Classes of people and Cronyism


Merchants and master manufacturers are . . . the two classes of people who
commonly employ the largest capitals, and who by their wealth draw to themselves
the greatest share of the public consideration . . . The interest of the dealers, however,
in any particular branch of trade or manufactures, is always in some respects
different from, and even opposite to, that of the public . . . The proposal of any new
law or regulation of commerce which comes from this order, ought always to be
listened to with great precaution, and ought never to be adopted till after having
been long and carefully examined, not only with the most scrupulous, but with the
most suspicious attention. It comes from an order of men, whose interest is never
exactly the same with that of the public, and who accordingly have, upon many
occasions, both deceived and oppressed it.
Adam Smith, An Inquiry Into the Nature of the Wealth of Nations


Vulgar actions of today

Is it perhaps because there is a connection with Vulgar Tongue that we today can see governments enjoying playing with humans life, making sure that they get grey hairs from wondering how they would be able to cope to give everybody in the family what they need.

More than one local and national government have spend public money like it was flowing out of the horn of plenty. They promised their citizens the moon. Though many democratic governments are encouraged to practice administrative transparency in accounting and contracting, there often is no clear delineation of when an appointment to government office is “cronyism”. at the end world got his answer with the distability and loss of vitality of the EU and its Member States.

The Heath of the south of Europe

The managed collapse of Greece, as well as the very worrisome status of Italy, Portugal, and Spain have created a sense of urgency in trying to save the Euro. Many have argued that a collapse of the Euro would ultimately lead to the death of the European experiment. But taking in consideration the powerful waves of euroskepticism rising throughout Europe, shouldn’t the EU be killed by now, some people ask?

One of the big problems in southern Europe is that many people did not see any wrong in evading paying taxes and in trying to get as  much money as possible from the federal government, in bonuses but also in inequitable compensations.

Lobbying activities took care that money transferred easily hands. But most actions were preferably done behind closed doors or closed curtains. Round tables ‘friends’ made sure their services were liked by many and would bring some extra interest to the most important ‘friends’.

Small and easy to fool

For years Europe has looked to profit-seeking businesses with the assurance that they would  generally serve the interests of consumers and make the country grow. Yet
profit seeking will not serve consumers if businesses can secure from government
monopoly privileges or other regulations inhibiting their competitors.This we saw happening the last few decennials. Many ministers did not mind to come to an agreement to give governementsubsidy without wanting some guarantees in return. Belgium has let it be taken many times over the years, and it seems the government did not learn from it. We cite just a few: Sabena, Swiss Air, Renault, General Motors, Opel, Union Minière. The Fortis and Dexia debacles are not finished yet.
The businesses gained a lot of money and transferred it to abroad, leaving lots of workers without a job or put into pre-retirement too early.

Corruption, illegal attempts to secure favours from politicians, establishes the negative impact on the investment environment of bribes for favours. {Andrei Shleifer and Robert W. Vishny, “Corruption,” Quarterly Journal of Economics 108, no. 3 (1993): 599–617; Paolo Mauro, “Corruption and Growth,” Quarterly Journal of Economics 110, no. 3
(1995): 681–712.}

Easy growth

Normally economic freedom should been strongly linked to prosperity and growth, and giving everybody equal chances. Economic freedom should create opportunities for all sorts of people, no matter of formation or background. It would also give possibilities to grow up in a company. That is something we could see until the mid eighties of the previous century. A labourer could start at the bottom of the ladder, become a foreman, overseer, captain, supervisor, wharf responsible,then project manager, and so moving to the top even able to become the boss.

By the years, having the golden sixties, finding lots of opportunities to construct for governmental projects, handy CEO’ s got the way to make more money out of public funding. Coming closer to the 90ies misuse of public office for private gain became more and more a sport. by the beginning of the 21° century major CEO’s found themselves honoured for their achievements, being able to gain more money while needing less people to do the job. The aim was to make an increasing gain every year. They were not satisfied any more by just making gains, it had always to be better with less people.

Some extras

Under the table some extra money was offered to public officials in many European countries. It was not secret any more that people had to offer something in return to get something done.  In many places payments were made that violated formal laws or
informal norms. It did not matter that the general public would loose money with it.

Also behaviour which deviates from the formal duties of a public role because of private-regarding (personal, close family, private clique) pecuniary or status gains; or violates rules against the exercise of certain types of private-regarding influence, was tolerated.

As a regular means

Today we can question the fact that we are here in Europe in such a terrible state, because corruption has found its way into many regular and governmental systems.

Especially in the southern countries we may find forms of corruption including bribery, nepotism, and misappropriation of public funds. Italy has be the known classic, but Greece and Spain did not escape the dance.

But Belgium may not wash its hands, because today it is owned, not to say terrorised by the banks. In the small divided country many major firms saw a chance using the division to get more elbowroom. they were not afraid to use the politics to provide enough scope to get certain advantages for bringing their business to a certain region. In their aim to gain they did not mind using illicit means to influence laws.

Strangely enough nobody seem to notice or to care that administrative corruption got firmly into the local and national circuit. Innocent looking parties, private payments to public officials and festivities were used to come more into the picture and to get officials on their hand. They managed to get new enactments so that their business got favour by the new ordinance. Avoiding enforcement of certain laws was the booming business of which many CEO could be proud of.

Common people could not do anything against those who had more influence and submission power to create more legal means to shape laws.

Rent seeking has been more consistently defined as attempts to secure rents or wealth transfers through the political process, but Laband and Sophocleus in their effort to measure rent seeking include costs related to crime. {David N. Laband and John P. Sophocleus, “An Estimate of Resource Expenditures on Transfer Activity in the United States,” Quarterly Journal of Economics 107, no. 3 (1992): 959–83.}

Influences

Businesses can influence public policy in two different methods: illegally, through what is generally included under the label of corruption, and legally, through what we is refered to today as cronyism.

In the free market economy, consumers determine which producers, competing in a market open to competition, earn their dollars. Cronyism, on the other hand, refers to unequal competition, where those with the closest connections to the political process gain an advantage over their competitors in the pursuit for consumers’ Euros. Soreide defines cronyism as when “political networks dominate important private assets, or ‘state capture’, in which private firms are able to influence public power to their own benefit.” {Tina  Soreide, “Corruption in International Business Transactions: The Perspective of Norwegian
Firms,” in International Handbook on the Economics of Corruption, ed. Susan   Rose-Ackerman (Northampton, MA: Edward Elgar, 2006), 387.}

Now every Jack got his Jill and grasp all, lose all. Government interventions undertaken in the economy with the intention of helping the consumer ended up serving as the means for firms to exploit political connections as opposed to fulfilling consumer wants, subverting the decisive role of consumers in the economy. The consumer is left in the cold and more people who have lost their job do not have enough means to consume properly to have the economy run like it should. Consumers lost their confidence. Our capitalist system can only survive when there is enough consumption. But this came unto a halt by the economic crisis.

Rational to benefit

The use of public interest rationales as cover for political measures intended to benefit politically connected businesses, or what can be thought of as by-product protection lay hands on the possibility of a normal free economic market.

At first politicians were pleased for the attention for them by the business world and they thought to benefit because the cronyism could bring them in votes, campaign contributions, remunerative jobs and speaking engagements after leaving office, and positive publicity if the public accepted the public interest rationale. But the quid pro quo agreements between firms and local politicians made the world turn upside downside. Today we are facing the atrocious bill of mismanagement and greed by our governments and global firms.

Rally against Political Corruption In Slovakia...

Rally against Political Corruption In Slovakia: People At Home Have No More Bananas (money) For Gorillas (corrupted politicians) (Photo credit: infomatique)

Charities not free

With the years more non-profit organisations were formed to distribute certain earnings to save ‘heavens’. Local politicians expected benefits to the local community in the form of donations to specific charities, the employment of local workers, and infrastructure improvements, among others, but they miscalculated and where fooled. Some organisations were sincere in their hope to get more advantages for their sincere aid work, but they ware also mistaken and had to confess that they were used by very smart organisations.

Sometimes politicians pursued what could be characterized as crony measures for public interest purposes, not private gain. But their actions benefited nonetheless the wrong parties.

Final costs

Europe’s dirty laundry can hang out.

Cronyism can only emerge when there is political influence over resource allocation.
In a free market, transactions are voluntary, and both parties must believe they will be better off to participate in any given transaction.

A lot of mid and lower class consumers seem to come to the point where they have to turn over their Euro more than twice. Today producers of goods and services must compete for every consumer Eurocent by striving to deliver superior value to consumers — the fundamental wealth – creating basis of the market economy.

However, politicians with influence over resource allocation can use coercion to direct resources to lower valued uses or even block wealth-creating reallocations of resources. As cronyism expands, economic freedom recedes. Cronyism also alters the structure of incentives that firms face by providing profit opportunities for entrepreneurs who invest in political lobbying, campaigning, and relationships, rather than in true profit opportunities. At the end the consumer has to pay for it all.

To remember

Charts showing economic freedom, as defined in...

Charts showing economic freedom, as defined in Economic Freedom of the World, and various other indicators. The red bars shows nations with less economic freedom, the green bars those with more. (Photo credit: Wikipedia)

[Economic] privileges limit the prospects for mutually beneficial exchange—the very essence of economic progress. They raise prices, lower quality, and discourage innovation…[padding] the pockets of the wealthy and well-connected at the expense of the poor and unknown.
– from lecture at The Heritage Foundation  by Matthew Mitchell of the Mercatus Center

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Please read also:

Mercatus Organistion publication of the George Mason University: Gauging perception cronyism United-States

Gauiging the Perception of Cronyism in the United States, by Daniel J. Smith and Daniel S. Sutter (pdf)

  • Bigger Government, More Cronyism, Less Economic Freedom (heritage.org)
    Recent news about the Obama Administration’s divestitures from AIG and GM—in some cases at a loss of billions of dollars—stands as a reminder of the privilege and cronyism that permeates our economy.

    As favoritism grows with the size of the government, economic freedom continues to be eroded by policies like bailouts, loan guarantees, and tax exemptions. Privilege has replaced the good public economic policies of freedom. The influence of a select few is eroding our economic values and introducing perverse incentives and inefficiencies that hurt our competitiveness.

     

  • Cronyism Is The Antitheses Of Capitalism (conservativesonfire.wordpress.com)
    As a free market capitalism purest who became so as a teenager after reading the works of Ayn Rand, I get all bent out of shape every time I see the terms “crony capitalist” or “crony capitalism”.
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    A true capitalist, on the other hand, knows that it is competition that drives innovation. Be that innovation in achieving a cost advantage or in the design advantages of their products or services. Innovation then leads to bigger market share and greater profits. Cronyism stifles innovation. I see those who practice cronyism as parasites that suck the life blood out of our economy every bit as much as those we complain about on the other end of economic spectrum who abuse our system of social safety nets. Capitalist they are not!
  • Fight against corruption should be top priority of any government (kaieteurnewsonline.com)
    What seems to have been lost sight of is the fact that corruption is potentially the greatest threat to economic progress and should be placed as a priority item on the country’s development agenda, through a non-partisan approach.
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    Among the more prevalent two- (or more) party corrupt practices are government contracts where bribes play a significant role in who gets a contract, and the contract and subcontracts terms.
    Bribes also play a major part in determining who gets to avoid ‘wasting time’ by avoiding bureaucratic sloth and moving things along smoothly in the granting of licences, permits to conduct legal business.
    Bribes also affect the revenue stream of the country in the amount of taxes, fees, dues, custom duties, and electricity and other public utility charges collected from business firms and private individuals.  Bribes have also been known to have been offered to gain access to arguably prestigious schools, acquire bogus medical status certificates, and ownership stakes in prime real estate ownership.
    Furthermore, bribes have been known to provide incentives to regulatory authorities to refrain from taking action, and to look the other way, when private parties engage in activities that are in violation of existing laws, rules and regulations such as those relating to controlling pollution, preventing health hazards, or promoting public safety.
  • Crony Capitalism: The Sicilian Disease goes Global (siciliangodmother.wordpress.com)
    The Americans and British are doing a lot of talking about Crony Capitalism. The economic woes of Italy, Spain and Greece are blamed on the cronyism they seem addicted to. Meanwhile the indignant Americans and British are gradually realising that their own politicians and businessmen are chronic cronyists too.
  • Behind Spain’s turmoil lies a cronyism that stifles the young and ambitious | John Carlin (guardian.co.uk)
    the Spanish are not inherently idle; the labour market in Spain does not sufficiently reward talent and hard work. The Spanish disease that both these young men said they had fled was “amiguismo” –”friendism” – a system where one gets ahead by who one knows.
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    It might be tempting to dwell on the peculiarly closed-minded, our-fate-is-in-God’s-hands brand of Catholicism that reigned in Spain for half a millennium but I think I’ll stick for now to the prevailing educational system. Going to school in Spain is a pretty deadly business. The emphasis is all on learning by rote. Creativity and curiosity are not part of the package. School is not, remotely, fun. Work, the idea is instilled ominously early on, cannot be much fun either.
  • Cronyism Is Destroying Spain’s Future (businessinsider.com)
    Now that the bubble has burst, people’s approach to work matters a great deal. The brightest, the boldest or the most restless young people go abroad for money and fulfilment; the rest, half of whom are unemployed, stay at home – baffled, desperate, increasingly angry, kicking out at government and being kicked back.

About Marcus Ampe

Retired dancer, choreographer, choreologist Founder of the Dance impresario office and archive: Danscontact-Dansarchief plus the Lifestyle magazines "Stepping Toes" and "From Guestwriters". - Gepensioneerd danser, choreograaf, choreoloog. Stichter van Danscontact-Dansarchief plus van de Lifestyle magazines "Stepping Toes" en "From Guestwriters".
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3 Responses to Classes of people and Cronyism

  1. Pingback: Do we have to be an anarchist to react | Marcus' s Space

  2. Pingback: Materialisme, “would be” leven en aspiraties #3 | Broeders in Christus

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