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who have the power to make decisions under them can game the system to favor their cronies. In a liberal system, as we use the term “liberal” in this book, people are entitled to what they produce, and others can acquire their production only through voluntary agreement. When political and economic systems work though coercion, it is not surprising that those who have the power to coerce others end up profiting from that power, whether the power goes to a majority in a democracy or to a small ruling coalition in a dictatorship. Regardless of the appearance of objectivity, discretion creeps into the decisionmaking process, and that discretion benefits those who are cronies of the people who make the decisions. The alternatives in any political or economic system reduce to liberalism or cronyism. Liberalism is a political philosophy that rests on the protection of individual rights and voluntary agreement when dealing with others. <strong>Cronyism</strong> is a system in which people we call “cronies” receive benefits from personal connections that are not available to others who are outside that group. Political and economic systems are typically characterized as capitalist, socialist, communist, fascist, despotic, progressive, corporatist, majoritarian, and so on. Despite the nuances that differentiate these systems, all must have some mechanism for coordinating the activities of everyone in the group, whether that group is a family, a club, a tribe, or a nation. In all cases, either people engage each other through mutual agreement and exchange, or some people have the power to direct the activities of others. When some people have the power to coerce others to undertake actions that they would not voluntarily agree to, personal connections inevitably INTRODUCTION 3
creep in to benefit those who are cronies of the people who hold power. The analysis that follows lays out a framework for understanding liberalism and cronyism. We then discuss the actual operation of different political and economic systems. Some of these analyses are heavily based on historical examples, such as fascism in Germany between the world wars and socialism in the former Soviet Union. Others look at contemporary political and economic systems such as majoritarianism and industrial policy. Through examining the operation of actual political and economic systems, we show why, despite their various designs, all political and economic systems in practice are variants of liberalism or cronyism. Either exchange and resource allocation take place through mutual agreement under a system of liberalism, or they take place through a system of cronyism where some people have the power to direct the activities of others. 5 4 LIBERALISM AND CRONYISM
Page 1 and 2: LIBERALISM AND CRONYISM Two Rival P
Page 4 and 5: LIBERALISM AND CRONYISM: TWO RIVAL
Page 6: CONTENTS Introduction 1 Chapter 1:
Page 10 and 11: INTRODUCTION People often see polit
Page 14 and 15: CHAPTER 1: LAYING A FOUNDATION Befo
Page 16 and 17: hijacking of the term to describe a
Page 18 and 19: esources can be taken from some for
Page 20 and 21: suffers from “market failure,”
Page 22: is a group of cronies in a dictator
Page 25 and 26: ecause it permits voluntary exchang
Page 27 and 28: people’s economic well-being. The
Page 29 and 30: consumer demands. Examples of rent-
Page 31 and 32: the Politburo and the needs of conn
Page 33 and 34: consider the benefits and costs of
Page 35 and 36: upon state privilege and disproport
Page 37 and 38: their loyalty to the socialist stat
Page 39 and 40: cronyism from gripping every area i
Page 41 and 42: communism are well documented and w
Page 43 and 44: Accountability was embodied by refo
Page 45 and 46: despite comprising only 3 percent o
Page 48 and 49: CHAPTER 5: FASCISM Fascism, the pol
Page 50 and 51: use the sword of the Nazi state to
Page 52 and 53: planners created a back door for in
Page 54 and 55: CHAPTER 6: CORPORATISM Corporatism
Page 56 and 57: puts men and their possibilities in
Page 58: that this form of guided capitalism
Page 61 and 62: therefore provide sufficient benefi
Page 64 and 65:
CHAPTER 8: PROGRESSIVISM Progressiv
Page 66 and 67:
people who argue for limited govern
Page 68:
Security, Medicare, and Medicaid do
Page 71 and 72:
the direct election of senators, ch
Page 73 and 74:
argue for narrow individual interes
Page 75 and 76:
their roots to diverse sources of i
Page 77 and 78:
promises to assume a company’s de
Page 79 and 80:
enefits for his former venture capi
Page 81 and 82:
prices of firms within the textile
Page 83 and 84:
ment the power to make decisions an
Page 85 and 86:
of social justice, cronyism has an
Page 87 and 88:
for women in the twentieth century,
Page 89 and 90:
ecause it advocates granting these
Page 91 and 92:
should pay the same as comparable b
Page 93 and 94:
way, the US government replaced the
Page 95 and 96:
an individual, social justice advoc
Page 98 and 99:
CHAPTER 12: CRONY CAPITALISM AND DE
Page 100 and 101:
subsidies, political connections di
Page 102 and 103:
CHAPTER 13: INDUSTRIAL POLICY The t
Page 104 and 105:
“cottage industries” that clust
Page 106 and 107:
of complex systems. He applied this
Page 108 and 109:
South Korean industrial policy gave
Page 110:
The degree to which Japan’s and S
Page 113 and 114:
to get involved in lobbying to prot
Page 116 and 117:
CHAPTER 15: LIBERALISM VERSUS CRONY
Page 118:
that power will arise with another
Page 121 and 122:
with power support each other to ma
Page 123 and 124:
an incentive to cooperate for the b
Page 125:
environmental movement often advoca
Page 129 and 130:
6. Ludwig von Mises, Human Action,
Page 131 and 132:
12. James Heinzen, “The Art of th
Page 133 and 134:
CHAPTER 5: FASCISM 1. Peter Temin,
Page 135 and 136:
CHAPTER 8: PROGRESSIVISM 1. Terry L
Page 137 and 138:
16. Bruce Yandle, “Bootleggers an
Page 139 and 140:
3. Eamonn Fingleton, “Japan’s I
Page 142 and 143:
FURTHER READING Acemoglu, Daron and
Page 144 and 145:
ABOUT THE AUTHORS Randall G. Holcom
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