5.18 No cronyism

No cronyism is one of the most direct and powerful consequences of the NDP. Cronyism is structurally impossible in a system where the state is forbidden from treating people differently.

Cronyism depends on three ingredients:

  • the state has discretionary power
  • that power can be applied selectively
  • officials can decide who receives benefits or burdens

The NDP removes all three. Because the state cannot discriminate on the basis of identity, status, wealth, industry, connections, or circumstances, it loses the ability to:

  • grant special privileges
  • target specific groups for favourable treatment
  • impose selective burdens
  • negotiate exemptions
  • reward allies or punish opponents

Every mechanism must apply universally, automatically, and without discretion. This collapses the entire logic of political favour‑trading.

What disappears when cronyism becomes unconstitutional? A non‑discriminatory state cannot support:

  • industry‑specific subsidies or bailouts
  • regulatory exemptions for favoured firms
  • targeted tax breaks
  • preferential access to contracts or licences
  • zoning decisions that favour particular developers
  • “strategic partnerships” with politically connected entities
  • selective enforcement of rules
  • bureaucratic discretion that rewards insiders

These are all forms of discrimination by another name.

Cronyism is not an aberration of modern governance. It is a predictable outcome of discretionary, identity‑based state power. Once the NDP removes the ability to discriminate, the incentive structure that produces cronyism collapses. This is why the NDP is not merely a fairness clause. It is a structural redesign of governance. It replaces political allocation with universal mechanisms, favour‑trading with rule‑based processes, and bureaucratic discretion with automatic enforcement. Cronyism becomes not just discouraged, but impossible.

What is crony capitalism?

Crony capitalism is an economic system characterized by a close, mutually advantageous relationship between business leaders and government officials.

In a system of pure capitalism, success is determined by competition in the free market. In crony capitalism, success is determined by the favor shown by government bureaucrats to favored businesses, such as tax breaks, government grants, and regulatory advantages.

Cronyism has occurred throughout history and around the world, manifesting as political appointments, favorable regulations, and rigged contracts benefiting friends or associates of those in power.

Crony capitalism often leads to economic inefficiency, reduced innovation, corruption, market distortions, and increased income inequality. Resources are allocated based on political influence rather than market signals, which can harm long-term economic growth.

Cronyism is a primary mechanism by which monopolies are created and sustained. When businesses have close ties to government officials, they can influence the creation of rules, regulations, and laws that deliberately suppress competition and grant them exclusive market power.

Intentionally ambiguous laws and regulations give power to political officials to choose which businesses are impacted with barriers, fines or even jail time.

Why crony capitalism happens in traditional systems: Politicians control budgets and regulations so businesses lobby them for subsidies, tax breaks, or protection. There are state monopolies, so favoured firms get contracts without competition. There is borrowing and money creation so governments funnel cheap credit to insiders. There is opaque decision-making so corruption thrives in hidden deals.

Examples of cronyism

  1. The US sugar industry has lobbied for tariff-rate quotas to limit imports to about 15% of the market, doubling the price of sugar for US consumers, and inducing losses of about 20,000 jobs in the food processing and confectionery industries
  2. Large corporations such as Amazon, whose scale and automation make higher wage floors easier to absorb, promote minimum-wage laws that raise competitors’ costs and create barriers to entry
  3. Expanding training and certification exams to make it more expensive for new entrants to enter a market
  4. Software patents

Heinz

The lobbying effort by H.J. Heinz to make the preservative sodium benzoate illegal is a classic historical example of crony capitalism, where a business used political influence and regulation to gain a competitive advantage and create a de facto monopoly in a specific product segment.

At the turn of the 20th century, many food manufacturers used cheap preservatives like sodium benzoate to mask the use of low-quality or spoiled ingredients, as there were few food purity standards.

Henry Heinz invested in more expensive processes using high-quality tomatoes and a high vinegar content to create a stable, preservative-free ketchup recipe.

Instead of just competing in the marketplace by offering a premium product, Heinz actively lobbied U.S. government officials, including President Theodore Roosevelt and chemist Harvey Washington Wiley (who led "poison squad" human trials on preservatives), to pass the Pure Food and Drug Act of 1906.

By advocating for strict purity laws that effectively outlawed or heavily restricted the use of common, cheap preservatives like sodium benzoate, Heinz aimed to make his competitors' production methods illegal.

Smaller firms or those relying on cheaper ingredients could not afford to quickly re-engineer their products to match Heinz's quality and process standards. This regulatory change acted as an artificial barrier to entry, protecting Heinz's market share.

Heinz launched national advertising campaigns touting his products as "free of benzoate of soda" and pure. He could justify a premium price for his ketchup because the new regulations had effectively removed his low-cost competition.

The Medallion System of the taxicabs of New York City

The medallion system is a prime example of how government regulation, when influenced by private interests, can morph into cronyism: an alliance where the government uses its power to create a cartel, which then uses its profits and influence to ensure the political system sustains its artificial advantages.

In 1937, the city of New York passed the Haas Act, which capped the number of taxi medallions (licenses required to operate a yellow cab) at around 13,500. This number remained fixed for over 60 years, despite significant population growth in NYC. This intentional constraint on supply created an artificial scarcity.

By limiting competition through legislation, the city effectively granted a monopoly to existing medallion holders. This allowed them to charge higher prices than a free market would bear, extract "monopoly rents," and avoid meaningful competition.

As the value of medallions soared (peaking at over $1 million), medallion owners became a wealthy, well-organized, and politically powerful group. They intensely lobbied city governments and the Taxi and Limousine Commission (TLC) to maintain their protected status and prevent new medallions from being issued.

This political influence was evident in their sustained efforts to block or heavily regulate potential competitors like ridesharing services (Uber and Lyft). They argued for legislation that would force new entrants to abide by the same restrictive rules, effectively trying to use government power to protect their business model rather than competing through innovation or efficiency.

The close relationship between medallion owners and politicians often involved campaign contributions, which helped ensure the continuation of policies favoring the taxi cartel.

The high value of medallions meant that most individual drivers could not afford to buy one. They had to lease the medallions from large fleet owners, working long shifts for low net income, trapped in a cycle of debt.

Consumers faced higher taxi fares and often poorer service because the lack of competition meant less incentive for innovation or improved quality. In areas underserved by yellow cabs, black markets of "gypsy cabs" emerged to meet demand because the legal system failed to provide adequate service.

In Government Appointments and Policy

  • The Teapot Dome Scandal (US, 1920s): President Warren G. Harding appointed several friends ("the Ohio Gang") to his cabinet. His Secretary of the Interior, Albert Fall, secretly leased U.S. naval petroleum reserves (including at Teapot Dome, Wyoming) to private oil companies owned by his friends without a competitive bidding process, receiving bribes in return. Fall was eventually convicted and imprisoned for bribery.
  • Robert McNamara's Appointment (US, 1960s): President John F. Kennedy appointed his friend Robert McNamara as Secretary of Defense. Critics argued McNamara, a businessman with no relevant military or foreign policy experience, was unqualified for the post and largely responsible for the escalation of U.S. involvement in the Vietnam War.
  • Australian Administrative Appeals Tribunal (AAT) Appointments: A 2022 analysis by the Australia Institute highlighted a pattern of appointing politically affiliated individuals to high-ranking, full-time positions on the AAT, often without legal qualifications, which is a key requirement for non-political appointees.
  • Post-Soviet Russian Oligarchs (1990s): Following the fall of the Soviet Union, state-owned assets were privatized through insider deals, allowing a small number of individuals (oligarchs) with political connections to acquire vast national wealth for a fraction of its value.

In Business and Finance

  • The Marcos Regime (Philippines, 1965-1986): Under Ferdinand Marcos's authoritarian rule, a close circle of loyal businessmen and family members were granted monopolies, rigged contracts, and exclusive market rights, which led to the looting of national wealth and severe economic stagnation.
  • South Africa's "State Capture" (Zuma era, 2009-2018): The powerful Gupta family secured immense influence over the government through bribery and lucrative jobs for President Jacob Zuma's children. They secured government contracts worth billions in key sectors like energy by influencing the appointment of unqualified allies to state entities and avoiding competitive bidding processes.
  • The 1MDB Fund Scandal (Malaysia): Billions of dollars from a state development fund (1Malaysia Development Berhad) intended for economic projects were embezzled into private accounts and used to purchase luxury goods and real estate for politically connected individuals, including the former prime minister Najib Razak.
  • The U.S. Sugar Industry Subsidies: The domestic U.S. sugar industry consistently receives generous federal support, price guarantees, and import protections through intense lobbying and campaign contributions. These policies keep U.S. sugar prices artificially high (often 60-90% above world prices), benefiting a narrow group of producers at a significant cost to consumers.
  • Solyndra Loan Guarantee (US, 2009): The U.S. Department of Energy granted a $535 million loan guarantee to Solyndra, a solar panel manufacturer with political connections, despite concerns about the viability of its technology. The company went bankrupt two years later, resulting in a total loss for taxpayers.

The constitution eliminates cronyism

Under the constitution special interest groups cannot lobby a government to get favours at the expense of the rest of the community. Instead, under voluntary direct democracy a majority will vote against such initiatives.

The system avoids crony capitalism because it removes the mechanisms that enable it: politicians, subsidies, borrowing, opaque contracts, and coercive regulation. Instead, funding and survival depend entirely on citizen choice and transparent competition.

How the constitution blocks it:

  • No Politicians, No Parties: Decisions are made directly by citizens through continuous voting. There are no politicians to lobby, bribe, or influence. This removes the “backroom deal” mechanism entirely.
  • Voluntary Tax Allocation: Citizens individually allocate their consumption tax to services they value. Businesses cannot secure guaranteed subsidies by lobbying. They must attract citizen support. Funding flows to popular, efficient services, not to politically connected firms.
  • Profit-and-Loss Discipline for Public Services: Operators compete for citizen allocations. Inefficient or corrupt operators lose funding and disappear. Crony firms cannot survive without delivering real value.
  • No Borrowing, No Money Printing: The state cannot borrow or create fiat currency. This eliminates cheap credit and bailouts for insiders. Businesses must succeed on merit, not on state-backed financial favors.
  • Transparency by Design: All allocations, service ratings, and budgets are visible to citizens. Corruption cannot hide in opaque contracts. Citizens can instantly redirect funding away from operators that abuse trust.
  • Non-Aggression Principle (NAP): The state cannot aggress against individuals or businesses. This prevents regulatory capture, where laws are weaponized to suppress competitors. Businesses compete fairly without fear of majority-backed coercion.

Practical Outcome: No lobbying leverage: With no politicians, lobbying is meaningless. No subsidies or bailouts: Funding comes only from citizen demand. No hidden deals: Transparency ensures accountability. Merit-based competition: Firms thrive only if they deliver value to citizens.