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China functioned in a similar way; during agricultural famines, a person’s relationship and past tribute to his or her farm authority could spell the difference between life and death. 11 Left with no alternatives, nonprotected members of socialist societies soon learn that the surest way to receive necessary resources is to generate influence among elite state officials who control access to “the people’s” property. The tensions that exert pressure on socialist systems have to be resolved through some means. Because the formal procedures are unworkable, informal practices develop to facilitate life within socialist societies. Two norms emerged to overcome the problems of state coordination and consumer scarcity in the Soviet Union. 12 When resources could not be procured through legal channels, Soviet citizens relied on the blat system of obtaining favors through personal influence to do daily business. A tolkach, or “smooth operator,” facilitated the blat. He would function as an intermediary between the informal buyers and sellers of a resource, in addition to traveling and procuring more influence around the countryside. Usually, a tolkach had a formal position at the factory he represented, but occasionally tolkachi became so successful at their trade that they acted as full-time tolkachi and served several clients at once. While the blat and tolkachi system certainly helped to float normally unattainable goods on the black market and therefore improved the living standards of nonconnected people, the state used favoritism and influence to determine the initial allocation of the privileges to control resources. The prevalence of blat and tolkachi shows how a welfareenhancing informal order was ultimately predicated SOCIALISM 25
upon state privilege and disproportionately benefited a protected class of society. The collapse of the Soviet Union dramatically reduced the prevalence of blat and tolkachi in everyday life. Similar phenomena emerged in the socialist systems of Cuba and China. A reciprocal exchange of personal favors, known as socialismo or amiguismo in Cuba, predated the socialist system in that country but took on a new importance after the rise of the command economy. 13 In China, this informal network of favoritism and influence peddling was called guanxi or ganqing and was likewise a critical part of life under socialism. 14 Individuals who received state power to control resources were in a position to make a significant personal profit by charging for access to the stockpiles. Because socialismo plays a prominent role in Cuban state planning and resource management to this day, even mundane economic planning becomes highly political and dependent upon personal relationships. State employees in the education and health care fields find themselves devoting more time to cultivating political relationships and less time to providing services to people that need them. 15 In China, guanxi and caigouyuan, the Chinese equivalent of tolkachi, were likewise necessary developments that helped individuals function in a dysfunctional economic system. Although the practice of guanxi formed the “fabric of Chinese society” before the rise of the socialist Chinese state, it would be “a mistake to think that the fabric [was] the same” after the socialist system’s formation. 16 The adoption of socialism in China fundamentally changed the institution of guanxi from a system predicated upon a myriad of voluntary informal connections 26 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 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: consider the benefits and costs of
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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