“Crony Capitalism” is Fascism

by | Mar 21, 2012 | Economics

Imagine that you start a business, and after years of hard work, you achieve the success that you had long thought possible. How would you react if, after achieving success, the government told you that you must pay a portion of your revenues to your competitors? The government “justifies” this policy, not because you have […]

Imagine that you start a business, and after years of hard work, you achieve the success that you had long thought possible. How would you react if, after achieving success, the government told you that you must pay a portion of your revenues to your competitors? The government “justifies” this policy, not because you have stolen trade secrets from your competitors, or defrauded consumers, or have broken a contract with your suppliers, but because you charge less than your competitors. If you are Hein Hettinga, you do not need to imagine this nightmare.

In the summer of 2003, Hettinga started bottling the milk produced on his dairy farms. He chose to operate outside of a federal program—a “milk pool”—that controlled milk prices. In Southern California, Hettinga was selling his milk for twenty cents a gallon less than competitors, who responded by spending more than $5 million lobbying Congress to pass a bill forcing Hettinga into the milk pool. One competitor claimed “that Hettinga was unfairly exploiting a ‘regulatory loophole’ and that his actions led to lower milk prices for California dairies.” As a result of the law, Hettinga must pay $400,000 a month to the milk pool.

Such shenanigans are nothing new in Washington. From U.S. Synfuels to Solyndra, from Detroit to Wall Street, business owners are increasingly turning to government to achieve what they cannot in the free market. More and more, politically connected business owners are seeking favors from government officials in the form of subsidies, legislation that stifles competition, bailouts, and similar political favors. This is what is popularly called “crony capitalism.” But it isn’t capitalism.

Capitalism is a socio-economic system that recognizes and protects individual rights—the freedom of each individual to act on his own judgment in the pursuit of his own values, as long as he respects the mutual rights of others. In a capitalist system, government acts as an impartial umpire to protect the rights of all individuals. A capitalist government does not attempt to pick “winners” and force taxpayers to provide unearned benefits in the form of subsidies. Nor does it protect individuals from the consequences of their mistakes—it does not force taxpayers to bail out banks or automakers.

Competitors claimed that Hettinga’s actions were “damaging to the marketplace.” But what is the marketplace? It is the free and voluntary exchange of goods and services, with both seller and buyer acting as he thinks best. Hettinga did not force anyone to buy his milk. He did not force his competitors to sell their milk at a higher price. He priced his product as he judged best, and he respected the rights of others to also act as they thought best. His competitors and their political cronies believed that Hettinga and his customers should not be free to act. And they used the coercive power of government to force Hettinga to act contrary to his own judgment.

America formally abandoned capitalism with the passage of the Sherman Antitrust Act in 1890. Since that time, businessmen have increasingly used political connections to achieve their business ends. Whether they are lobbying for tougher standards on light bulbs (GE), or using eminent domain to seize private property (Donald Trump), or requesting subsidies for wind farms (T. Boone Pickens), they seek to use the power of government to squelch competitors, artificially inflate prices, or gain some other advantage. Unable to convince consumers and competitors to act voluntarily, they resort to government force.

The proper name for such a system is fascism. In a fascist system, property is privately “owned,” but its use is dictated and controlled by government officials. Consider the mountains of regulations that govern and control virtually every industry, from the financial sector to health care, from food to broadcasting, from land development to manufacturing. Consider the alphabet soup of regulatory agencies: OSHA, EPA, SEC, FAA, FTC, FDA, and more. Virtually no activity escapes the control and regulation of some government agency.

When government officials have such immense powers, individuals and businesses seek to influence the use of that power. They make campaign donations, offer investment opportunities, and provide other perks to politicians. In exchange, Congressmen use their political power to benefit their cronies. What cannot be achieved in a boardroom is achieved in a Congressional hearing room. This is not capitalism.

While politicians across the political spectrum decry “special interests” and the role of money in politics, they refuse to identify the cause. They enact campaign finance laws for the alleged purpose of reducing the influence of special interests, and then they gorge themselves on the buffet of campaign contributions and perks offered by those interests. Politicians provide sound bites denouncing the power of special interests, and they use their political power to benefit those interests. This is not capitalism.

Political power is the cause; campaign donations and lobbying are the effect. Modern political financing began during the Progressive Era, when government was in the process of a massive power grab: the Interstate Commerce Act in 1887, the Sherman Anti-Trust Act in 1888, a federal income tax was established by the Sixteenth Amendment in 1913, the Federal Reserve was created in 1913, the Federal Trade Commission Act was enacted in 1914, the Clayton Antitrust Act of 1914 expanded government controls over businesses, and the Federal Farm Loan Act of 1916 expanded government involvement in agriculture. As government seized more control over the economy and the lives of individuals, special interests poured money into influencing government officials. The reason that money dominates the political process is because politicians dominate the nation’s economy. If we wish to eliminate the role of money in politics we must eliminate government from economics.

It is not an issue of politicians being corrupted by the lure of power. By its nature, fascism is a corrupt system. It gives politicians and bureaucrats the arbitrary power to dispose of the lives and property of the citizens. No man, no matter how saintly, could wield such power with honesty and integrity.

If we want to get rid of cronyism, we must get rid of the system that makes it possible. We must get rid of fascism. And we must return to capitalism by getting government out of the economy and out of our lives.

Brian Phillips is the founder of the Texas Institute for Property Rights. Brian has been defending property rights for nearly thirty years. He played a key role in defeating zoning in Houston, Texas, and in Hobbs, New Mexico. He is the author of three books: Individual Rights and Government Wrongs, The Innovator Versus the Collective, and Principles and Property Rights. Visit his website at texasipr.com.

The views expressed above represent those of the author and do not necessarily represent the views of the editors and publishers of Capitalism Magazine. Capitalism Magazine sometimes publishes articles we disagree with because we think the article provides information, or a contrasting point of view, that may be of value to our readers.

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