Corporatism: Cronyism Definition

Corporatism, otherwise known as Cronyism, or Crony Capitalism, is essentially one of the most misunderstood ideologies to date. Many people confuse Cronyism with Capitalism and perhaps mistakenly by names such as ‘Crony Capitalism’, ‘State Capitalism’, ‘Global Capitalism’ or even ‘Monopoly Capitalism’, so in this blog I aim to give people an understanding for what Corporatism really is and why it is NOT! Capitalism.

First we must understand the Cronyism definition in order to distinguish the differences between Corporatism and Capitalism. Cronyism simply means the merger of state and corporate power, meaning that corporations have come together with government to work in partnership to do favours for each other against the interests of the average poor or middle class person society. So now that we have an understanding for the basis of the Cronyism definition, it is important to understand what causes Corporatism.

People wrongly assume that Corporatism stems from Capitalism, or they believe that Capitalism is Corporatism, this couldn’t be further from the truth and is a misrepresentation of the truth as Corporatism defies everything Capitalism stands for. People wrongly believe that what causes Corporatism and the monopolies is the lack of government regulation in the economy, thus the belief that we need more government and government regulation to solve this problem to prevent monopolies from forming, this however is a big mistake as it shows a clear misunderstanding of what Corporatism is, the goals of Corporatism and how it occurs.

What Causes Corporatism?
It is vitally important that in order to prevent Corporatism from forming, we gain an understand of what Corporatism is, the goals and how it forms. Corporatism is not about less regulation in the economy and it is for this reason many people are supporting Corporatism without realising it, they support essentially what perpetuates the problem. People fail to comprehend the goals of Cronyism thus they support the more government regulations in the economy, what people fail to realise is, the lobbyists are the people paying off politicians to lobby for MORE government regulations.

So you may then ask the question why? It all comes down to peoples misunderstanding the damage government regulation can have on the economy, also a misunderstanding to what prevents monopolies from forming, people have wrongly been misled to believe that it’s government regulations that prevent the monopolies when in real fact it’s the government regulations that create them, so why? Two vitally important things prevent monopolies from forming:

1. 
Consumer Choice
2. Competition

To help you understand, the goal of Corporatism is to eliminate competition, the free market economy is fiercely competitive with strong consumer choice and so whenever people make false accusations that monopolies are caused by free markets, this is a complete misrepresentation of the truth, in fact there has never been a monopoly in recorded history to have ever formed under a free market system, the best example Socialists could come up with was Standard Oil, which even that was a myth which I’ll get around to explaining.

Government regulations have always been widely misunderstood, some even believe that the more government regulations is what creates a more competitive style of economy, which again is wholly inaccurate, rather, government regulations are what destroy competition and consumer choice. A prime example would be quantity controls, quality controls, even price controls, which this is just touching the tip of the iceberg. I have came across arguments in the past from University lecturers who would claim that the need for government regulations was to “limit” productivity, because the Capitalist system would exploit the world’s natural resources and we would eventually run out. I’m sure you have seen this argument several times yourself in the past.

This gives you an insight that their intentions was to “limit” productivity, in other words, by limiting productivity, you are also limiting consumers choice and the freedom for people to become more creative and innovative. Take Nazi Germany for example; the Nazi Government completely controlled the means of production via strong government regulation of private industry, this meant that the state was the dictator and controller over:

  • what got produced
  • how much was produced (quantity controls)
  • how many hours workers worked
  • how much workers got paid (wage controls)
  • how many workers businesses could employ
  • what machinery workers could use
  • what height the workers could work at

When you run through all the various different regulations, you begin to see the state has control over private industry to limit the freedom of private company owners. Cronyism is simply another word for Economic Fascism and the state learned that they did not need to own the means of production via nationalisation, all they simply required was to strongly ‘regulate’ to control the means of production. This is NOT true private ownership, how can one call this true private ownership when the state shouts “JUMP!” and you say “How high?” because although the state may not own a piece of paper saying they own the means of production, so long as they control it, they’re the “owner” of production in the higher sense.

So we get back to the point, when the state “limits” productive freedom via government regulations, it also beats out competition and this in turn limits consumers choice. The reason for this is because when the economy is heavily regulated and you have endless pages of regulations, the more regulations you have, the more complicated the regulations become.

People don’t want to have to sit and read through endless thousands, upon thousands of pages of regulations, so when lobbyists lobby government to pay off the politicians and get the government to lay on the heavy regulations, this weighs down the smaller business owners and ends up giving the big corporations a competitive advantage, why you ask? Because the smaller business owners cannot afford to pay people to find loopholes in the regulations, whereas the big corporations can, as a result of this, the big corporations are at a competitive advantage over their competition, they’re keeping the little man down whilst they get to run away with all the wealth and power for themselves.

When big corporations wipe out their competition as a result of this, as smaller business owners cannot compete, this creates monopolies in the market and those monopolies are created as a result of government intervention. In other words, by giving the state power and control over the economy, to legislate and lay on more Socialist policies, you are opening yourself up to corruption, because once the state is in power through Socialist policies, the lobbyists with money can jump in, pounce on the government and pay off the politicians. So by supporting government direction of the economy, you are essentially perpetuating the problem.

It is important to note that advocates of mixed economies support Socialism with some form of private ownership, they believe in state intervention, but they believe in the importance of the private sector; it is this mistake alone without them realising it, will ALWAYS lead to Corporatism. This is because in the marketplace competition will always seek to get the one better over their competition and if they know the state is there in power to lobby, they will use that to their advantage and when it comes down to it in the real world, not the “ideal” world Socialists imagine things to be, but that importance to understanding the difference between ‘theory’ and ‘practice’; politicians and big government will ALWAYS favour those who have the money and sadly, the average poor person of society (working class) are out of the game.

It is important to understand this partnership between government and corporations, you scratch my back and I’ll scratch your back; in other words lobbyists pay them a healthy salary to do them favours, why? Government is NOT a wealth creator, people don’t understand that it is the private sector that 100% funds the public sector, they don’t get this, they do not realise that where government takes money from are the taxpayers from the private sector. The public sector doesn’t generate enough to pay government taxation, instead the public sector pays a REBATE, which simply means a percentage back to what the government initially paid them. So you have to then ask yourself the question, “where did government pull that money from?” Simple, the private sector!

So in other words, the BIG corporations in the private sector, because they hold the wealth, they are able to lobby government for favours to act on their interests and would government pass up the opportunity for politicians to become rich earning a wealthy salary whilst you are left at the bottom looking up feeling like you are going no where? You will feel exactly like that trying to start your own business and you know I’m right. This is because the big corporations use the government as a weapon against you and when they work together, they will use the mainstream media in itself as a tool to keep you in perpetual slavery by the use of “mind control”.

This is the reason why they propagate to you that Capitalism is evil, or Capitalism caused the financial crisis, or they mislead you up the garden path with other false information about Capitalism. So long as they can keep you supporting what perpetuates Corporatism, they have you where they want you; if however you become educated about Capitalism, which they don’t want, this is what will set you free. The mind game is to get you to despise Capitalism, to make you think Capitalism was responsible for the problem, so long as they can make you think that (because they know most people don’t understand the historical side of things), they can keep you chained to the system.

So Corporatism is simply caused by state intervention, because politicians will always accept that healthy wage packet from lobbyists over the poor peoples desires. The only way to ensure you have a fruitful and healthy government, is by limiting the government’s size and power and separating government from the economy, to make the state a servant to you, the PEOPLE!

How Do We Prevent Corporatism?
The way in which we prevent Corporatism is by limiting government intervention, to separate the economy and limit size and power of government. The free market is the only means to prevent this, with fierce competition in the marketplace and the strong consumer choice, monopolies would only ever form if the consumers allowed this to happen. One of the biggest myths we hear about is that the lack of regulations in the marketplace is what leads to monopolies, that one corporation would swallow all the other small companies, we hear this a lot from the claim that Standard Oil had achieved just that, but did they really?

Taking a look back at the history of Standard Oil we can debunk this myth. The claim was that Standard Oil had used “predatory pricing” which is predicated on the idea that one small company slightly lowers its costs below its competition, steals the marketshare and after gaining a large share of the market they would jack up their prices to shaft the consumer, the problem with this argument is that this is far from the truth for what occurred.

In 1869 one barrel of oil cost 30¢ a year later in 1870 Standard Oil had gained 4% share of the market; the misconception however is that within 9 years by 1879 Standard Oil gaining 90% share of the market, was to how they gained that large share of the market. Many people falsely claim that Standard Oil paid off the railroad industry to do them favours to act in their favour, using predatory pricing to wipe out their competition, the reality is, John D. Rockefeller was more intelligent with his oil refinery business, it was for this reason that when the other companies were heading into decline in the 1870s, Standard Oil had rose above them.

Some of the examples was the change of barrels for better efficiency, they also changed transport routes in the railroad industry which cut the costs saving the railroad industry $10,000 as well as better efficiency transport cars. All of these things put Standard Oil ahead of his competition. What is most important to note is that from 1879 when they had gained 90% share of the market, the other companies that agreed to merge to work under Standard Oil gained high positions working for the company and from 1879 to 1897 the costs continued to drop for a barrel of oil, so much so that by 1897 it only cost 5.9¢ per barrel of oil, quite a significant achievement in reduction of costs going from what was initially 30¢ a barrel in 1869 to 5.9¢ a barrel in 1897.

The whole idea predicated around predatory pricing is that a company would slightly lower their costs below their competition and then jack up their prices afterwards to shaft the consumers, this never happened and there is a very good reason why; the fact is, if Standard Oil did not continue to reduce costs, competition would always find a way to step in and offer one better, so the pressure was for him to continue to reduce his costs, but not the only reason, the other reason is that his company was benefiting as a whole from reducing his costs.

People falsely believe that by raising costs some how this drives in more profit, in fact it creates the opposite effect. As a result of Standard Oil greatly reducing their costs they made the whole of society richer. This example in history tells us the importance of competition in the marketplace as it works in the favour of the consumers, this is why it is important to have a strong free market economy, to prevent these monopolies from forming; by allowing the government to intervene and regulate the economy, you are essentially opening yourself up to the style of economy we are left with today where it becomes difficult for the little man to get up off the ground.

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3 comments

  1. Nice blog post Scott. I would emphasize the reasons why the government participates is crony capitalism and why businesses do it. You do get round to it in here, but even though I know the answer, I was thinking to myself the whole time, “Well that’s a fine explanation, but why would they take the time, effort and expense to do it?” You do finally get me off the tinder hooks and tell me, but I think folks will want to know sooner.

    Or, maybe you could do a blog just about the motivation of both parties. Explore the payoffs for the politicians both in money and power. The power to provide gifts to powerful private interests can’t be underestimated. That’s the story in “Mr. Smith goes to Washington.” Also, exploring the lengths that private industry go to in squelching competition. I would explore all of it and not just government regulations. Regulation and lobbying is just one arrow in their quiver which includes use of judicial remedies against potential competitors, patent claims, marketing ploys and the like.

    Overall, good job. Unfortunately, for the lefties out there it will like casting pearls before swine.

    • Thank you for posting Mike!

      Indeed I understand where you’re coming from, people do need to grasp what’s in it for the government, why politicians are so inclined to favour these big corporations, I don’t think a lot of people realise where the money comes from, they simply don’t realise the public sector has no way of funding itself. I will of course be doing another blog post at some point when I get around to doing a video on Capitalism versus Cronyism which is one where I want to pick off the differences on both. Oh and the left most certainly will not like this of course lol

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