Monday, July 10

Crony capitalism, phony democracies, and anti-Americanism go hand in hand

Particularly upsetting to defenders of free markets is that crony capitalism gives capitalism a black eye wherever it goes....
One of the irritating habits of the American mainstream media is their insistence that President Vladimir Putin has been rolling back democracy in Russia. There never was democracy in Russia; there were crony capitalists managing a democracy stage show with the complicity of the USA and some EU governments. That has also been the case for much of the developing world.

I think you could graph the extent of US-backed crony capitalism in a developing country with the extent of anti-Americanism there. I'd say the same holds true for the connection between European-backed crony capitalism and anti-EU feelings. There is also a connection between anti-globalism and crony capitalism's worst excesses in the developing world.
Latin America is swerving left, and distinct backlashes are under way against the predominant trends of the last 15 years: free-market reforms, agreement with the United States on a number of issues, and the consolidation of representative democracy. This reaction is more politics than policy, and more nuanced than it may appear. But it is real.
--Jorge G. CastaƱeda
Latin America’s Left Turn
Foreign Affairs
May/June 2006
Okay, now we're ready to bone up on the meaning of crony capitalism:
[...] One legitimate reason for the opposition to capitalism in Latin America is that it frequently has been "crony capitalism" as opposed to the competitive capitalism that produces desirable social outcomes. Crony capitalism is a system where companies with close connections to the government gain economic power not by competing better, but by using the government to get favored and protected positions. These favors include monopolies over telecommunications, exclusive licenses to import different goods, and other sizable economic advantages. Some cronyism is found in all countries, but Mexico and other Latin countries have often taken the influence of political connections to extremes. [. . .] The excesses of cronyism have provided ammunition to parties of the left that are openly hostile to capitalism and neo-liberal policies. [...]
--Gary Becker
Moving Left in South America (*)
The Becker-Posner Blog
May/June 2006
There is more than one reason for Latin America’s leftward turn, and once you’ve read the essays by CastaƱeda and Becker in their entirety you'll be well positioned to grasp the scope of the trend.

What, if anything, can the US government do to help the most affected countries move toward ‘competitive’ capitalism?

I would prefer to see the Office of Business and Commercial Affairs removed from the US Department of State but at the least Congress could closely monitor it. The office puts US businesses in a position to influence US foreign policy outside the glare of the American public’s attention.

But I think the government is very limited in what they can do until more US voters get clear on the connection between anti-American sentiment and the neocolonialist outlook and actions of many globalized US companies.

Yet the worst offenders wrap their plundering in the language of free markets, globalization, and patriotism. Hey it isn't patriotic to rip off the world’s poorest with the help of their oppressive governments; it is damn stupid, in these days of portable nukes.

Ayn Rand would roll in her grave at such a distortion of capitalism's intention, which of course is free competition, not state control of the marketplace.

* Hat tip to the World Bank Group's Private Sector Development (PSD) blog for alerting me to Becker’s analysis.

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