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CHAPTER 3: SOCIALISM Socialism is an economic system in which the citizenry owns and controls the means of production. In practice, socialism has meant government ownership, but cooperative ownership in which the workers at a firm are its owners is another variant. In the socialist economy typified by the former Soviet Union, state planners directed their subordinates and factory administrators to meet a certain output level based on a predetermined national plan. Because socialism does not publicly recognize private property rights in the means of production, political connectedness in socialist systems is rewarded with powerful positions that grant monopoly use of specific resources, elite class status, and access to the few rare luxuries that exist in economies of extreme scarcity. Because government leaders grant privileges to the people who have connections to those with political power, those without privilege try to gain favor with those with power in order to procure the benefits they see going to those with connections. Socialism results in cronyism because it incentivizes individuals to compete for influence among a privileged class instead of competing for business by satisfying SOCIALISM 19
consumer demands. Examples of rent-seeking, clientelism, corruption, and political privilege abound in socialist economies the world over, including in the Soviet Union, China, Cuba, and North Korea. The forms of cronyism that emerged from these socialist economies are remarkably similar despite vast differences in the countries’ geography, history, and culture. The former Soviet Union provides a wealth of information on the day-to-day functioning of a centralized command economy. Recently released Soviet archives have prompted a flood of academic inquiries that compare the theoretical vision of socialism with the daily realities of the world’s largest and oldest socialist economy. Because these countries shared similar political and economic systems, many tendencies detailed in these extensive Soviet archives have reportedly taken place in pre-reform socialist China as well as in the modern socialist economies of North Korea and Cuba, although access to these other countries’ records is more limited. Additionally, China, 1 North Korea, 2 and Cuba 3 have been heavily influenced by Soviet socialism and Soviet advisers. Thus, an analysis of Soviet records can help to provide an institutional context for the similar phenomena that occurred in many socialist societies but that have not been comprehensively studied because of limited access to reliable data. The Soviet internal reports paint a picture of a socialist economy that was “planned” in name only. 4 Despite the careful calculations and best intentions of Gosplan, the state planning committee in the Soviet Union, the outcomes of economic directives barely resembled the spirit of the planners’ wishes by the time the responsible manager made a decision on the factory floor. This 20 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 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: people’s economic well-being. The
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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