What Is Cronyism?

Activists blame “capitalism” for the world’s biggest problems, like the high costs of healthcare. Some even argue that economics itself is simply propaganda for businesses to exploit workers. Government schools often celebrate regulations, subsidies, and other interventions, because they protect consumers against “exploitative” businesses and capitalist “greed.”

The truth is precisely the reverse. The profit-and-loss economy lowers prices and increases the quality of goods through competition, which benefits society as a whole. When government intervenes in this production of goods and services, it does so by passing laws and enacting regulations that benefit and favor certain businesses over others, all in the name of “protecting” the public. This granting of privileges and favored status to people because of their political power or connections is called cronyism. The beneficiaries of cronyism serve the politicians and bureaucrats who appointed them and not the consumers who buy the products from the regulated companies.

For example, imagine you run a small business that produces vegetable soup. Your top priority is satisfying customers. A satisfied customer is a returning customer. To this end you choose your vegetables, recipes, packaging, and distribution based on your best estimates of what the consumer wants. If consumers like and value your vegetable soup, you earn profits. If consumers don’t value it, you suffer losses. Competition and business reputation ensures efficiency and happy customers.

Now imagine that the government decides to regulate the vegetable soup industry. Bureaucrats, not knowledgeable businessmen, now decide the full process of making soups, mandating the quality of the vegetables, the type of ingredients, the techniques for making soup that can be used, and even how you can advertise your soup. To enforce these new regulations, the government requires licenses and compulsory inspections. As a soup producer, you must now spend con..