url?sa=t&source=web&cd=1&ved=0CCYQFjAA&url=http://mercatus.org/sites/default/files/Holcombe_Cronyism_web

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 organized 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