Trump’s transition looks an awful lot like crony capitalism
Jan 20, 2017 14:25:01 GMT
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Post by benson on Jan 20, 2017 14:25:01 GMT
Donald Trump won the White House in part because of his promise to remake the U.S. economy. Now even those who voted for him should be worried about him keeping that promise.
From the apparent backroom deals with individual companies, to pushing the limits of anti-nepotism laws, to installing superrich and inexperienced political allies in his Cabinet, Trump’s transition has set the stage for a sharp turn away from the rules and norms that have long defined how the U.S. economy — and, in turn, the U.S. itself — has been run for a half-century or more. And in its place, something else appears to be emerging, a system based on, well, cronies.
“Trump is consciously or unconsciously creating the conditions in which crony capitalism or outright corruption could thrive,” says Simon Johnson, an economics professor at MIT and a former chief economist at the International Monetary Fund.
The danger, economists say, is that the emerging Trump system not only risks corruption but also could damage the basic mechanics of the American economy, creating stronger incentives for companies to focus their efforts on gaining favor with the government rather than winning customers through efficiency and innovation.
Economists call such behavior “rent-seeking.” (A rent, in classic economics, is an unearned financial benefit that’s higher than would have been gained in a competitive market.) A certain amount of rent-seeking is a feature of most economies — in the U.S., we call it lobbying. But if unchecked, rent-seeking can grow to a point where it warps a healthy market economy into a system of crony capitalism.
To be clear, critics of the close — and sometimes corrupt — relationships between the U.S. government and corporate interests have often called such connections “crony capitalism.” Fair enough. There is no universally accepted definition for the term.
But for many people who study cronyism in its purest form, usually seen in emerging economies with relatively weak adherence to rule of law, there are key distinguishing factors that mark a crony system.
Such a market involves a small set of people receiving an unfair advantage because of personal relationships “based on trust, loyalty, family, and long-standing social networks,” according to one academic primer on the subject. In that 2014 paper, authors Paul Dragos Aligica and Vlad Tarko also note that crony capitalism’s “key distinguishing feature is that the prevailing rent-seeking structure is legitimized by means of a populist ideology.”
It’s not hard to see the hallmarks of crony capitalism potentially taking form in the nascent Trump administration.
In extreme cases, crony-based economies are effectively handed over to the political elite. That’s how it works in Russia, where close personal friends of President Vladimir Putin run the large state oil and gas companies that drive the economy. Or in Indonesia, where members of the Suharto family held control over huge swaths of the country’s economy during the dictator’s two-decade reign ending in 1998.
Trumpism likely won’t be as egregious; the U.S. has much stronger institutions and no history of authoritarian leadership. Still, Trump’s transition already looks much different than anything the U.S. has seen in the recent past. In a direct test of anti-nepotism laws, Trump plans to bring family members like his daughter Ivanka and her husband, Jared Kushner — along with their own complicated business entanglements — into the White House. In addition to his Cabinet, Trump has announced vague quasi-positions for wealthy loyalists and business partners, suggesting they would have influence over areas of policymaking in which some have very clear commercial interests.
news.vice.com/story/trumps-transition-looks-an-awful-lot-like-the-start-of-crony-capitalism
From the apparent backroom deals with individual companies, to pushing the limits of anti-nepotism laws, to installing superrich and inexperienced political allies in his Cabinet, Trump’s transition has set the stage for a sharp turn away from the rules and norms that have long defined how the U.S. economy — and, in turn, the U.S. itself — has been run for a half-century or more. And in its place, something else appears to be emerging, a system based on, well, cronies.
“Trump is consciously or unconsciously creating the conditions in which crony capitalism or outright corruption could thrive,” says Simon Johnson, an economics professor at MIT and a former chief economist at the International Monetary Fund.
The danger, economists say, is that the emerging Trump system not only risks corruption but also could damage the basic mechanics of the American economy, creating stronger incentives for companies to focus their efforts on gaining favor with the government rather than winning customers through efficiency and innovation.
Economists call such behavior “rent-seeking.” (A rent, in classic economics, is an unearned financial benefit that’s higher than would have been gained in a competitive market.) A certain amount of rent-seeking is a feature of most economies — in the U.S., we call it lobbying. But if unchecked, rent-seeking can grow to a point where it warps a healthy market economy into a system of crony capitalism.
To be clear, critics of the close — and sometimes corrupt — relationships between the U.S. government and corporate interests have often called such connections “crony capitalism.” Fair enough. There is no universally accepted definition for the term.
But for many people who study cronyism in its purest form, usually seen in emerging economies with relatively weak adherence to rule of law, there are key distinguishing factors that mark a crony system.
Such a market involves a small set of people receiving an unfair advantage because of personal relationships “based on trust, loyalty, family, and long-standing social networks,” according to one academic primer on the subject. In that 2014 paper, authors Paul Dragos Aligica and Vlad Tarko also note that crony capitalism’s “key distinguishing feature is that the prevailing rent-seeking structure is legitimized by means of a populist ideology.”
It’s not hard to see the hallmarks of crony capitalism potentially taking form in the nascent Trump administration.
In extreme cases, crony-based economies are effectively handed over to the political elite. That’s how it works in Russia, where close personal friends of President Vladimir Putin run the large state oil and gas companies that drive the economy. Or in Indonesia, where members of the Suharto family held control over huge swaths of the country’s economy during the dictator’s two-decade reign ending in 1998.
Trumpism likely won’t be as egregious; the U.S. has much stronger institutions and no history of authoritarian leadership. Still, Trump’s transition already looks much different than anything the U.S. has seen in the recent past. In a direct test of anti-nepotism laws, Trump plans to bring family members like his daughter Ivanka and her husband, Jared Kushner — along with their own complicated business entanglements — into the White House. In addition to his Cabinet, Trump has announced vague quasi-positions for wealthy loyalists and business partners, suggesting they would have influence over areas of policymaking in which some have very clear commercial interests.
news.vice.com/story/trumps-transition-looks-an-awful-lot-like-the-start-of-crony-capitalism