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esources can be taken from some for the common good of all. For example, a government could establish a system of taxes and use the tax revenue to provide roads, police protection, and other public goods. However, just because a government could establish such a system does not mean a government actually will. Even if government provides roads that everyone can use, someone must determine which firm gets the construction contract to build the road, how much will be spent, and where the road will go. Special interests weigh in heavily on such decisions, and people with political connections tend to be favored in the outcomes. That is cronyism. Some people might cite the United States as an example of a nation in which the government collects taxes to produce outputs that promote the public good, but others argue that crony capitalism is undermining the market economy and democratic government in the United States. 5 To sort out the competing claims, we must undertake an analysis of political and economic systems to see how they actually work. Ludwig von Mises, analyzing political philosophy before it was subject to economic analysis, argued that political philosophers 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 the 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, LAYING A FOUNDATION 9
they thought, was good princes and virtuous citizens. 6 Mises was arguing that there are laws that govern political and economic interactions among individuals, and that political and economic systems can only be understood within the framework of those laws. A good place to begin analyzing the claim that all political and economic systems are variants of liberalism or cronyism is with an economic analysis of government decision-making. THE MYTH OF THE OMNISCIENT, BENEVOLENT DICTATOR Policy analysis in modern economics typically takes place by comparing some state of affairs in an economy (sometimes a real state of affairs, sometimes an imagined or assumed one) to an ideal allocation of resources. Economic analysis notes the differences between the current state of affairs and the ideal state of affairs, with the idea that the government, armed with this information, can correct the market’s failure to allocate resources efficiently and attain this ideal state. 7 This approach has been used for more than half a century in economic analysis and remains current in the twenty-first century. The proof by economists Kenneth Arrow and Gerard Debreu of the uniqueness and stability of a competitive equilibrium also supports this line of reasoning. 8 Arrow and Debreu showed that there is one unique, stable, optimal allocation of resources in a competitive economy, and this allocation is the benchmark for economic efficiency. An economy that falls short of this theoretical benchmark 10 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 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 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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