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the Western democracies that Fukuyama sees as the end
of history do not make their political decisions democratically,
if “democratically” means that governments carry
out the majority’s will. Rather, there are constitutional
constraints and a fiscal constitution that limit the powers
of those governments.
Over time, those constitutional constraints on the
government have eroded so that the government has
increasingly made its decisions with fewer constitutional
constraints. Interest group politics has gained increasing
influence over government decision-making, opening
the door to crony capitalism and leading to what Olson
has described as the decline of nations. 2 Democracy
poses a danger to the economy because it opens the door
to political pressures that lead to cronyism. The more
that government decisions can be influenced by political
pressures—that is, the more democratic a government
is—the more a nation’s economy will turn toward
cronyism. For democracies to be productive rather than
destructive, those who hold political power must work
within clear constitutional constraints that limit their
discretion—that is, that limit their ability to engage in
cronyism. Western democracies have prospered not
because of their democratic governments, but because
of the constitutional constraints that have limited the
powers of those governments.
Crony capitalism is the movement of capitalism away
from liberalism and toward cronyism. Capitalism is
based on private property rights, rule of law, and voluntary
exchange. As the government gains more regulatory
power to dictate the terms of exchange and more authority
to alter the terms of exchange through taxes and
90 LIBERALISM AND CRONYISM