url?sa=t&source=web&cd=1&ved=0CCYQFjAA&url=http://mercatus.org/sites/default/files/Holcombe_Cronyism_web

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