Crony Capitalism and the History of Bailouts

In this revealing interview, David Stockman, former budget director and original Supply-Side proponent, tells of the 30-year history of how crony capitalism and the American finance industry has affected American politics.

6 Comments on "Crony Capitalism and the History of Bailouts"

  1. Mr Willow | Jan 24, 2012 at 11:37 pm |


    Let’s presume, for the sake of argument, that his distinction between capitalism and crony capitalism holds weight. We have businesses that don’t have the luxury of a government bailout, with the various safeguards that Mr. Stockman admitted should be in place (Glass-Steagall and the like). 

    Businesses then act as they always do, if allowed. With profit made, they grow. With growth, they expand. Company expansion causes an eventual franchise, which means the building of a corporate office, from which to manage all the locations. The bosses, then, are separated from their employees—the ones in the factories making the products, providing the service, and are otherwise in direct contact with the general public, which are now referred to as the degrading moniker of ‘consumer’—and are thus more concerned, generally, with the monetary workings of the company. They do, on occasion, make visits to the factories and storefronts they own but are no longer responsible for managing them—that responsibility being given to someone beneath him, in the usual hierarchical structure—but if they expand to the size of Wal-Mart, they can’t possibly visit every location. With a corporation comes influence. Predominately, this influence extends throughout the world, and includes the building of corporate branches, as well as stores, in countries outside that in which it was originally conceived. 

    All of this is seen as not only ordinary, but the mark of incredible success. However, since the owners of the company are divorced from the labour that enables their company to operate, not to mention accumulate wealth, the only portion of the company they interact with are the numerical figures the company creates, and therefore never really consider their company exists outside of those numbers—whether it is a conscious effort to reduce the company to numbers or if it’s a natural response to being cooped up in a corner office, isolated from their employees, along with the rest of society, (as they interact not with ‘average’ people, but with other company owners to discuss. . . whatever it is they discuss)—is a matter of debate. As such, when numbers start to fall, specifically profit numbers, they have to do something. Generally, this involves cuts—worker pay, healthcare benefits, workplace safety (et al), being the first things considered, as none of that directly affects the owner. 

    With worker cuts comes worker anger, especially if the cuts are deep. Worker anger, if ignored, leads to worker strikes. Worker strikes lead to further profit losses, which lead to corporate contempt. Corporate contempt usually leads to them becoming the overly self-righteous ‘job creator’ variety we are all familiar with. Corporate self-righteousness leads to worker outrage, involving the formulation of the idea that they, as people, are devalued, formal demonstrations, marches, and gatherings with speeches, along with a petitioning of the government to increase workplace safety, along with an increase of wages, and whatever else through the use of regulation. 

    With worker petitions comes further corporate contempt, which views these regulations as ‘crushing business’. In response, come corporate petitions, which means corporate association with members of government, and because the corporate owners have accumulated more wealth than the individual workers they have a disposable income to spend on ‘research projects’ that conveniently show how not only the proposed new regulations, but also the currently existing regulations, are harmful to the country’s economic growth. And because the corporate owners were separated from the labour force, and thus their concerns, and began associating with other corporate owners—therefore cutting deals in the process, where one makes a partnership with another, or is bought out by another, or even purchases another (not to mention all the companies that are driven out of business altogether by the enormous influence of corporations), causing there to be a few corporate entities instead of the couple dozen of before—they are correct. (they are too big to fail)

    So, once again, we arrive at the crossroads of ‘socialism’—in this instance the continuous ‘crushing of business’ through regulations that seek to protect not only workers but consumers—and ‘capitalism’—in this instance the ‘victimized businessman who stands as the last bastion of true freedom’. Yet all the ills that are caused—the death, the destruction, the lies, the dehumanisation, etc. etc.—are chocked up to ‘crony capitalism’ or some other title that somehow absolves the system of capitalism from the blame. 

    “Oh, those people aren’t real capitalists! If we had a free-market, it would be different.” 

    What they mean, of course, by ‘free-market’ is a market free from ‘government interference’ in the form of regulation, neglecting entirely the fact that without regulation, the people working in their factories and stores are completely unprotected from further pay-cuts, further degradation of safety, resulting in more death. All that is, of course, leaving out the instances of service providers ‘providing’ a sub-standard service, or no service at all (health insurance industry), while still charging a premium price. 

    To gain this free-market, they use their preëstablished connections in the government and ‘petition’ directly to them, promising that if they pass legislation removing regulations, when their term ends, there is a place at the company, with a nice fat salary, waiting for them. 

    There is no ‘crony capitalism’. This is capitalism; it is the natural course of capitalism, the path it has slowly followed since the Industrial Revolution (though it existed beforehand in a sort of proto-form with things like the Medicis*). And a ‘free market’ cannot exist without a government—as in an organisational body beholden to the wishes and interests of the public (workers and consumers)—lest it become an industrial dictatorship. 

    For the record, I do admire his suggestions on what must be done to reign in the destructive nature of capitalism, particularly limiting campaign contributions and breaking up the banks. If they’re too big to fail, they’re too big to exist. 

    And sorry for such a long post. 

    * (in case anyone was curious)

    • Jin The Ninja | Jan 24, 2012 at 11:44 pm |

      i will ask you to never apologise for your own posts. they are always well beyond my own capacity, enlightening, and expertly constructed. yet again, thank you.

    • Simiantongue | Jan 25, 2012 at 1:26 am |

      That was good, real good. The dichotomy of true captialism and crony capitalism seems a bit tired and false to me too. And I agree with Jin you shouldn’t say sorry for the length. It’s cogent and well written. The subject requires something other than conventional thought and that takes more than a few short meaningless cliche’s. The effort is appreciated.

    • Calypso_1 | Jan 25, 2012 at 7:46 am |

      Nice.  How is it, within this context, do you view anti-trust measures?  These are inherent to Capitalism, having been in place in various fashions since the Romans. Though they require government, it is not for concern for the workers or consumers but for the strength of the ‘Market’.  Cronyism, within certain contexts, is a way of violating these measures. 
      By all means continue your long posts : )

  2. What the heck happened to this great video….I posted it everywhere yesterday(great learning tool for the young and the NON believers.)? please put back up.

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