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Who Does More Damage to a Free Economy: Socialists or Cronyists?

Our friend Matt Mitchell of the Mercatus Center has a fascinating new article at Reason on how businesspeople feel about government favors and privileges. It seems that a poll conducted by Matt and his colleagues finds that corporate managers and executives who work at companies that benefit from cronyism express a noticeably more favorable view of cronyism. This isn’t necessarily surprising, but it is interesting to see it demonstrated by the data.

Matt points out that this relationship could have a couple of different origins for any given respondent. Working for a company that is receiving subsidies, for example, could convert someone into thinking government favoritism is a good idea, or people who hold that view already might be more attracted to working in industries where these policies are more common. The two causes might also by synergistic, or at least mutually reinforcing—pro-favoritism employees join a heavily regulated firm, and then push for the firm to invest more in rent-seeking, growing the number of employees who are converted to pro-privilege outlooks tied to their salaries.

The majority of respondents in both categories did say that they support free markets and oppose favoritism, but the poll results also generated a category of people who seemed at odds with themselves:

[Leaders of firms who received government favoritism] were also more likely to hold contradictory beliefs about free enterprise—believing both that markets should be free and also that government should favor particular firms. Compared with other business leaders, those who work for favored firms were more than three times as likely to hold these contradictory ideas, 28 percent versus 8 percent.

No doubt there is an issue with different people assigning differing personal definitions to such general terms. In addition, there is a great deal of special pleading in the world of cronyism, in which business leaders proclaim their support for free enterprise in general, but claim that because their industry is in such a unusual position, government intervention is justified—just this once. Some corporate leaders also define policies that are favorable to them as the just, neutral policy, even when it confers considerable non-market advantages denied to other firms and industries.

As the late Detroit Board of Commerce official Willis Hall once wrote, the business world is full of people who will say “I’m for free enterprise—BUT!”

Rugged enterprisers in the home­building industry fight public housing—BUT government mort­gage corporations are needed. Some manufacturers object to any government regulation of their business—BUT they welcome a government tariff to curb foreign competition. Chambers of Com­merce in the TVA area fight for free enterprise—BUT government power, subsidized by all the people, is sought. Some retail merchants resist government regulation—BUT seek government aid in polic­ing "fair price" agreements. Seg­ments of the petroleum and mining industry are firm believers in the free enterprise system—BUT gov­ernment should control competitive imports.

Given the self-serving and often elastic definitions people use when it comes to seeking and accepting privileges, I suspect the numbers of those who both benefit from and approving of the seeking after government favors are even higher than the responses to Matt’s poll would indicate. Some of them just don’t realize or agree that that’s what they’re doing.

All of that being said, there are also reasons to think that corruption in American business is less common than many fear. My Competitive Enterprise Institute colleagues Fred Smith and Ryan Young wrote, back in 2015, about what public choice economists have called the Tullock Paradox—if there’s so much potential government money to be had (and there is), why don’t we see even more lobbying and other rent-seeking behavior than we actually do? Part of the answer is that obtaining rents through the political process is less efficient and more contingent than it may seem, and consumes more of the gains than most people realize. They also make a point to acknowledge that at least some people do, in fact, abstain from such opportunities on principle. Their full study, “Virtuous Capitalism,” is well worth a read.