Sunday, October 05, 2014

Crony Capitalism Is Kryptonite to Democracy and the Real Economy

When the machinery of governance is ruled by the highest bidders, democracy is dead.

Last week I described the sources of America's America's terminal political dysfunction. The engine of this terminal dysfunction is crony capitalism, the incestuous and oh-so-profitable marriage of the Central State and monied Elites.

Gordon T. Long and I continue our discussion of the perverse incentives and consequences of crony capitalism in a 25-minute video program.

Gordon argues that America's Crony Capitalism closely resembles the Roman Tribute System, an arrangement that skims wealth and concentrates it at the top of the power pyramid.

Vast financial crimes are met with fines. Guilty parties do not go to jail but rather the corporation pays a fine. Billion-dollar crimes are assessed million-dollar fines-- a percentage that closely mirrors a Tribute System. The government makes money through enforcement but not prevention. Corporations make illicit fortunes with the confidence that the government will settle for a small slice of the wealth stripmined from the people.

The fines for financial skimming operations act as a form of tribute to the Central State: the State and its corrupt elected officials and regulators turn a blind eye to the pillage of the citizenry via financialization schemes, and then skim a tribute via fines and campaign contributions.

Everybody in the inner circle wins: the finance perps collect their millions in bonuses, the legislators collect their millions in campaign contributions, and the regulators (who managed to do nothing in the way of prevention) get to declare a toothless victory in announcing wrist-slap fines.
I have covered this dynamic many times:

The Mafia State of Mind (February 6, 2014)

This cozy arrangement might seem benign, but it's actually deadly to democracy and the real economy. Let's call crony capitalism what it really is: Kryptonite to democracy and the real economy.

Concentrated wealth and State power form a self-reinforcing feedback loop that destroys democracy. The more profitable buying influence and the revolving door between corporations and regulators becomes, the more money the corporations have to spend on lobbying, which serves to further protect their profits. The more money political toadies collect, the more beholden they are to entrenched interests.

This feedback loop rewards crony capitalism and limits classical capitalism’s key features: transparent markets and competition. An economy dominated by crony capitalism stagnates as competition is suppressed and government enriches those who are “more equal than others” (to borrow a phrase from Orwell).

Money that might have once been invested in research and development is now devoted to bribing politicos, lawsuits defending corporate turf and wrist-slap fines/Tribute to the State that enables and protects crony skimming operations.

When the machinery of governance is ruled by the highest bidders, democracy is dead.

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Gordon Long and I discuss The New Nature of Work: Jobs, Occupations & Careers(25 minutes, YouTube) 

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