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selective taxation, and cap-and-trade proposals. Some of these policies, like government loan guarantees to “green” firms, provide clear examples of cronyism. Other policies, like environmental regulation, grant privileges to specific firms in a more subtle way. Although these policies are diverse in their approaches, they all share the common characteristic of putting government representatives in a position to choose the economic winners and losers. Modern environmental policy therefore resembles industrial policy in the sense that the government selects which firms should be favored under the law and which firms should be targeted for taxes and regulatory penalties. While environmental policies may begin with good intentions, recent experience in the United States with environmental interventions has shown that when placed in a position to distribute benefits to friends, associates, and political allies, government employees often succumb to this temptation. The recent loan guarantee program from the Department of Energy (DOE) provides a clear-cut example of government cronyism in environmental policy. Ge<strong>org</strong>e W. Bush signed the program into law through the Energy Policy Act of 2005 and Barack Obama implemented the program and promoted it to the public as a necessary investment in America’s green economy. The program’s proponents argued that innovative ideas in alternative energy sources have a hard time attracting investor funds due to the high risk involved in these initiatives. 4 Advocates concluded that the government must step in to provide economic security for the necessary funds to enable the development of these critical technologies. A public loan guarantee, in which the government ENVIRONMENTALISM 67
promises to assume a company’s debt if it fails, is one way to provide security for risk-wary investors. Although proponents justified the program on the grounds of financial necessity, the government did not distribute loan guarantees solely on the basis of merit. The Government Accountability Office raised multiple concerns about the inconsistency and arbitrariness of the DOE’s administrative procedures in selecting the companies that would receive a public loan guarantee. 5 Closer examination reveals that the government did not primarily award the DOE loan guarantees to the kinds of small, innovative startups that traditionally have difficulty securing sufficient investment, but rather to large, established firms. 6 Additionally, 90 percent of the loan guarantees went to relatively low-risk power plants, many of which were already backed by large companies with sufficient financial resources. 7 This distribution of loan guarantees was contrary to the program’s stated intent of supporting innovative technologies that are unable to obtain traditional financing. Some firms even “double dipped” into the public trough by receiving multiple loan guarantees through subsidiary companies. What is more concerning, however, is that many of the loan guarantees appear to have been prioritized for firms with connections to the Obama administration. One of the most publicized examples of this kind of cronyism is the case of cylindrical solar panel manufacturer Solyndra. The Department of Energy extended a $535 million loan guarantee to Solyndra despite some staffers’ lingering questions about the company’s future profitability. Solyndra’s political connections allowed the company to receive a grant despite shaky fiscal forecasts. One of 68 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 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: their roots to diverse sources of i
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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