developed country, wealth may have become concentrated in a small group with the same result, reduction of the number of hubs or influential persons and institutions.

Critics question the meaningfulness of the concept by pointing out that personal factors influence business decisions in all economic systems and that the existence of these factors, per se, is insufficient as an explanation for why certain economic systems work better than others. Other critics point to the newness of the term, by noting its absence from many dictionaries.

In Russia and the other successor states to the former Soviet Union, and in China, government connections are almost indispensable to business success. The same is true for certain industries with a connection or dependence on the military-industrial complex in the United States.

See also: bribery, oligarchy, mercantilism

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