WASHINGTON: No matter which party holds power in Washington, crony capitalism, the subsidization of private business with taxpayer funds, remains alive and well. Under our current political system, politicians, Republican and Democrat, liberal, and conservative, have an incentive to raise the large sums of money needed to campaign successfully for office. To get those special interests with the needed funds to, contribute to do so, these politicians do their bidding in return. These special interests contribute to both parties.
Thus, no matter who wins they have a friend on the Hill.
Author Steven Brill points out that,
“…money has come to dominate everything so completely that the people we send up to D.C. to represent us have been reduced to begging on the phone for campaign cash up to five hours a day and spending their evenings taking checks at fundraisers organized by those swarming lobbyists. A gerrymandering process has rigged easy wins for most of them, as long as they fend off primary challengers, which ensures that they will gravitate toward the special interest positions of their donors and their party’s base, while racking up mounting deficits to.pay for goods and services that cost more than budgeted, rarely work as promised, and are seldom delivered on time.”
There are more than 20 registered lobbyists for every member of Congress. Their job is to block anything that would tax, regulate or otherwise threaten a deep-pocketed client. Also, whenever possible, to gain public subsidies for their client.
Elon Musk and Crony Capitalism at work
The role of billionaire Elon Musk as an example of crony capitalism at work was recently highlighted by Norm Singleton in an article in The American Conservative (Elon Musk is the Cosmo Kramer of Crony Capitalism).
Elon Musk, notes Singleton,
“…plans to do everything from sending men to the moon and Mars, to creating a 700-miles-per-hour tunnel transportation system to turbo-charging human brains by implanting computers. All these ideas, however meritorious, bear significant amounts of risk. His business model revolves around hiring experts to navigate the waters of the Washington swamp to discover ways to get the American taxpayer to pick up the tab. Take Tesla, the car company was created to bring electric vehicles to the general public en masse, a mission that required over $1 million in lobbying expenses annually. As a result, the cars are framed by over $280 million in federal tax incentives, including a $7,500 federal tax break and tens of millions more in state rebates…”
In May, Bloomberg published a report under the headline, “Tesla Doesn’t Burn Fuel, It Burns Cash,” detailing how the company spends $6,500 a minute and may run out of money by the end of the year. Moody’s recently downgraded Tesla’s credit rating due to its inability to meet deadlines. Musk estimated production of 20,000 vehicles in December 2017. In fact, the company produced just over 2,400 in the entire 4th quarter.
In Singleton’s view.
“It’s no wonder that when these government subsidies die, electric car sales plummet. Three years ago, sales sunk by more than 80% in the state of California when the $5,000 state tax credit phased out. Last year, sales declined by 60% when its EU tax breaks sharply fell; SpaceX is no better. Roughly 85 percent of its contracts come directly from the federal government. The aerospace manufacturer hit a then-personal record of $2 million in annual lobbying spending. SpaceX has already received roughly $15 billion in subsidy guarantees from Texas, and despite meeting just one-sixth of the hiring goals it promised, it is requesting $15 million more. even though SpaceX has already received over $70 million from the federal government to develop its BFR, the company wants more on that front as well.”
In the case of Musk’s Solarcity, his solar panel company, it has still not turned an annual profit despite receiving over $490 million in grants from the Treasury Department over the years. The government covering 30% of its installation costs. Elon Musk may tell himself that he is engaging in capitalism. Unfortunately for taxpayers, he and the many other recipients of government subsidies and protection are really engaging in a form of socialism.
Free Markets vs. Government Cronyism
Unfortunately, intellectuals, more often than businessmen, embrace free markets. All too often, businessmen seek government subsidy, bail-out, as we saw with Wall Street, and intervention to keep competitors out of the market. When Congress voted to restore free enterprise to the airline and trucking industries, by eliminating the Civil Aeronautics Board and the Interstate Commerce Commission, it was the industries themselves that opposed deregulation. The reason: the industries had managed to gain control of the government agencies involved managing them on their own behalf. No new competitors can enter the field, which is the very opposite of a free enterprise system.
It is important to remember the warning of economist Friedrich Hayek, that socialism in its radical form is not nearly as dangerous as socialism in its conservative form. When the advocates of state power and the advocates of maximizing corporate profits with the aid of political power become allies, government involvement in the economy, a form of socialism, is inevitable.
The result is the crony capitalism we have now.
Professor Milton Friedman explains,
“The kind of economic organization that provides economic freedom directly, namely, competitive capitalism, also promotes political freedom because it separates economic power from political power and in this way enables the one to offset the other. Political freedom means the absence of coercion of a man by his fellow man. The fundamental threat to freedom is power to coerce, be it in the hands of a monarch, a dictator, an oligarchy, or a momentary majority. The preservation of freedom requires the elimination of such concentration of power to the fullest possible extent and the dispersal and distribution of whatever power cannot be eliminated, a system of checks and balances. By removing the organization of economic activity from the control of political authority, the market eliminates this source of coercive power. It enables economic strength to be a check to political power rather than a reinforcement.”
Crony Capitalism and our Economy
At the present time, crony capitalism distorts our economy and uses taxpayer dollars to reward those who are able to purchase political influence. As long as we permit unlimited money in our political campaigns, both Republicans and Democrats will continue to reward their benefactors. This is not the system the Framers of the Constitution were establishing.
However, as we can see from the army of well-paid lobbyists distorting our economic life, it is the one we have now.
Featured image: Elon Musk posing in front of a 2011 Tesla Model S. (Image via Wikipedia entry on Elon Musk)