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mutual benefit of those involved promotes cooperation, whereas the forcible transfer of resources from some to others pushes people to place themselves in the advantaged group that receives the transfers. Ludwig von Mises notes that there are laws of social interaction that determine how political and economic systems will actually function. Commenting on social engineers who were unaware of such laws, Mises says, Philosophers had long since been eager to ascertain the ends which God or Nature was trying to realize in the course of human history. . . . But even those thinkers whose inquiry was free from any theological tendency failed utterly in these endeavors because they were committed to a faulty method. . . . They did not search for the laws of social cooperation because they thought that man could <strong>org</strong>anize society as he pleased. If social conditions did not fulfill the wishes of reformers, if their utopias proved unrealizable, the fault was seen in the moral failure of man. Social problems were considered ethical problems. What was needed in order to construct the ideal society, they thought, was good princes and virtuous citizens. With righteous men any utopia might be realized. 3 Our analysis illustrates Mises’s point. Liberal political and economic systems build on the laws of social cooperation Mises references and are successful because they align the interests of all individuals so that everyone has ECONOMIC AND POLITICAL SYSTEMS 113
an incentive to cooperate for the benefit of everyone else. Adam Smith explained this concept perhaps as eloquently as anyone when he noted that in a market economy, an invisible hand leads individuals pursuing their own interests to do what is best for everybody. 4 When individual interests are not aligned and the political or economic system forces some people to act in ways they would not without coercion, those who have the power to coerce can use that power for their benefit. Because no one individual has the power to coerce everyone else, those with power have the incentive to help each other, which is how cronyism develops. There are real differences among the political and economic systems this book has explored, but an examination of the decision-making processes within each of them reveals all these systems as variants of liberalism or cronyism. In the real world, economic and political systems tend to fall somewhere in the middle of the spectrum, with elements of both liberalism and cronyism. In world history since the beginning of the Industrial Revolution, political and economic systems based on a large element of liberalism have prospered, 5 while those based on nonliberal systems have not. The danger, Olson pointed out, is that as political systems mature, they tend to move toward cronyism, which, to use Olson’s language, leads to the decline of nations. 6 Understanding how that process works is the first step toward preventing it. One motivation for undertaking this study was the recent backlash against crony capitalism. Critics noted that the government bailed out banks and other financial companies that held bad mortgages while homeowners lost their foreclosed homes. Energy companies with 114 LIBERALISM AND CRONYISM
Page 1 and 2:
LIBERALISM AND CRONYISM Two Rival P
Page 4 and 5:
LIBERALISM AND CRONYISM: TWO RIVAL
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CONTENTS Introduction 1 Chapter 1:
Page 10 and 11:
INTRODUCTION People often see polit
Page 12 and 13:
who have the power to make decision
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: with power support each other to ma
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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