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use the sword of the Nazi state to tip the scales for the business people who were loyal to the Nazi party and its mission. <strong>Cronyism</strong> in fascist Germany revolved around membership in and influence with the Nazi party. 5 The Nazi allegiance to the party line was like a currency that was traded through networks of political power. Nazi party officials rewarded members of the business community who were loyal party members with government positions and regulatory authority. It was not the raw economic power of the protected German industrialists that solidified their privileged status, but rather the connections they established with powerful party leaders. The Nazis rewarded loyalty to their party handsomely; German firms that were connected to the Nazi party through donations or membership in 1933 outperformed non–politically connected firms by 5 to 8 percent that year. 6 Over time, the value of political connections to the Nazi party grew significantly as the state either regulated nonconnected firms out of business or seized them outright. The businesses with the most influence with the Nazi government received the most economic protection and assistance. For instance, Carl Duisberg, a cofounder and top executive of the chemical company I. G. Farben, gave significant campaign contributions to the Nazi party before and after its ascension to power. 7 These early bets paid significant dividends to Duisberg’s company, as the Nazi party elevated I. G. Farben to the status of protected company within the Nazi regime. The policies of rearmament and autarchy meshed well with I. G. Farben’s interests as one of Germany’s largest synthetic petroleum producers. In addition, the enactment of Göring’s Four FASCISM 41
Year Plan created several government bodies that were responsible for planning and investment in the petroleum industry. The government awarded three I. G. Farben executives—E. R. Fischer, Karl Krausch, and Heinrich Bütefisch—top positions in these state regulatory agencies. 8 These executives were therefore able to steer government policy to align with their company’s interests. 9 These positions helped I. G. Farben to procure government contracts and eliminate its competitors. In order to ramp up oil production for the rearmament effort, the Ministry of Economics significantly subsidized I. G. Farben’s process of hydrogenating synthetic fuel. Krausch was the administrator of the subsidization plan in the Raw Materials and Foreign Exchange staff and directed 70 percent of the subsidy money to I. G. Farben. 10 The party denied I. G. Farben’s competitor, Ruhrchemie, subsidization of its superior hydrogenation process because it did not have the same political connections. Economic policies like these enriched the Nazi party’s political allies at the expense of both their competitors and increased efficiency gains from competition. One of the most ubiquitous practices of cronyism in Nazi Germany was the institutionalization of the existing trade cartels that predated the Third Reich. Rather than creating a new bureaucratic entity to rein in market competition, economic regulators took advantage of the existing cartels as a vehicle to enact their desired policies. 11 In 1933, the Ministry of Economics issued a decree that required all firms to join a trade cartel. This rule benefited both the planners and the cartel members; existing members of the cartels benefited from reduced price competition from smaller competitors, while economic 42 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 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 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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