3.6 Cronyism: the common enemy

The true common enemy of principled thinkers on the left and right is cronyism: the capture of coercive public power for selective private advantage. Organised interests within some corporations, industries, unions, and other groups seek subsidies, protection, monopolies, favourable regulation, bailouts, contracts, tax concessions, and barriers against competitors. A political government possesses the power to grant them. Cronyism joins the two when officials use that power to confer selective advantage.

The left sees organised interests within some corporations acquiring political power and blames corporate power. The right sees some government officials selling political power to organised interests and blames government. Both are right about the part they see and wrong when they treat it as the sole cause. Private influence becomes tyrannical when it captures coercive power; coercive power becomes cronyism when officials use it to confer selective private advantage.

This is not the free market defended by Ludwig von Mises or Friedrich Hayek. Their case for limited government was directed against arbitrary power, monopoly, protectionism, pressure groups, and special privilege.

Mises described the political pursuit of tariffs, subsidies, and barriers against competitors in terms that closely match cronyism in “Politics and Ideas”, the sixth lecture of Economic Policy: Thoughts for Today and Tomorrow. Such benefits were not features of a free market but privileges sought through government:

“[Pressure groups] want to attain for themselves a special privilege at the expense of the rest of the nation.”

In the foreword to the 1956 American paperback edition of The Road to Serfdom, Hayek defined privilege as the State granting and protecting rights for some that were not available on equal terms to others:

“The essence of the liberal position, however, is the denial of all privilege.”

In their “Statement of Aims” of 8 April 1947, the founders of the Mont Pelerin Society did not treat threats to freedom as coming from government alone. While defending private property and competitive markets, they warned against both “extensions of arbitrary power” and private rights becoming instruments of domination:

“[P]rivate rights are not allowed to become a basis of predatory power.”

Market competition disperses economic power; cronyism suppresses competition by converting political connections into legal advantage.

Where criticism of neoliberalism goes wrong

Critics of neoliberalism often identify real cases in which particular corporations benefit from laws and international institutions, then describe the result as the triumph of free markets. That reverses the meaning of a free market. A rule protecting every person's property against confiscation is a general protection of liberty. A rule giving particular corporations protection, access, subsidies, or remedies unavailable to everyone else is cronyism. The decisive question is not whether a business benefits, but whether the law protects a universal right or creates a selective privilege.

In an interview about Globalists, Quinn Slobodian explicitly attributes legal encasement to neoliberalism:

“Neoliberal institutions are designed to insulate market processes from individual influence and use the apparatus of law to preserve [...] ‘encasement’.”

Slobodian blames neoliberalism when he should blame cronyism: organised interests have captured coercive institutions and used them to secure selective privileges.

Richard Murphy goes further. In “Neoliberalism was designed to fail ordinary people”, he assigns an intention to the founders that contradicts their own statements:

“[Neoliberalism] was created in 1947 by Milton Friedman and Friedrich Hayek to literally destroy the social safety nets.”

Murphy replaces the founders' stated opposition to arbitrary power and special privilege with an intention of his own invention. He blames neoliberalism for the consequences of cronyism.

Chomsky: the real question is tyranny

Noam Chomsky has been one of the most influential left-wing critics of neoliberalism. Unlike critics who concentrate upon particular policies, he attacks corporate capitalism as a system of private tyranny. Yet when asked whether a different society should dispense with money, he identified the more fundamental question in “Getting Rid of Private Tyranny”:

“Getting rid of money is one part of it, which I don't think is the crucial part. The crucial part is getting rid of tyranny.”

Chomsky is right that money, prices, and markets are secondary to the question of tyranny. He then directs that principle against corporations generally, describing them as totalitarian institutions that should be dismantled.

That confuses hierarchy with tyranny. A voluntarily joined organisation does not exercise political authority over everyone merely because decisions within it are hierarchical. The tyranny arises when organised interests capture coercive institutions and obtain powers or privileges that bind people who never consented to them. Chomsky identifies the right enemy but draws its boundaries incorrectly: the common enemy is cronyism, not markets or corporations as such.

Varoufakis and the Greek debt crisis

Yanis Varoufakis describes the treatment of Greece after its insolvency as a rescue of politically protected creditors rather than of the Greek people. In an interview about his experience as Greek finance minister, he said:

“It was a bailout of the French and the German banks that was disguised as a bailout for Greece.”

Varoufakis's account is that private banks made loans carrying risks they had voluntarily accepted; European institutions protected them from the resulting losses; and those losses were transferred to taxpayers. Greece was then required to accept further loans and austerity that reduced the income from which its debts could be repaid. In a 2015 interview, he also described the programme as political discipline imposed despite knowledge that it would fail.

Varoufakis has recognised the conflict between this conduct and neoliberal principles. In “The curious bargain of Greece's Hayekian neoliberals”, he called their support for taxpayer-funded loans to insolvent states a “Neoliberal Anomaly” and observed:

“[T]here is nothing in the neoliberal manual that can explain their total silence on the national [...] banks.”

He concluded that their unwillingness to let the banks bear their losses arose from their close relationship with the bankers. Varoufakis therefore saw the distinction clearly as early as 2012, but his terminology obscures it: he nevertheless called the participants Hayekian neoliberals while showing that their conduct violated Hayekian market discipline. The issue in his story is cronyism. Politically connected creditors were protected from the market while coercive institutions transferred their losses to people with less political power.

Capture beyond national government

Cronyism is not confined to national legislatures and agencies. National governments negotiate treaties, appoint international officials, fund international organisations, and carry the priorities of their most powerful constituencies into global institutions. Capture at the national level can therefore be reproduced in the rules of the International Monetary Fund (IMF), World Trade Organization (WTO), World Intellectual Property Organization (WIPO), Organisation for Economic Co-operation and Development (OECD), International Trade Centre (ITC), and other institutions that govern or shape participation in the global economy.

The channels of influence are visible. IMF voting power is weighted by financial quotas rather than distributed equally among countries. The WTO maintains a Business Advisory Group and describes business as an important interlocutor. WIPO formally includes industry groups and other interests as observers in its consultations. The OECD gives Business at OECD a formal role as its institutional private-sector stakeholder, representing business federations covering millions of companies. These arrangements give organised economic interests direct access to institutions whose rules influence national democratic choices.

Sources: IMF quotas and voting power; business and the WTO; WIPO observers; and Business at OECD.

Business participation is not itself cronyism. Cronyism exists when influence produces selective coercive advantages: stronger rights for incumbent investors than for ordinary owners, intellectual-property monopolies, barriers to new competitors, public guarantees for private losses, or treaty obligations that preserve privilege against domestic reform. The institutions differ in their purposes, governance, and degree of capture; each rule must be judged by whether it protects equal rights or entrenches favoured interests.

The location of the tyranny

The tyranny lies in the captured political machinery. It is neither voluntary commerce nor collective action as such. It is the power to impose rules upon others combined with the ability of organised minorities to purchase, threaten, or otherwise control the exercise of that power. Some corporations can be beneficiaries and active agents of the tyranny, while some public officials use the coercive powers of political government to make those privileges binding upon everyone.

This diagnosis creates common ground. The principled left is right to oppose private wealth controlling public power. Neoliberals and the principled right are right to oppose the discretionary government power that can be captured. Removing either participant from a single transaction is insufficient while the machinery remains. Preventing cronyism requires removing the State's capacity to grant selective privilege, so there is nothing for organised interests within corporations, unions, industries, professions, or ideological organisations to capture.