Trump Must Take On The Cronyism Challenge

For President-elect Donald Trump to deliver on his “make American great again,” promise, economic growth must again exceed today’s anemic rate. Reforming tax policy, reducing spending, repealing preferential regulations – all will be needed – but, perhaps, most important will be to attack the unholy alliances of economic and ideological special interest groups that have promoted and now defend these anti-growth tumors. When cronyism determines economic results, capital, resources, labor, and scarce entrepreneurial talents are misallocated, shifted from wealth creation to wealth and power privileges benefiting special interests.

America’s Founders recognized this cronyist danger and sought to craft a Constitution that would check special interests (“factions” was their term). Those protections limited the ability of such interests (acting alone or as cartels) to use government to gain privileges. Unfortunately, as states have established effective grant-seeking cartels and Washington has gained ever greater power, those protections have been radically weakened. The Founders were concerned about a single tyrant handing out rewards to his family and friends. Today, the federal government and the states routinely hand out tax abatements, loan guarantees, subsidies and preferential regulations to anyone with an appealing economic or ideological argument.

Mr. Trump, taking account of past failed economic reforms, should sort through these cronyist policies and restore the Founder’s protections. And, since past reform efforts have found that a tweaked political privilege is soon restored, he should eliminate rather than trim such special interest programs. An important strategy would be to transfer programs to the states, where cronyist policies will be disciplined by competitive federalism, via competition among the states.

Trump’s surprise win was due in large part to support from millions of Americans who feel manipulated by self-serving political operators and left behind by a rigged economic system. The President-elect understands the cronyist challenge well. His business experience has been in the highly politicized world of big-city real estate development, which requires deals with political and union power brokers. Trump was good at that game, but how much more successful would he have been if he had been able to focus on wealth creation instead of deal making? An America freed from the massive entanglement of excessive tax, subsidy, and regulatory policies would rebound swiftly, addressing the concerns that got Trump elected.

This effort will require challenging vested policies and the ideological and economic factions that support them. Trump will need allies. Fortunately, the President-elect seems also to have found an advisor who will support and advance this attack on cronyism, this effort to restore America’s economic vitality. He has selected as his chief strategist Steve Bannon. Bannon discussed cronyism at a 2014 conference at the Vatican. In his remarks, he championed “enlightened capitalism,” noting that it had made possible the increased prosperity that America and much of the world now enjoys. Bannon then warned that the continuance of that prosperity was threatened by the moral and economic threats posed by cronyism.

Trump might well charge Bannon with enlisting allies—free market intellectuals and principled business allies—to help in this anti-cronyism campaign. Gaining policy group support should be easy. Free market groups have long opposed cronyist programs from sugar subsidies to those offered by the Export-Import Bank. And while left-of-center groups have too often supported subsidies for Green energy programs, they do oppose most other corporate welfare programs.

Enlisting business leaders may prove more difficult but ultimately more important. Decades of expanding government have entrapped and entangled many firms in the federal gift-game. Many others have despaired of free market policies ever prevailing (resistance is futile) and have negotiated reasonable surrender terms. But, some may now have come to realize that a society cannot create wealth by encouraging its citizens to pick each other’s pockets.

Disentangling the cronyist tumor from the economy is complex. Some political investments are defensive, like an effort to fend off higher taxes or oppose an unwise regulation. Sorting the cronyist chaff from the legitimate wheat may be a suitable task for free market policy analysts.

Bringing together an effective anti-cronyist alliance will require a creative deal-maker – and Trump is certainly that. One possible game-changer would be to challenge the current policy game rules, for example, how currently American taxpayers subsidize Boeing while European taxpayers subsidize Airbus. Might Trump negotiate an agreement with the EU to eliminate both?

The unexpected election results of 2016 suggests the possibility of such creative initiatives. Certainly the election has given us the best opportunity in living memory to address cronyism—the poisonous special interest blend of politics and business that has crippled our economy and dispirited our citizens. If Trump can resolve this challenge, America will rebound. In an America freed largely of cronyism, business would redirect its political investments toward reform rather than privilege, citizens would regain their trust in markets and America would return to the path of greater Greatness.

Originally posted to