Cronyism—From Wall Street to Main Street

Share

Individuals from across the political spectrum denounce cronyism. Politicians as diverse as Sarah Palin and Barack Obama have decried businessmen who use government favors for economic gain. Groups with diametrically opposing views, such as the Tea Parties and Occupy Wall Street, have attacked the cozy relationship between many businesses and government. Despite the seemingly universal condemnation of cronyism, it remains alive and well. And most likely, it is occurring right in your home town—cronyism exists at every level of government.

Of course, nobody explicitly argues for cronyism. Instead, these businessmen argue that they need special favors in order to serve the “general welfare” or the “common good.” But no matter the alleged ends they profess, their goal is to use the coercive power of government for their own benefit. They seek to stifle competition through licensing and permitting processes. They use eminent domain to seize property from those who will not voluntarily sell. They use zoning to prevent individuals from using their property as they choose. And sometimes they openly call for when competitors can open for business.

As one example of cronyism, in 2011 Julie Crowe sought to start a taxi service catering to female college students in Bloomington, Illinois. At a hearing before the deputy city manager, competitors testified against her proposal, claiming that the city did not need any more taxi cabs. The deputy city manager denied Crowe’s application for a taxi license, stating that it was not “in the best interest of the city to put another vehicle on the street.”

When Crowe appealed to the city council, one alderman argued that the cash flow would be inadequate to sustain the new business, citing the fact that other cab companies were struggling financially. Perhaps city officials were correct, and the market cannot support another taxi company. But perhaps Crowe is correct, and she has identified a profitable niche.

When innovators are prevented from testing their ideas, city officials do not know if the struggles experienced by the existing companies are because of the market or because of complacency bred by government intervention. Rather than allow the market to determine if Crowe would succeed, politicians and bureaucrats sided with her competitors and denied Crowe the opportunity to even find out. And this is but one example of local cronyism.

The use of eminent domain for the purpose of economic development made news in Kelo v. New London. While many states have since enacted laws to protect property owners, the practice has continued in many locales as the politically connected use local governments to coerce property owners into selling their land.

For example, from 2003 to 2011 the township council in Mount Holly Township, New Jersey, used eminent domain to condemn and demolish the homes of more than two hundred low income families. The township wanted to sell the land to a private developer who planned to build high-end apartments and town homes. After going into debt for more than $17 million, a federal court ordered the township to halt its condemnations.

Earlier this year, when Minnesota legislators considered a law to allow sales of liquor on Sunday, small liquor store owners successfully fought against the proposal. They did not want to open on Sundays, and feared that competitors who did open would take market share.

In July, Bill Meagher, owner of Lakeside Creamery in Oakland, Maryland, received a variance to the local zoning ordinance that would allow him to rent boats at the lake where he operates. Three competing businesses promptly filed a petition to overrule the variance and prevent Meagher from renting boats because they would be “specially and adversely affected.” At a public hearing on the issue, one opponent to the variance said, “I think that it was totally unfair to the existing boat people. You are cutting their throats by just allowing someone to come in and rent boats.” In other words, the “existing boat people” should be protected from further competition by government decree. The case is still pending.

In each of these examples, private businesses have used government to accomplish what they could not do in a free market. Political influence superseded the free and voluntary choices of producers and consumers. These businesses have used a government club to accomplish what they could not achieve by means of their business activities.

While the use of political favors for business gain is often called “crony capitalism,” it is anything but capitalism. Capitalism is the system in which individual rights, including property rights, are respected. Under capitalism, individuals are free to act on their own judgment, so long as they respect the mutual rights of others. In a capitalist system, businessmen and entrepreneurs compete to fulfill the needs and desires of consumers, rather than compete to influence politicians and bureaucrats.

Julie Crowe believed that she had identified a need that existing taxi companies were not meeting. She was willing to invest her time and money to demonstrate the truth of her judgment. If she was correct, her business would thrive. If she was wrong, she would go out of business. But government officials declared her judgment irrelevant, and they used government force to prohibit her from demonstrating whether she was right or wrong.

Similarly, if the owner of a liquor store in Minnesota decides that opening on Sunday is a good idea, he should be free to do so. If other liquor store owners judge it better to close on Sunday, they too should be free to act as they deem best. Consumers will quickly let each know the wisdom of his decision. But Minnesota legislators have declared it illegal for liquor store owners to find out.

These restrictions, and many more like them, are the result of political pressure being applied by those who stood to gain. Rather than compete in a free market, some businessmen find it easier to make campaign donations or assemble a loud gang at City Hall. Why compete when you can simply make a lot of noise about the “public interest”? Why try to provide a better service than Julie Crowe when you can simply get a law passed that makes it illegal for her to compete with you?

It is easy to denounce the bailout of banks or the “green energy” cronies of the current administration. But integrity demands consistency. And consistency demands that those who oppose cronyism on the national level also oppose special government favors on the state and local level. We cannot and will not end cronyism on Wall Street while demanding it on Main Street.

Speaking to The Woodlands Tea Party

Share

On September 4, I will be speaking to The Woodlands Tea Party on “Individual Rights and the Tea Party.” The talk will be held at 1544 Sawdust Road, Ste. 402.

The event starts at 6:30 PM, and copies of my book will be available for purchase. I hope to see you there.

Two Wrongs and Rights

Share

In 1914, Henry Ford voluntarily raised the wages of his employees to the rate of five dollars per day—nearly doubling the prevailing wage. At the time, many thought that Ford was destined for financial ruin. But because he was free to act on his own judgment, Ford proved his critics wrong. His business flourished.

At one time, Ford had 60 percent of the market in automobiles. But he refused to innovate, declaring that customers could have a car in any color they wanted, as long as it was black. Chevrolet began offering consumers more color choices and substantially cut into Ford’s market share. Ford had to relent and began offering more color options. Even though Ford dominated the market, he could not prevent Chevrolet from acting on its judgment. Nor could he prevent consumers from acting on theirs.

When individuals and businesses are free to act according to their judgment, they will demonstrate the practical benefits of rational ideas. The self-interest of each individual will motivate him to reject irrational ideas and embrace rational ideas. Those who do not, ultimately suffer the consequences of their ideas.

However, a growing number of politicians reject this fact. They believe that irrational ideas can be simply outlawed. They believe that those who hold irrational ideas should be punished, not by the marketplace, but by government.

As an example, consider the response to comments made by Chick-Fil-A President Dan Cathy, who has expressed his disapproval of gay marriage. Boston Mayor Thomas Menino wrote a letter to Chick-Fil-A, which stated, “I urge you to back out of your plans to locate in Boston…. There is no place for discrimination on Boston’s Freedom Trail and no place for your company alongside it.” Menino later recanted his threat.

Similarly, Chicago alderman Joe Moreno has said, “There are consequences for freedom of speech (and) in this case the consequences are… you’re not going to have your first free-standing restaurant in Chicago.” In other words, you can say what you want, but if I don’t like it, I won’t let you do business in my city.

Chicago Mayor Rahm Emanuel expressed support for Moreno’s position, saying that building a Chick-Fil-A in Chicago “would be a bad investment, since it would be empty.” Emanuel may be correct, but why is that his concern? If opening a Chick-Fil-A in Chicago is a bad investment, Cathy will discover that fact.

To be clear, this isn’t about gay marriage. This is about the freedom of individuals to speak freely and operate their businesses as they choose. I do not agree with Cathy, and I express my opinion by shunning his restaurants. He has a right to his opinion, as do I, and we each have a right to express it as we choose, so long as we do not use force or fraud.

Emanuel and his ilk, however, seek to punish Cathy by using force—the coercive power of government. They seek to use arbitrary zoning laws to prohibit Cathy from operating his business, not because Cathy compels consumers to buy his products or misrepresents what he is selling. They seek to punish Cathy because his ideas do not mesh with theirs.

Interestingly, in this instance, both Cathy and the politicians hold irrational ideas. Cathy does not believe that gay individuals possess the same rights as heterosexual individuals. The fact is, all individuals—gay or straight—possess the same rights. But Cathy does not seek to use force to impose his views on others. Those who agree with him are free to patronize his business; those who disagree can shun his business.

In contrast, Emanuel and his brethren do seek to use force. They seek to make the construction of a Chick-Fil-A in their cities a crime. The alleged crime is the audacity to hold an idea that these politicians do not like.

Further, both Cathy and the politicians deny that individuals have the right to contract freely, and marriage is a contractual agreement. Cathy would deny this right to gays. The politicians would deny this right to Cathy, property owners, and consumers.

If Cathy’s views are as unpopular as the politicians claim, the market will pass judgment, just as it did when Henry Ford refused to paint his automobiles different colors. Ford did not need the mayors of major cities issuing threats. A free market was all that was required. And that is all that is required to stamp out any irrational idea.