Cronyism Is Bad, Regardless of Which Party Is in Charge

Cronyism Is Bad, Regardless of Which Party Is in Charge

Posted on January 22, 2025 by

Regular readers know I have a skeptical attitude about Donald Trump. His first term was a mix of good and bad policies and I expect a similar jumble of good and bad policies in his second term.

Consider, for instance, the commonly held view that Trump has a pro-business mentality.

In many ways, that’s good. A pro-business mentality means he will want growth-oriented policies such as less red tape and a lower corporate tax rate.

But it also can be bad since he may be tempted to provide special favors for some firms, particularly if they have been campaign contributors.

Sadly, many businesses are happy to play that game, as illustrated by my Eleventh Theorem of Government.

This is why I think the right approach is to be pro-market, not pro-business. I want companies to rise and fall based on how well they serve consumers, not on the basis of whether they have cozy relationships with politicians.

I’m not the only one who thinks the “invisible hand” is the best approach.

Here are some excerpts from a column in yesterday’s New York Times by two professors, Filipe Campante from Johns Hopkins University and Raymond Fisman from Boston University.

Barely a day goes by before another corporate chieftain is cozying up to our new president. An early payoff has already been scored by TikTok, the video-sharing app that spent months currying favor with the then-candidate Trump… So it shouldn’t come as a surprise that the tech Goliaths showed up in force at Mr. Trump’s swearing-in, with the Tesla billionaire Elon Musk; Google’s chief executive, Sundar Pichai; Meta’s chief, Mark Zuckerberg; and Amazon’s founder, Jeff Bezos, a former Trump critic, securing better seats than several of the president’s cabinet picks. …These are…troubling signals of how swiftly Mr. Trump could damage our economy, long the envy of the rest of the world. …Over the next four years, political connections, more than economic efficiency, may have a bigger hand in policymaking. If policy favors those who are in cahoots with the government, as opposed to focusing on the most productive use of resources, the country risks economic stagnation. …Businesses will devote effort and resources to cultivating political connections. …The best and brightest will become lawyers and lobbyists rather than scientists and engineers… Everyone’s efforts and talents will be focused on cultivating political connections, at the expense of developing better products and services.

Amen.

Cronyism is a cancer. Professors Campante and Fisman are absolutely correct about the risks of businesses focusing on Washington instead of consumers.

I can’t help but wonder, though, why the New York Times waited until yesterday to run this column.

Or consider the previous Democratic administration.

Seems like a case of media bias to only worry when Republicans get in bed with big business.

Though maybe the problem is not bias by the New York Times. Maybe the authors are Democrats who only worry about cronyism when Republicans are in charge. So the problem might be academic bias.

Or maybe both the NYT and the professors are well meaning and simply didn’t realize it would look strange to only criticize GOP cronyism.

The bottom line, consistent with my Ninth Theorem of Government, is that we shouldn’t have cronyism regardless of which party is in charge.  Separation of business and state!

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Image credit: Michael Vadon | CC BY-SA 2.0.


Dan Mitchell is co-founder of the Center for Freedom and Prosperity and Chairman of the Board. He is an expert in international tax competition and supply-side tax policy.

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