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people who argue for limited government, when they support limited government using the argument that most people favor smaller government. This argument concedes that the government should carry out the will of the people, and a majoritarian government is not a liberal government. Under this reasoning, some mechanism must reveal the people’s will, and that mechanism is representative democracy, where the people express their will through voting, lobbying, and financially supporting political candidates and their parties. Because politicians can keep their hold on power only with such support, progressivism leads to cronyism; politicians will meet people’s demands to the extent that those people support them. With many competing groups all arguing that supporting their interests will further the public interest, it is unrealistic to expect a result other than cronyism. Economist Mancur Olson argues that nations decline when interest groups become well-established in the political process so that firms gain more from their political connections than from their economic productivity. 4 In other words, cronyism leads to the decline of nations. Olson argues that a young political system will have weak political interest groups and political connections will not have developed to the point where businesses can count on favors from the government. When political interests are weak, entrepreneurial individuals have an incentive to engage in economically productive activity, which results in economic growth. This process creates the rise of nations, as Olson describes it. Over time, political interest groups grow and solidify, and they establish relationships with those who have government power. As they do, success increasingly comes from the ability to use PROGRESSIVISM 57
political connections—from cronyism—rather than from the ability to engage in economically productive activity. When the power of political connections overwhelms the power of economic productivity, nations enter a decline. Economist William Baumol suggests that the amount of entrepreneurial activity is roughly the same in every society. Societies prosper when the institutional framework is <strong>org</strong>anized such that the payoff from economically productive activity is higher than the payoff from using political connections to get ahead. 5 Where political connections are more important, entrepreneurial individuals engage in political entrepreneurship to try to place themselves within the power elite, where they can prosper by taking from the productivity of others. Where poor institutions allow individuals to gain more wealth through political connections than through productive activity, people have less incentive to be productive and more incentive to seek profitable political connections, which generates cronyism and lower growth. Societies suffer when their institutional framework causes the payoff from using political connections to get ahead to exceed the payoff from economically productive activity that increases societal wealth. The idea behind progressivism is that the government’s role is to look out for people’s economic wellbeing in addition to protecting their rights, but this system leads directly to government policies that favor some people at the expense of others. The earliest manifestations of progressivism in the late 1800s—regulating grain elevator prices, or establishing antitrust laws—were specifically designed to promote the interests of some at a cost to others. More modern programs like Social 58 LIBERALISM AND CRONYISM
Page 1 and 2:
LIBERALISM AND CRONYISM Two Rival P
Page 4 and 5:
LIBERALISM AND CRONYISM: TWO RIVAL
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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 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 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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